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The Pakistan Stock Exchange (PSX) experienced a robust surge on Wednesday, with the benchmark KSE-100 Index soaring more than 2,100 points intraday. This sharp upward movement came in the immediate aftermath of the government unveiling its federal budget for the fiscal year 2025–26, which many analysts and brokers have welcomed as market-friendly and pro-investment.
The budget’s focus on maintaining favorable tax treatment for equities, coupled with signals of fiscal discipline in line with International Monetary Fund (IMF) expectations, has significantly boosted investor sentiment, prompting a strong reallocation of capital into equities.
KSE-100 Index Surges on Budget Optimism
On Wednesday, the KSE-100 Index surged to an intraday high of 124,135.96, representing a gain of 2,111.52 points, or 1.73%. Even the session’s low — 123,237.99 — reflected a notable increase of 1,213.55 points or 0.9% from the previous day’s close. The rally marks one of the most substantial single-day gains in recent months, driven by both institutional and retail buying.
This sharp rise followed a more modest uptick on Tuesday, where the index rose 383.44 points (0.32%) to close at 122,024.44, setting the stage for Wednesday’s rally.
Pro-Equity Tax Measures Boost Market Sentiment
One of the most widely lauded aspects of the budget was the government’s decision to keep the Capital Gains Tax (CGT) on equities unchanged at 15%. In contrast, taxes on interest income from fixed-income securities such as bank deposits and government papers have been increased.
This divergence is expected to drive investors away from fixed-income instruments and into equities, as returns from the latter now enjoy more favorable tax treatment. The tax differential is seen as a key trigger behind the surge in stock prices.
“Lower taxes on equity versus fixed income is a major trigger for PSX. This is just the beginning — the index could climb towards 150,000 in a year,” said AAH Soomro, an independent investment and economic analyst, suggesting that the market could experience a significant re-rating if macroeconomic and policy stability continues.
Fiscal Discipline and IMF Alignment Reassure Investors
Beyond tax policy, the government’s broader fiscal framework for FY2025–26 also contributed to the positive sentiment. The budget targets total revenues of Rs19.3 trillion and total expenditures of Rs25.8 trillion, resulting in a federal fiscal deficit of Rs6.5 trillion, or 5.0% of GDP.
The overall national deficit is projected at Rs5 trillion (3.9% of GDP), with the expectation that provincial governments will generate a surplus of Rs1.5 trillion — up from the Rs1 trillion target in FY2024–25.
Pakistan Allocates Rs2,550 Billion for Defence in Budget 2025-26
These targets reflect a commitment to fiscal consolidation, a key requirement under ongoing negotiations with the IMF for a new long-term loan program. By aligning with IMF guidelines, the budget signals a continuation of economic stabilization policies, which are crucial for maintaining investor confidence and attracting foreign portfolio investment.
Market Re-Rating Expected Amid Policy Continuity
Market experts are optimistic that the continuation of pro-investment policies could lead to a revaluation of the Pakistani equity market. Topline Securities noted that if the budget is passed without major amendments, it could lead to a re-rating of the PSX’s average Price-to-Earnings (P/E) ratio from 5.2x to 7x, which would significantly enhance the appeal of local equities for both domestic and international investors.
“A higher P/E ratio signals investor confidence in earnings growth and stability,” analysts from Topline explained. “Given the strong earnings momentum in key sectors such as banking, energy, and cement, we see room for further market gains.”
Outlook: A Bullish Year Ahead for Equities?
With the budget setting the tone for fiscal prudence and investor-friendly taxation, analysts suggest that the KSE-100 Index could be on track to challenge the 150,000 mark over the next 12 months. Key drivers for this growth would include political stability, a successful IMF program, and a stable rupee.
However, risks remain. Any significant political instability, slippage in fiscal targets, or adverse global developments could derail this momentum. Additionally, inflationary pressures and rising interest rates globally remain external risks to monitor.
