Karachi: The Karachi Stock Exchange experienced a notable recovery this week, with the KSE100 Index climbing 4,034 points, or 2.5%, to close at 166,409 points. The upward trend was driven by renewed diplomatic efforts to address the Middle East conflict and unexpectedly robust corporate earnings reported during the ongoing results season. The average daily trading volume surged by 121% to reach 1,095 million shares.
According to AKD Securities Limited, diplomatic initiatives were spearheaded by Pakistan, proposing dialogue in Tehran between the Makkah Pact states and Iran. This was complemented by reports of renewed U.S. engagement with Iran ahead of the U.S. midterm elections. Meanwhile, supply concerns, exacerbated by Houthi attacks on Saudi Arabia and tanker incidents near the Strait of Hormuz, kept Brent crude prices elevated, registering a 0.7% increase to $117.1 per barrel by Friday.
On the macroeconomic front, the State Bank of Pakistan raised the policy rate by 50 basis points to 12.0%, marking its first hike since April. It also revised its remittances forecast for FY27 to $45 billion and adjusted its foreign exchange reserves forecast to $23 billion for December 2026 and $25 billion for June 2027. The latest T-bill auction raised PKR 1.8 trillion against a target of PKR 1.7 trillion, with cut-off yields increasing by 25 to 61 basis points across tenors.
In terms of inflation, the weekly Sensitive Price Indicator declined by 0.35% week-over-week, yet rose 11.32% year-over-year. The Finance Division projected October 2026 inflation to range between 9.5% and 10.5% year-over-year, compared to 10.3% in the previous month. Additionally, the State Bank's net foreign exchange interventions amounted to $863 million in July 2026, up from $189 million in the same period last year. Domestically, high-speed diesel prices increased by PKR 8.9 per liter to PKR 401 per liter, while motor spirit prices remained largely unchanged at PKR 378 per liter. Furthermore, the State Bank's foreign exchange reserves grew by $33 million week-over-week to $21.5 billion as of October 23rd, with an import cover of three months.
Looking ahead, AKD Securities Limited anticipates further market improvement, supported by strengthening economic indicators. Positive developments in the Middle East could potentially moderate international oil prices, creating conditions for monetary easing. The market remains attractively valued, with a forward price-to-earnings ratio of 6.0x. AKD's top stock picks include OGDC, PPL, UBL, MEBL, HBL, FFC, ENGROH, PSO, LUCK, FCCL, INDU, ILP, and SYS.