The Pakistan Stock Market (PSX), fuelled by economic stability and budgetary consolidation, is expected to reach 127,000 by December 2025, representing a 37% return with a 10% dividend yield.
Based on their analysis, Topline Securities predicts that strengthening macro indicators and decreasing bond yields would lead to a re-rating in PE. This will cause more liquidity to flow into equities, which in turn will assist the present low PE to reach its historic forward PE of 7x during the current IMF program.
It also predicts that by December 2025, the market’s forward PE for 2026 will have increased from 4.6x to 5.75x. The following factors might significantly impact the market in 2025:
- After the IMF examination and approval of the FY26 budget were finalized according to IMF procedures,
- An improvement in Pakistan’s credit rating has allowed the country to issue Eurobonds and Sukuks.
- Relations between Pakistan and the new US government, as well as the successful privatization of any SOEs that are losing money, like PIAA and DISCOs, and the completion of the Reko Diq deal.
In response to declining returns on fixed-income instruments, mutual funds have maintained a net buying position in the equities market, investing $138 million over the past two months. The shift from fixed income to stocks is expected to persist, given the yields on 1-year Sukuk and T-bills are currently 10.99% and 13.1%, respectively, which is nearly half of the levels observed a year ago.
On the economic front, external signs are slowly getting better due to slowing growth in imports and strong growth in the money that foreign workers send back to their home countries. Because of this, FX liquid reserves are expected to go over US$ 13 billion by June 2025, which is about 2.8 to 3 times the amount of monthly imports.
After going up 23.4% in FY24, inflation is expected to stay around 7–8 percent on average in FY25. Food prices going down and fuel costs going down are both causing inflation to drop sharply. As a result, the research says that the policy rate will drop from 15% now to 11–12% in December 2025. It reached a high point of 22% in June 2024.
The GDP is expected to grow slowly, between 2.5% and 3.0% in FY25. This is because agriculture is only expected to grow by 1%. Agriculture growth may remain muted as a result of an estimated 8% fall in major crops due to the dismal prognosis for wheat and cotton. In FY25, the services segment is expected to grow by 4.1%, and the manufacturing segment is expected to grow by 2.3%.
Top Industries
Declining interest rates, easing inflation, and a stable currency will benefit consumers with both discretionary and staple spending, while pharmaceutical stocks will see increases in both volume and profit margins.
Furthermore, due to improved recovery ratios in E&Ps following the gas price increases, we expect E&P valuations to eventually return to their mean of 7-8x from the current level of 4-5x (mostly OGDC and PPL). Also, companies that are selling at a bigger discount or valuation gap to their SoTP value should get closer to their historical multiples or valuations.
According to the theme above, the report suggests that c, PPL, MEBL, FFC, LUCK, HBL, SYS, PSO, SAZEW, AIRLINK, and NML come from our world. While picking Alpha stocks, the study chooses COLG, PKGS, SEARL, AGP, MUREB, and AICL.
