Pakistan Stock Market to See 27-37% Growth by 2025

Pakistan’s stock market is gearing up for impressive growth in the next couple of years. Research houses have projected that the Pakistan Stock Exchange (PSX) will offer returns between 27% and 37% by December 2025. The benchmark KSE-100 index could hit a record high, rising to 120,000–127,000 points.

This bullish outlook comes on the back of improving macroeconomic conditions under the IMF loan programme. Arif Habib Limited, in its “Pakistan Strategy 2025” report, states that the declining interest rates, a stable rupee, and improving economic indicators are key factors setting the stage for a market rerating.

Key Drivers for Stock Market Growth

Several factors are contributing to the expected growth in the PSX:

1. Foreign Investment: Pakistan is increasingly attracting foreign investment, especially in its debt and equity markets. This is fueling investor confidence and driving liquidity.
2. IMF-backed Economic Reforms: Successful IMF reviews and fiscal reforms, such as the FY26 budget, will serve as major drivers for market growth. An upgrade in credit ratings will also open the door for new financing options, including Eurobonds and Sukuk.
3. Privatization Plans: The privatization of state-owned enterprises (SOEs) like PIA and power distribution companies is expected to improve market sentiment and economic health. The Reko Diq deal also plays a significant role in bolstering market confidence.
4. Performance of the PSX: The PSX has already shown strong performance, with the KSE-100 index delivering a return of almost 52% in 2024. It surged from 62,451 points in December 2023 to 94,764 points. Despite this, the index is still undervalued, presenting a great opportunity for investors.

Valuation and Market Outlook

The KSE-100 index is currently trading at a price-to-earnings (PE) ratio of 5.3, a 36.1% discount compared to its 10-year average of 8.3. This suggests there is substantial room for growth. The market capitalization-to-GDP ratio is also at a 34.3% discount, further indicating potential upside.

According to Arif Habib Limited, Pakistan’s GDP is expected to grow by 2.4% in FY25. They predict that inflation will stabilize at 7.5% and that the policy rate will decrease to 12% by June 2025. This environment is expected to support continued market growth.

Sector-wise Growth

Different sectors in Pakistan’s economy will contribute to the stock market’s positive performance:

• Commercial Banks: Banks will focus on volumetric growth, but interest rate cuts may impact their earnings.
• Oil and Gas Exploration: This sector is set to maintain stable earnings due to higher payouts and circular debt resolution.
• Fertilizer Sector: With stable urea prices and higher margins, the fertilizer sector’s earnings are expected to grow by 11.4%.
• Cement Sector: Thanks to a better power mix and low coal prices, the cement sector is projected to see a 32.1% growth in earnings.
• Oil and Gas Marketing: Earnings are expected to rise by 39.1% as inventory losses reduce and margins improve.
• Textile Sector: The global recovery in demand will support the textile sector, though higher taxes may limit profitability.
• Technology Sector: A 39.3% growth in earnings is expected in technology, driven by innovation, digital solutions, and sustainable growth.
• Auto Sector: Economic recovery and lower interest rates will drive auto demand, with electric vehicles becoming more prominent.

Conclusion

With improving macroeconomic indicators, foreign investment inflows, and sectoral growth, Pakistan’s stock market is poised for strong returns. The KSE-100 index could potentially rise to 120,000–127,000 points by the end of 2025, providing investors with an opportunity to earn returns between 27% and 37%.

These factors, alongside economic reforms, fiscal stability, and a favorable investment climate, position Pakistan as an attractive market for local and foreign investors. As the country continues its economic transformation, the PSX is expected to deliver strong, sustained growth, making it an essential part of Pakistan’s financial future.