September 01, 2025 (MLN): August 2025 will be remembered as the month when Pakistani capital markets defied all odds and delivered a masterclass performance that left investors celebrating.

The KSE-100 index embarked on an extraordinary journey, scaling an unprecedented high of 151,262 points during the month and closing the curtains on what can only be described as a blockbuster month.

The month concluded with the index settling at 148,618 points, delivering a spectacular monthly surge of 9,227 points, translating to an impressive 6.6% month-on-month gain.

On a YoY basis, the index has surged by 89% compared to the same period last year.

This remarkable fire came from institutional money pouring in like never before, with fund inflows creating a perfect storm alongside stellar corporate earnings during the ongoing results season and rating revolution.

Market cap

The KSE-100 market capitalization stood at Rs4.41 trillion, up by 5.92% from the previous month’s Rs4.16tr while compared to July 2024, the market cap has surged by 80.15%.

In USD terms, the market cap was recorded at $14.73bn, compared to $13.23bn in the prior month, reflecting a surge of 11.32%. When compared to the previous year, the market capitalization witnessed a notable jump of 80.15%.

The index return in USD terms stood at 7.03%, compared to last month’s return of 11.3%.

Top Index Movers

During the month, Commercial Banks, Cement, Oil & Gas exploration Companies and Power Generation added 3761.91, 2538.81, 939.03, and 476.22, points, respectively.

On the flip side, Fertilizer eroded 132 points from the index.

Among individual stocks, LUCK, HBL, OGDC and BAHL gained 1039.16, 760.02, 676.39, and 584.87points, respectively.

On the other hand, FFC and PKGP dented the index by -267.30, and -129.08 points, respectively.

FIPI/LIPI

Foreign investors remained as net sellers, offloading the equities worth $43.086m.

Among them, Foreign Corporations led this activity by selling securities worth $42.74m while Overseas Pakistanis bought securities worth $0.109m.

The local investors remained net buyers, purchasing equities worth $43.086m.

Among them, Mutual Funds and Individuals bought securities worth $54m and $20.35m, respectively.

However, Banks, and Other Organizations sold securities worth $47.66m and $10.27m, respectively.

Pakistan gets its due recognition

August witnessed a parade of credit rating upgrades that fundamentally shifted global perception of Pakistan, transforming it from a cautionary tale to an emerging success story.

Moody's made the most significant move by upgrading Pakistan's sovereign rating from Caa2 to Caa1, citing the country's improving external buffers, remarkable fiscal consolidation efforts, and substantial reform progress under the ongoing IMF program.

This upgrade was particularly meaningful as it came with a stable outlook, signaling sustained confidence in Pakistan's economic trajectory.

The banking sector received an equally impressive vote of confidence, as Moody's upgraded both local and foreign currency deposit ratings for the country's financial giants including Allied Bank Limited, Habib Bank Limited, MCB Bank, National Bank of Pakistan, and United Bank Limited.

Fitch joined this chorus of approval with similar upgrades, creating a trifecta of international recognition that opens doors previously thought closed.

Fiscal Performance

Perhaps the most impressive achievement of the fiscal year was Pakistan's ability to shrink its budget deficit to a nine-year low of 5.4% of GDP, from the 6.8% recorded in FY24.

 Accompanying this deficit reduction was the achievement of a primary surplus of 2.4% of GDP.

The Federal Board of Revenue collected over Rs11.7 trillion compared to Rs9.3tr in the previous fiscal year, representing a staggering 26% YoY increase.

Mixed signals paint realistic picture

While celebrating the victories, a realistic assessment of Pakistan's economy reveals areas that still require attention and improvement.

The Large Scale Manufacturing Index posted a marginal contraction of 0.74% during the fiscal year 2024-25.

The Quantum Index of Manufacturing (QIM), which measures industrial output, stood at 114.82 for the July-June period, compared to the same period last year.

The inflation landscape began showing signs of change in July, with the Consumer Price Index jumping to 4.1% YoY compared to 3.2% in June, primarily driven by soaring food prices.

