Islamabad: The Karachi Stock Exchange's benchmark index, KSE-100, surged past an unprecedented 165,000 points in September 2025, marking a monumental 11.4% increase month-over-month. This extraordinary leap has propelled the year's nine-month gains to a remarkable 44% from the December 2024 closing, the highest recorded since 2009. The Banks, Cement, and Fertilizer sectors played a pivotal role, contributing approximately 70% to the index's impressive 50,000-point rally. Additionally, trading volumes soared to levels not seen since January 2017, with a 41% increase in shares traded and a 5% rise in value, amounting to US$195 million.
The market's historic performance can be attributed to Pakistan's repositioning on the global political stage, bolstered by improved relations with the USA and KSA, robust corporate results, and progress on the circular debt issue. Despite foreign investors being net sellers since September 2024, with total net outflows of US$470 million, local investors have effectively absorbed these outflows.
In parallel, an International Monetary Fund (IMF) delegation has commenced its second economic review. Pakistan anticipates the release of US$1 billion as the third tranche of the Extended Fund Facility (EFF) and US$220 million from the Resilience and Sustainability Facility (RSF). The IMF review focuses on key areas such as tax collection versus targets, fiscal implications of recent floods, and reforms aimed at eradicating circular debt.
The State Bank of Pakistan (SBP), concerned about potential inflation and economic growth risks due to the floods, maintained the policy rate at 11% during its latest Monetary Policy Committee meeting. Despite these challenges, the Ministry of Finance predicts inflation will stay below 5% in September 2025 and around 6% for FY26. However, media reports suggest a potential downward revision of Pakistan's FY26 GDP growth estimate to 3.9% from the previous forecast of 4.2%.
In a significant move, the Government of Pakistan finalized a Rs1.2 trillion agreement with 18 banks to address the power sector's circular debt, currently at Rs1.6 trillion. This cash flow-backed structure involves redirecting the existing Rs3.23/unit debt service surcharge from electricity bills towards loan repayment, carrying a markup rate of KIBOR minus 90 basis points, with a six-year term.
The KSE-100 has achieved its year-end target of 160,000, prompting a re-rating of the index from 6x in December 2024 to 8.7x currently. With a 44% gain year-to-date, analysts anticipate further upside potential driven by an earnings turnaround expected in the coming year, as domestic demand recovers across key sectors. Top stock picks include OGDC, PSO, FFC, CHCC, KOHC, AGP, GLAXO, SYS, ILP, and BFAGRO.