PSX standpoint stays desolate in front of intense IMF program
From 35,000 to 187,000: The Unbelievable 7‑Year Bull Run of the PSX (2019‑2026)
In May 2019, the Pakistan Stock Exchange stood at the edge of an abyss. The benchmark KSE‑100 index had just snapped a five‑day losing streak with a pitiful 25‑point gain, closing at a three‑year low of 35,631 points. The index had lost 17.6% since July 2018 and was down a staggering 33% from its all‑time high of around 53,000 points set in May 2017. Analysts were unequivocal: the outlook was "hopeless" and "negative‑to‑neutral." JS Research's Syed Atif Zafar warned that the index could lose a further "500‑3,000 points till the IMF and spending vulnerabilities are finished." Arif Habib Limited's Samiullah Tariq, slightly more optimistic, believed the index had "bottomed out" but would "move in a tight band of 200‑500."
Seven years later, every single one of those predictions has been spectacularly wrong. The KSE‑100 did not fall another 3,000 points. It did not trade in a tight band. Instead, after surviving a global pandemic, a near‑sovereign default, and the most brutal economic crisis in Pakistan's history, the index launched into one of the greatest bull runs in frontier market history. By early 2026, the KSE‑100 had surged past 187,000 points—more than five times its 2019 low—and analysts are now projecting targets of 200,000 to 263,800 by December 2026. This is the story of how the PSX defied every doomsday prediction.
📉 The 2019 Starting Point: Despair, IMF Fears, and a 33% Crash
The original 2019 article on this site captured a market in the grip of existential dread. The KSE‑100 had plummeted 33% from its 2017 peak, and investors were bracing for a "stringent IMF programme" that was expected to bring further interest rate hikes, rupee devaluation, and a raft of new taxes. Foreign investors, who had been net sellers for over three years, had only just begun "renewed purchasing for a little while," offering a faint glimmer of hope.[reference:0]
The political backdrop was equally turbulent. The PTI government had just reshuffled its economic team, with a new State Bank governor and FBR chairman appointed under IMF pressure. "Ongoing improvements propose the current descending pattern will proceed at the PSX," Zafar warned. He forecast that banking stocks might benefit from high interest rates, but bond, steel, and automobile sectors would lead the decline. The budget, scheduled for May 24, 2019, was expected to be "assessment substantial"—loaded with tax hikes that would further squeeze corporate earnings.[reference:1]
Yet even in this gloom, there were faint signs that the market had reached a turning point. Tariq argued that the index had "bottomed out," and foreign investors had turned net buyers to the tune of $4.5 million in a single day. Pakistan was expected to sign an IMF programme between May 10 and 15. The question was whether the medicine would kill the patient before the cure could take effect.[reference:2]
💡 Analyst Perspective: The 2019 Bottom Was the Springboard
In retrospect, May 2019 marked the precise bottom of the KSE‑100's multi‑year bear market. The index would never trade below 35,000 again. The extreme pessimism—the belief that further declines of up to 3,000 points were imminent—was the classic hallmark of a market capitulation. Those who bought in May 2019, when the outlook was "hopeless," would go on to capture one of the greatest bull markets in Pakistan's history.
🦠 The 2020 COVID Crash: A Brief but Brutal Interruption
Just as the market appeared to be stabilising, the COVID‑19 pandemic struck. In March 2020, the KSE‑100 suffered one of its most violent crashes in history, briefly falling below 28,000 points as global markets panicked and Pakistan's economy ground to a halt. The crash was severe but mercifully short‑lived. Massive fiscal stimulus, a sharp drop in global oil prices, and the State Bank's aggressive monetary easing—cutting the policy rate from 13.25% to 7%—sparked a rapid recovery. By the end of 2020, the KSE‑100 had not only recouped its losses but was trading above 43,000 points.