Ministry of Finance expects August CPI to settle in the 4-5% YoY range as food inflation continues to exert upward pressure on the overall price level.

In response to these evolving dynamics, the State Bank of Pakistan's Monetary Policy Committee maintained the policy rate at 11% during both June and July meetings, having already delivered aggressive rate cuts totaling 1,100 basis points from June 2024 to May 2025.

Pakistan's external sector showed encouraging resilience with the current account deficit for July narrowing to $254m, representing a 37% YoY improvement from the $348m recorded in the same period last year.

Circular Debt

Progress continued on addressing one of Pakistan's most persistent challenges, circular debt in the power sector which declined to Rs1.6tr by June 2025.

This represents tangible progress in resolving this structural issue that has plagued the energy sector for years.

Strategic payments strengthen bilateral ties b/w China, Pakistan

Pakistan demonstrated remarkable diplomatic finesse by moving to settle over Rs100bn in outstanding payments to Chinese power generation companies just ahead of Prime Minister Shehbaz Sharif's strategic visit to China.

The government's decision to prioritize this payment completion by August 25th demonstrated the high value placed on strengthening China-Pakistan economic relations ahead of crucial diplomatic engagements.

Mining Sector Breakthrough

The Asian Development Bank's decision to extend a $410 million financing package for Pakistan's Reko Diq copper and gold mine represents far more than just funding.

This financing will support the development of one of the world's largest untapped mineral deposits, operated by Canadian mining giant Barrick Gold, with expectations of copper and gold production beginning in 2028.

Barrick Gold is simultaneously working to raise $3.5bn from international lenders, having assembled an impressive consortium including the World Bank's International Finance Corporation, the US Export-Import Bank, the US Development Finance Corporation, and multiple institutions from G7 countries including Germany, Canada, and Japan.

American dream within Reach for Pakistani companies

Pakistani steel manufacturers find themselves positioned to capitalize on a golden opportunity as global trade dynamics shift in their favor.

The convergence of US anti-dumping duties targeting $2.9 billion worth of steel imports from ten countries, combined with Pakistan's relatively favorable tariff treatment, has created an unprecedented window for market penetration.

Future Outlook

The State Bank of Pakistan's forward guidance paints a cautiously optimistic picture for the fiscal year ahead.

Inflation is projected to remain within a manageable 5-7% range during FY26, while economic activity is expected to gain further traction as the impact of earlier policy rate reductions continues to unfold throughout the economy.

Real GDP growth is assessed to range between 3.25-4.25%, indicating steady but sustainable expansion that avoids the boom-bust cycles that have historically plagued Pakistan's economy.

This projected growth trajectory is expected to drive increased import demand, leading to a moderate current account deficit of 0-1% of GDP in FY26.

However, planned official inflows combined with expected foreign investment pickup following recent sovereign credit rating upgrades should support the country's external position.

The State Bank's foreign exchange reserves are projected to continue their upward trajectory, reaching $15.5 billion by December 2025 and exceeding $17 billion by June 2026.

Despite these encouraging projections, fiscal challenges loom on the horizon that require careful navigation. The government has set ambitious targets for FY26, aiming for a fiscal deficit of 3.9% of GDP while maintaining a primary surplus of 2.4% of GDP.

However, deeper examination reveals concerning trends, particularly the government's growing dependence on non-tax revenue sources including State Bank profits and petroleum levies.

The SBP's record profit surrender of approximately Rs2.4tr in FY25, primarily driven by open market operations, represents a significant but potentially unsustainable revenue source.

Floods aftermath

Furthermore, recent flooding across the country poses significant challenges for supply chains, particularly in the agricultural sector, which could lead to sustained increases in food prices and broader inflationary pressures.

This flood-induced supply chain disruption threatens to accelerate food inflation beyond current projections, potentially forcing the State Bank to reconsider its monetary policy stance sooner than anticipated.

Global commodity price movements remain largely outside Pakistan's control, while climate-related fiscal impacts from the flooding could create unexpected budget pressures that test the government's hard-won fiscal discipline.

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