KSE-100 to reach 168k by FY26

July 8, 2025 (MLN): Pakistan’s equity market is gearing up for another powerful run as the benchmark KSE-100 Index projected to soar to 168,000 points by the end of FY26, representing a healthy 27.4% upside from its level of 131,949 (closing as of July 4, 2025).

This forecast was published in a comprehensive strategy report by Arif Habib Limited (AHL), one of the country’s leading brokerage and investment banking firms.

Domestic liquidity remains the powerhouse

According to AHL, the domestic investor base continues to be the backbone of Pakistan’s equity market.

In FY25, domestic liquidity accounted for an overwhelming 93% of total market volumes, with significant contributions from:

• Mutual Funds: $233 million net inflows
  
• Companies:$94 million
  
• Individuals: $68 million
  
• Non-Banking Financial Companies (NBFCs): $2.2 million

Conversely, some key institutional categories registered net outflows during the year. Banks pulled out $55m, brokers reduced positions by $17m, and insurance companies trimmed exposure by $21m.

A standout observation by AHL was the growing activity of State Life Insurance Corporation (SLIC), which has deployed an additional Rs64 billion since December 2023, significantly bolstering its market portfolio and playing a critical role in supporting index returns.

Structural ownership shifts since 2017

The report underlined how market ownership has transformed in recent years. As of FY25:

• Individuals, companies, NBFCs, and brokers collectively hold 74% of market share, a substantial jump from 43% in FY17.
  
• Mutual funds, meanwhile, have slipped to 9.2% from 12% in 2017, though banks’ exposure has slightly edged up to 8% from 7.7%.

Small shifts could unlock major flows

The report further underlined the latent potential of local capital. AHL estimated that even a modest 1% shift from fixed income to equities by institutional investors could channel significant liquidity into the stock market:

• Mutual funds: Rs34.7bn
  
• Insurance companies (excluding SLIC): Rs3.5bn
  
• SLIC alone: Rs11.2bn

Pakistan still a frontier market gem

Pakistan’s equity market is also punching well above its weight on global metrics.

The KSE-100 is the second most liquid market in the MSCI Frontier Markets (FM) universe, with an average daily traded value of $102m in FY25.

Valuations remain deeply compelling:

• Price-to-Earnings (P/E): 6.8x, well below the regional average of 11.9x
  
• Price-to-Book (P/B): 1.1x, compared to the regional average of 1.5x

This attractive pricing sets a solid stage for potential foreign re-engagement. While FY25 saw net foreign outflows of $304m, a stark reversal from net inflows of $141m in FY24 due to U.S. tariffs, high global interest rates, and profit-taking, AHL expects the tide to turn.

The brokerage projects $150–200m of foreign inflows in FY26, driven by recovering macro stability, a stable PKR outlook, and compelling valuations.

Upcoming triggers on the horizon

Several domestic and global events could shape sentiment in the coming months:

July 2025: Rs2bn Saudi debt rollover, clearance of Rs1.2tr power circular debt, IMF repayment, T-Bill and PIB auctions.

August: Razgir well production starts, Abu Dhabi Block 5 exploratory well results, multiple EV launches, MSCI quarterly review.

September: IMF’s second EFF review, USD 500 million international bond maturity, FFC anticipated to become Shariah-compliant.

October: IMF board approval of third tranche, completion of OGDC and Zorlu energy projects.

November-December: Another Saudi rollover of Rs3bn, OPEC+ production hikes, and multiple fertilizer and power projects slated to come online.

Outperformance hard to ignore

Pakistan’s equity story is drawing fresh global attention after the KSE-100 delivered a USD-based return of 57% in FY25, topping all markets in the Asia-Pacific region.

Such performance will make Pakistan increasingly difficult to overlook for international portfolio managers who allocate to frontier and emerging markets.

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