Pakistan stocks deliver 335% three-year return on reform momentum

LAHORE: Pakistan's benchmark stock market has delivered cumulative returns of 335% in local currency and 347% in US dollar terms over the past three fiscal years, capping one of Asia's strongest equity rallies as economic reforms and macroeconomic stabilization revived investor confidence.

The benchmark KSE-100 Index closed fiscal year 2025-26 at a record 180,302 points, up 44% in rupee terms and 46% in dollar terms from the previous fiscal year after climbing from 125,627 at the end of FY25.

The latest gains extend an extraordinary three-year rally that government officials and market participants attribute to easing inflation, lower interest rates, fiscal discipline, stronger corporate earnings and reforms implemented under Pakistan's IMF-backed stabilization program.

Adviser to the Finance Minister Khurram Schehzad said the stock market's performance reflected broader improvements in the country's economic fundamentals.

"The stock market is both a reflection of and a catalyst for economic confidence," Schehzad told Pakistan TV Digital.

"Sustained market returns typically signal improving macroeconomic fundamentals, stronger corporate earnings, investor confidence and expectations of future growth. Deeper capital markets also facilitate investment, job creation and long-term economic development."

Schehzad said the market's sustained rally over the past three years stemmed from the restoration of macroeconomic stability through fiscal reforms and policy continuity.

"The market's strong performance, especially over the past three years, reflects the restoration of macroeconomic stability through prudent fiscal management, structural reforms, moderating inflation, lower interest rates, stronger external buffers and a consistent commitment to policy continuity," he said.

"These measures have improved investor confidence, corporate profitability and Pakistan's overall economic and investment outlook."

In a separate post on X, Schehzad described FY26 as another milestone for Pakistan's capital markets, saying the benchmark had delivered a third consecutive year of strong positive returns while ranking among the region's top-performing equity markets in US dollar terms.

Investor participation also expanded rapidly during the fiscal year. 

Total investor accounts rose 49% year-on-year to 583,000, while nearly 40% of new investors belonged to Gen Z, bringing Pakistan's total public market investor base to more than 1.4 million.

Corporate earnings remained supportive, with listed companies reporting a 22% year-on-year increase in profitability during the January-March quarter of FY26. Cumulative profits for the first nine months of the fiscal year increased 9%.

Pakistan's capital markets also continued to deepen. The number of listed companies with market capitalizations exceeding $1 billion rose to 17 from just three in FY22, while the Pakistan Stock Exchange hosted 13 initial public offerings during FY26—the highest annual number of new listings in two decades.

According to brokerage house Topline Securities, the KSE-100 has generated cumulative returns of 335% in rupee terms and 347% in dollar terms since FY23, largely reflecting Pakistan's macroeconomic stabilization under the IMF-supported reform program.

The brokerage said FY26 unfolded in two distinct phases. The benchmark advanced 39% during the first half of the fiscal year as moderating inflation and improving economic indicators outweighed the economic impact of the July-August 2025 floods.

The second half proved more volatile. The index climbed to an all-time high of 189,167 points in January before falling nearly 29% to 146,480 in March amid geopolitical uncertainty and shifting investor sentiment. It later recovered to finish the fiscal year at a record closing high, supported by bargain hunting and renewed confidence in Pakistan's economic outlook.

Waqas Ghani, chief financial officer and head of research at JS Global Capital, said improving macroeconomic conditions should continue supporting equities into FY27.

"Structural reforms, easing inflation and declining interest rates should continue to support equities," Ghani told Pakistan TV Digital.

Despite the market's three-year rally, Pakistani equities remain among the world's least expensive by valuation metrics, trading at substantial discounts to regional peers including India, Malaysia, Vietnam, China and Thailand, he said.

"As a forward-looking asset class, stock prices generally reflect expectations of future corporate earnings and economic activity rather than current conditions," Ghani said. 

"The sustained rise in Pakistani equities therefore signals growing investor confidence that corporate profitability and the broader economy will continue to strengthen in the coming years."