The KSE100 declined c.2.3% MoM in July, beginning FY27

IMS Research has released a report on the PSX’s performance in July 2026. The KSE100 declined c.2.3% MoM in July, beginning FY27 on a weaker footing as renewed escalation in Middle East tensions, for the majority of the month, pushed oil prices sharply higher (+c.6.8% MoM). Trading activity remained broadly stable at c.1.1bn shares/day, while average daily traded value declined c.4.9% MoM to US$175mn. Flows were mixed, with Funds (c.US$30.3mn) and Companies (c.US$13.9mn) emerging as the largest net sellers, while Individuals (c.US$23.7mn) and Foreign Corporates (c.US$23.7mn) provided support.

Looking ahead, external developments, oil prices, incoming macroeconomic data and the ongoing earnings season are likely to remain the principal drivers of market direction

Watch geopolitical developments and policy reforms.

Geopolitical risks remain elevated

Geopolitical tensions between the US and Iran dominated market sentiment throughout July, pushing Arab Light crude briefly above US$100/bbl and renewing concerns around inflation, the external account and Pakistan’s macroeconomic outlook. While diplomatic engagement resumed towards month-end, negotiations remain at an early stage, suggesting energy markets are likely to remain volatile in the near term.

Reflecting these developments, the SBP maintained the policy rate at 11.5% for a second consecutive meeting. While the central bank acknowledged improving macroeconomic fundamentals, it reiterated that elevated oil prices and geopolitical uncertainty remain the principal upside risks to inflation and the external account. External developments are therefore likely to remain the dominant driver of market sentiment in the near term.

Policy reforms gain momentum

Despite elevated external uncertainty, domestic reform momentum continued to build. Proposed amendments to the Brownfield Refinery Policy address several implementation bottlenecks while preserving the economics of the original framework, materially improving the likelihood of refinery modernization projects moving ahead. Meanwhile, approval of the new Auto Policy is also expected over the coming month, reinforcing the government’s broader reform agenda.

The risk-reward remains favorable

Despite the volatile start to FY27, we remain constructive on Pakistani equities, with the KSE100 trading at c.7.3x forward P/E, below its long-term average of c.8.1x and well below the c.9.3x peak reached earlier this year. While higher oil prices have clouded the near-term macro-outlook, we continue to view the medium-term backdrop positively, supported by improving macro fundamentals and ongoing reform momentum.

Corporate earnings expectations remain broadly intact, while healthy dividend yields continue to provide an attractive cushion against near-term volatility.

We continue to favor a balanced mix of quality compounders, dividend yield plays, and companies leveraged to the recovery in domestic activity. Our preferred names remain BAFL, BAHL, OGDC, MARI, POL, MLCF, DGKC, KOHC, FFC and SYS.