PSX: January 2026 Sees Record Highs & Late-Month Sell-Off | Pakistan Stock Market Update

Pakistan’s stock market experienced a month of contrasts in January 2026, initially reaching record highs before a late-month sell-off tempered gains. The KSE-100 index ultimately closed the month with a net increase, but the final week saw significant downward pressure as investors reacted to economic data and global uncertainties.

Initial Gains and Market Momentum

According to Topline Securities Ltd, the KSE-100 index gained 10,120 points, a 5.8 percent increase, throughout January. This early momentum was largely attributed to typical equity allocations made at the beginning of the calendar year.

Did You Know? Workers’ remittances to Pakistan rose to $3.6 billion in January, a 17 percent increase compared to the same period last year.

Shifting Sentiment and Economic Factors

The positive trend began to falter towards the end of the month following a decision by the State Bank of Pakistan (SBP) to maintain its policy rate at 10.5 percent. This decision surprised the market, which had anticipated a reduction of 50-75 basis points.

Macroeconomic indicators presented a mixed picture. Consumer price inflation eased to 5.61 percent in December 2025, a decrease from 6.15 percent the previous month. However, the current account registered a deficit of $244 million in December, a shift from the revised surplus of $98 million in November. Foreign direct investment also experienced a net outflow of $135 million.

Geopolitical and Rating Considerations

Escalating geopolitical tensions contributed to the week’s downturn. Fitch Ratings affirmed Pakistan’s long-term foreign-currency issuer default rating at ‘B-’ with a ‘RR4’ recovery rating. Prime Minister Shehbaz Sharif announced a 300 basis point cut in the Export Refinance Scheme rate, lowering it to 4.5 percent in an effort to support exporters.

Expert Insight: The market’s reaction to the SBP’s decision to hold rates highlights the sensitivity of investor sentiment to monetary policy expectations. A pause in rate cuts, even amidst easing inflation, can trigger profit-taking and a reassessment of risk.

Trading Activity and Sector Performance

Market participation increased during January, with average daily traded volumes rising 25 percent to 1.08 billion shares and average daily traded value increasing 45 percent to Rs108 billion. However, the KSE-100 index closed the final week at 184,174 points, a 2.6 percent decrease week-on-week.

Analysts at Arif Habib Ltd (AHL) attributed the decline to geopolitical tensions, weaker-than-expected results from Fauji Fertiliser Company, the SBP’s rate decision, and typical rollover-week pressures.

The SBP projected GDP growth of 3.75-4.75 percent for FY26, a current account deficit of 0-1 percent of GDP, and inflation stabilizing between 5-7 percent over FY26-FY27. The central bank also reduced banks’ cash reserve requirements to ease liquidity.

Positive developments included growth in the banking sector, with deposits increasing 23.6 percent year-on-year to Rs37.4 trillion and investments rising 30.1 percent to Rs37.9 trillion. Gas production reached its highest level since January 2025, and oil output was at its strongest since August 2024. Power sector circular debt also decreased to Rs1.7 trillion.

Looking Ahead

AHL anticipates a potential rebound in the coming week, supported by upcoming inflation data, forecast at around 5.8 percent year-on-year, and ongoing corporate results. The KSE-100 is currently trading at a price-to-earnings ratio of 9.3 times, with a dividend yield of approximately 5.3 percent.

AKD Securities Ltd shares a cautiously optimistic outlook, noting improved sentiment towards the end of the week as geopolitical tensions eased and banking sector indicators remained strong. The brokerage expects the benchmark index to trend higher, potentially reaching 263,800 points by year-end, based on improving macroeconomic conditions and political stability.

Frequently Asked Questions

What was the overall performance of the KSE-100 index in January 2026?

The KSE-100 index gained 10,120 points, or 5.8 percent, during January, but shed 4,993 points, or 2.6 percent, in the final week of the month.

What factors contributed to the decline in the final week of January?

The decline was attributed to escalating geopolitical tensions, disappointing results from Fauji Fertiliser Company, the SBP’s decision to hold its policy rate, and rollover-week pressures.

What is the current outlook for the Pakistan stock market?

Analysts at AHL and AKD Securities Ltd express cautious optimism, anticipating a potential rebound supported by upcoming economic data and ongoing corporate results, with AKD Securities projecting a year-end target of 263,800 points.

Given the interplay of economic indicators, geopolitical factors, and market sentiment, how might evolving global conditions influence the long-term trajectory of the Pakistan Stock Exchange?