PSX Outlook: Balancing Geopolitical Risks Against Emerging Economic Strengths

The KSE-100 index closed Friday at 177,167 points, declining 2,938 points or 1.63% week-on-week, amid persistent uncertainty surrounding the US-Iran geopolitical tensions and domestic political developments.

Market direction on the Pakistan Stock Exchange (PSX) is expected to remain sensitive to geopolitical developments in the coming period, with the ongoing earnings season anticipated to support overall market performance, as noted in a weekly market review by Arif Habib Limited (AHL).

This outlook follows a week during which the benchmark index settled at 177,167 points, down 1.63% week-on-week (a decline of 2,938 points), amid ongoing uncertainty regarding the US-Iran geopolitical situation and domestic political factors.

On the macroeconomic front, Pakistan’s current account deficit narrowed sharply to $328 million in July 2026, representing a 38% year-on-year decline from $529 million in July 2025 and a 59.7% month-on-month decrease from $814 million in June 2026.

Large-scale manufacturing (LSM) output declined 3.5% year-on-year in June 2026, following a 6.1% month-on-month decrease; however, full-year FY26 LSM output still recorded a 5.0% year-on-year increase.

Net foreign direct investment (FDI) inflows surged to $179 million in July 2026, marking a 265% month-on-month increase from $49 million in June.

Technology exports grew 18% year-on-year to $417 million in July, representing 45% of total services exports.

Auto financing increased 35.2% year-on-year to Rs386 billion in July, up from Rs286 billion in the prior year, and rose 1.2% month-on-month.

Power generation increased 7% year-on-year to 15,122 GWh in July, marking the second-highest July output on record, supported by record-high hydropower, local coal, and imported coal-based generation.

On the energy supply side, oil production decreased 0.5% week-on-week to 67.8kbopd, primarily due to lower flows from Nashpa, while gas production increased 1.9% week-on-week to 2,995mmcfd, driven by the revival of Uch gas output.

In the debt market, the government raised Rs517.9 billion in a T-Bill auction, surpassing its Rs500 billion target, with cut-off yields increasing across all tenors and the majority of the amount — Rs349.5 billion — allocated to the 3-month tenor.

The Pakistani rupee appreciated slightly against the US dollar, strengthening 0.03% week-on-week to close at Rs277.56 per USD.

By sector, the largest negative contributors to the index were banks (-1,773 points), fertiliser (-449 points), cement (-410 points), investment banks (-243 points) and power (-236 points). Positive contributors included E&Ps (+372 points), OMCs (+222 points), refinery (+151 points), leather and tanneries (+86 points) and engineering (+29 points).

At the stock level, the largest negative contributions to the index came from UBL (-705 points), HBL (-365 points), FFC (-363 points), HUBC (-211 points) and ENGROH (-208 points), while the top positive contributors were PPL (+234 points), PSO (+204 points), OGDC (+161 points), ATRL (+116 points) and SRVI (+86 points).

Average trading volumes amounted to 845.71 million shares, declining 0.9% week-on-week, while average value traded increased 7.6% week-on-week to $148 million.

The KSE-100 Index is currently trading at a price-to-earnings ratio of 8.1, with a dividend yield of 6.3%.

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