Karachi: The Pakistan Stock Exchange (PSX) experienced a notable increase in January 2026, with the KSE-100 index climbing 5.8% month-over-month, despite geopolitical tensions between the United States and Iran. The index reached a peak of 189,000 points before closing at 184,000, marking a substantial monthly return. Trading volumes surged, achieving the highest monthly average daily turnover since June 2008.
According to JS Global, the rally was driven by fresh inflows, with mutual funds, corporates, and retailers contributing a net inflow of $194 million, effectively offsetting the outflow from foreign investors, banks, and insurance companies. Banks benefited from the State Bank of Pakistan's decision to maintain the policy rate and lower the Cash Reserve Ratio (CRR) by 100 basis points to 5%. Conversely, Fauji Fertilizer Company (FFC) saw a 13% correction due to weaker-than-expected earnings and dividend announcements.
In the bond market, T-bill yields initially fell to single digits on anticipated rate cuts but reversed after the central bank maintained the policy rate at 10.5% during its Monetary Policy Committee meeting. The decision was attributed to persistent core inflation, a substantial trade deficit, and stronger domestic growth. Banking stocks remained attractive due to stable rates and enhanced income-generating asset availability following the CRR reduction.
A significant legal ruling by the Federal Constitutional Court upheld the 10% super tax imposed on 15 sectors since fiscal year 2022, potentially boosting revenue collection by over Rs300 billion in fiscal year 2026. While most listed companies have provisioned for the super tax, a one-time cash impact is anticipated, varying based on prior payments and tax asset adjustments.
The month concluded with government relief measures for exporters, including a 300 basis point reduction in the Export Financing Scheme rate to 4.5% and a Rs4.04/unit cut in industrial power tariffs. These measures aim to alleviate pressure on the textile sector, which has been impacted by currency appreciation, local cotton shortages, rising energy costs, and decreased exports following U.S. tariffs in August 2025.
Market forecasts remain cautiously optimistic, with projections of the KSE-100 index reaching 225,000 points by year-end. Preferred investment picks include companies such as OGDC, PPL, PSO, UBL, FFC, AGP, MLCF, ILP, and SYS. Investors are advised to remain vigilant about geopolitical developments, commodity prices, the upcoming IMF review, the MSCI quarterly review, and forthcoming earnings announcements.