KARACHI: The Pakistan Stock Exchange (PSX) navigated through a volatile week, where a historic market rally driven by budget optimism and monetary easing hopes was swiftly overshadowed by rising geopolitical tensions in the Middle East, forcing investors to lock in profits and adopt a cautious stance. The trading week began on a promising note, with the market welcoming the unveiling of the Rs17.3 trillion federal budget for FY26. The government refrained from introducing any adverse fiscal measures for the capital markets, and in fact, Capital Gains Tax (CGT) provisions turned out better than expected. This encouraged mutual funds and institutional investors to divert funds towards equities. The benchmark KSE-100 Index surged by 2.2 percent in the first two sessions of the week, touching an all-time high of 124,353 points on Wednesday, a historic milestone for the domestic equity market. However, this bullish sentiment could not be sustained as geopolitical tensions escalated following Israel’s military strike on Iran. The heightened uncertainty prompted a market correction on Thursday and Friday, paring back some of the earlier gains. As a result, by the end of the week, the KSE-100 Index settled at 122,144 points, reflecting a modest 0.4 percent week-on-week gain, or 502 points. Despite the volatility, market participation remained strong, with average daily traded volumes (ADTO) surging by 41 percent week-on-week to 907 million shares, up from 660 million a week earlier. Market capitalization also recorded a marginal increase of 0.1 percent, or Rs19 billion, closing at Rs14.747 trillion compared to Rs14.728 trillion in the previous week. The BRIndex100 increased slightly, gaining just 3 points over the week to close at 13,037.26 points, with an average 681.487 million shares traded daily. Meanwhile, the BRIndex30 lost 301.52 points, ending at 37,726.29 points, with an average daily trading volume of 412.464 million shares. On the macroeconomic front, the government set ambitious targets in its FY26 Budget, aiming for revenues of Rs19.3 trillion (up 15 percent year-on-year), a fiscal deficit of 3.9 percent of GDP, and a primary surplus of 2.4 percent. Total tax revenue is projected at Rs14.1 trillion (a 19 percent increase), while the Public Sector Development Program (PSDP) allocation has been increased by 29 percent to Rs1 trillion. In a move to support the salaried class, the government announced a modest tax relief by reducing rates for the first three income slabs, while also proposing measures aimed at promoting construction activity to stimulate growth and employment. Further positive macroeconomic developments during the week supported sentiment. The government announced plans to raise US$2 billion through commercial bank financing, which would help bolster the State Bank of Pakistan’s (SBP) foreign exchange reserves to US$14 billion by June 2025. Meanwhile, workers’ remittances reached US$3.7 billion in May 2025, marking the second-highest monthly inflow on record, and bringing cumulative 11MFY25 remittances to approximately US$35 billion, a 29 percent increase year-on-year. In the currency market, the Pakistani rupee depreciated marginally against the US dollar, closing the week at Rs 282.96, reflecting a 0.28 percent decline. Analysts at AKD Securities noted that the movement was influenced by geopolitical uncertainties, fluctuations in global crude prices, and domestic demand for the greenback. Sector-wise, the auto industry remained a bright spot. Automobile sales for May 2025 increased by 19 percent year-on-year, reaching 16,941 units, driven by higher sales of passenger cars and light commercial vehicles. In the equity market, top-performing sectors included Woollen, Textile Spinning, Textile Weaving, Glass & Ceramics, and Modarabas, while Automobiles, Electrical Goods, and Allied Industries faced notable declines, shedding between 2.6 percent and 4.8 percent. Among individual stocks, Pakgen Power Limited (PKGP) was the top performer of the week, rising by 41.4 percent. It was followed by Bannu Woollen Mills Limited (BNWM), which gained 29.3 percent, while BankIslami Pakistan Limited (BIPL) rose by 21.8 percent. Ghani Glass Limited (GHGL) also performed well, increasing by 19.9 percent, along with a few other stocks that posted solid gains. On the losing side, Punjab Oil Mills Limited (POML) posted the largest decline, falling by 14.5 percent during the week. Other notable losers included Frieslandcampina Engro Pakistan Limited (FCEPL), K-Electric, CNERGY, and HUMNL, which also ended the week in negative territory. Foreign investors remained net sellers, offloading equities worth US$7.4 million during the week. However, domestic institutions, particularly banks and development financial institutions (DFIs), stepped in to absorb the selling pressure, recording a net buy position of US$8.0 million. Investor sentiment was further buoyed by expectations surrounding the Monetary Policy Committee (MPC) meeting scheduled for June 16, 2025, where a potential policy rate cut remains likely. Looking ahead, analysts at AKD Securities expect market sentiment to stay broadly positive, with much depending on the outcome of the upcoming MPC meeting and the evolving geopolitical situation. With the federal budget largely viewed as pro-business or neutral for the stock market and space available for an interest rate cut during CY25, the equity market is anticipated to resume its upward momentum. Analysts project that the KSE-100 Index could continue climbing, supported by strong earnings in the fertilizer, banking, and energy sectors, sustained foreign inflows, and improving macro fundamentals. However, Al Habib Capital Markets Pvt Ltd. warned that the KSE-100 Index, which has remained relatively stable in recent weeks, may face renewed volatility amid heightened regional tensions. Historically, such geopolitical shocks have triggered capital flight from emerging markets, often resulting in 5–10 percent corrections in index levels. Foreign portfolio investors, the report added, are likely to reduce exposure, particularly in energy-intensive sectors such as automobiles, cement, steel, and textiles. However, Exploration & Production (E&P) companies — including POL, OGDC, PPL, and MARI, could benefit from rising crude oil prices, as seen during previous oil price surges. Nonetheless, overall market sentiment is expected to remain cautious until there is greater clarity on the conflict’s scope and duration. Copyright Business Recorder, 2025