Pakistan Stock Exchange Soars to Record Highs

The Pakistan Stock Exchange (PSX) experienced a historic surge on Thursday, as the KSE-100 Shares Index skyrocketed to an all-time high of 76,208.16 points. This remarkable increase of 3,410.73 points, or 4.69%, marks the highest-ever single-day gain, fueled by investor optimism following the announcement of the federal budget 2024-25.

Investors reacted positively to the decision to maintain the Capital Gains Tax (CGT) status quo in the new budget. Adnan Sheikh, Assistant Vice President of Pak Kuwait Investment Co, noted that the market had been bracing for a potential increase in CGT, leading to reduced exposure. “The market was expecting an increase in capital gains tax and so investors had reduced exposure significantly,” Sheikh told Reuters.

The recent cut of 150 basis points in the central bank’s policy rate, coupled with the budget’s alignment with market expectations, further fueled the rally.

“Equities are the best option for the medium term,” Sheikh added, highlighting the market’s optimistic outlook.

The budget announcement ignited buying interest across various sectors, including automobile assemblers, cement, commercial banks, engineering, oil and gas marketing companies (OMCs), and refineries. This widespread enthusiasm followed Finance Minister Senator Muhammad Aurangzeb’s unveiling of the federal budget, which targets a tax revenue boost to Rs13 trillion for the upcoming fiscal year—a nearly 40% increase from the current year.

The budget aims for a modest 3.6% growth, balancing the need to satisfy the International Monetary Fund (IMF) while addressing fiscal challenges through heightened taxation. The government seeks a new IMF bailout deal, estimated between $6 billion to $8 billion, to avoid default in an economy growing at the region’s slowest pace.

Topline Securities expressed confidence in the budget’s potential to serve as prior action for a new IMF programme. If the budget passes in compliance with IMF measures, Topline predicts a historic forward price-to-earnings ratio of 6.93 in three years, up from the current 3.4.

Pakistan’s international sovereign bonds also saw a rally, with longer-dated maturities experiencing significant gains. The 2036 bond, for example, added 1.4 cents—its biggest gain in over two months—trading at just over 77 cents to the dollar, according to Tradeweb data.

Finance Minister Muhammad Aurangzeb defended the decision to boost tax revenue, highlighting the unsustainable nature of the current tax-to-GDP ratio, which is just under 10%. The government aims to increase this ratio gradually to 13% over the next three years, aligning with key objectives for the upcoming fiscal year.

The PSX’s record-breaking performance underscores the positive investor sentiment following the federal budget announcement. With strategic measures aimed at boosting economic growth and securing IMF support, the market’s unprecedented surge reflects a renewed optimism in Pakistan’s financial outlook.