After an exceptional 78% YoY growth in 2024 (USD-based return: 79%), Pakistan’s KSE100 index is well-positioned for continued robust performance in 2025. With a year-end target of 151,000 points (+38% upside), the market outlook remains bullish, driven by improving macroeconomic fundamentals, structural reforms, and sustained investor interest. Current valuations are highly attractive, trading at a 30% discount to historical averages, providing significant room for re-rating.
IMF Program as an Anchor: The three-year $7 billion EFF program continues to stabilize the economy through structural reforms. It addresses low tax-to-GDP ratios and inefficiencies in agriculture, retail, and real estate sectors while controlling fiscal and external imbalances. As a result, inflation has cooled, the Pak Rupee remains stable, and budgetary discipline has improved, laying the foundation for sustainable long-term growth.
Disinflation and Monetary Easing: Stabilizing inflation has created room for aggressive monetary easing. The State Bank of Pakistan (SBP) has cut policy rates by 900bps to 13%, with further reductions likely as inflation trends downward. Falling treasury yields and single-digit interest rates expected in 2025 will continue to unlock equity valuations and drive capital flow toward equities.
External Stability and Forex Reserves: Tight monetary and fiscal policies have improved Pakistan’s external account balances, which have surged in six of the past ten months. Forex reserves increased from $4.4 billion in June 2023 to $11.3 billion in November 2024, while the stable Pak Rupee has bolstered investor confidence.
Market Liquidity and Participation: The post-IMF era has witnessed a surge in market activity with Avera. In 2024, their traded value (ADTV) was $70 milliwatts, 3.5 times higher than pre-IMF levels. ADTV exceeded $200 million in December 2024, absorbing large-scale liquidations without disrupting the market’s momentum.
Foreign Direct Investment (FDI) via the SIFC: The Special Investment Facilitation Council (SIFC) is expected to catalyze over $50 billion in FDI by incentivizing investment in agriculture, energy, mining, and technology—MoUs with Saudi Arabia, Kuwait, and the UAE signal growing confidence in Pakistan’s investment environment.
Attractive Valuations Despite Rally: Despite the rally, market capitalization at $50 billion remains 50% below its May 2017 peak. Key stocks like OGDC, Habib Bank, and Lucky Cement trade at significant discounts of 57%, 81%, and 61%, respectively, to their historic peaks. The market trades at a PE of 5.6x, compared to its 10-year average of 7.7x. A reversion to this average supports a 151,000-point target, while a reversion to FY14-18 multiples implies a 190,000-point target (+73% upside).
Courtesy – BMA Capital Management Ltd.