The pandemic period also saw a fundamental shift in market dynamics. Retail participation surged as lockdowns kept people at home and low interest rates made equities the only viable investment. Mutual fund assets allocated to equities doubled, and a new generation of Pakistani investors entered the market. This retail‑driven liquidity would become a defining feature of the bull market to come.
💥 The 2023 Near‑Default Crisis: Pakistan Stares Into the Abyss
If 2019 was a moment of despair, 2023 was an existential crisis. Pakistan came closer to sovereign default than at any point in its history. Inflation soared to a peak of 38%, the rupee collapsed, and foreign exchange reserves dwindled to barely three weeks of import cover. The IMF's Extended Fund Facility, agreed in 2019, had stalled, and rating agencies were downgrading Pakistan's sovereign status. A Dubai‑based bank was openly betting against Pakistan's currency swap.[reference:3][reference:4]
The KSE‑100, remarkably, held up better than the economy. While the index fell from its 2021 highs, it never retested the 2019 lows. Why? Because equities had become a hedge against currency devaluation and hyperinflation. Investors fled fixed income and real estate, pouring money into stocks as the only asset class that could preserve purchasing power. The market's resilience in the face of macroeconomic collapse was a preview of the explosive rally that would follow.
In July 2023, the IMF approved a $3 billion Stand‑By Arrangement (SBA) to relieve the immediate crisis. The programme unlocked bilateral financing from Saudi Arabia, the UAE, and China, and averted default. By mid‑2025, reserves had improved to about $14.5 billion, and inflation had dropped into the low teens. Stabilisation had worked—on paper.[reference:5][reference:6]
💰 The $7 Billion IMF Programme: From Stabilisation to Reform
In September 2024, the IMF approved a new $7 billion Extended Fund Facility (EFF) for Pakistan, replacing the short‑term SBA with a longer‑term reform programme. The 37‑month arrangement aimed to restore macroeconomic stability, rebuild policy credibility, and address the structural weaknesses that had led to repeated boom‑bust cycles.[reference:7]
By April 2026, the programme had been tightened further. The IMF added 11 new conditions, bringing the total number of structural and policy benchmarks to 75. The focus shifted to increasing the primary surplus to 2% of GDP, expanding the tax net to untaxed sectors—agriculture, exporters, IT, real estate, and retail—and ensuring that the 2026‑27 federal budget was approved in line with programme commitments.[reference:8][reference:9]
Despite the continued austerity, the market viewed the IMF programme as a necessary anchor. The reforms, however painful, were restoring confidence among foreign investors and multilateral lenders. In October 2025, Pakistan successfully raised $500 million through Panda Bonds in China, a milestone that signalled renewed access to international capital markets.[reference:10]
📈 The Historic 2025‑2026 Bull Run: 51% Returns and Counting
Then came the rally that no one saw coming. In 2025, the KSE‑100 index delivered a total return of 51.2%, making it the second‑best performing frontier market globally. The index surged from one all‑time high to another, repeatedly crossing psychological milestones that once seemed distant. Banking and cement stocks led the gains, driven by easing macroeconomic pressures, improved earnings visibility, and a wave of retail investor participation.[reference:11][reference:12]
The momentum carried into early 2026 with breathtaking force. In the first three weeks of January, the KSE‑100 rocketed nearly 14,000 points in a historic 19‑day rally, closing at 187,761 points. The index crossed 128,000 in July 2025, then 174,000 by year‑end, then 183,000, and finally 187,000 in January 2026. It was the most powerful bull market in PSX history.[reference:13][reference:14]
What drove this extraordinary surge? Several factors converged: falling inflation (down to 5.6% by December 2025), expectations of further monetary easing by the State Bank, a stable rupee, and strong corporate earnings growth. Equities now account for 14% of mutual fund assets, up from just 7% in 2024, with expectations to reach 18‑20% by year‑end 2026. Investor optimism is at an all‑time high: 93% of foreign investors expect positive returns in 2026, and 86% plan to maintain or increase their exposure to Pakistan.[reference:15][reference:16]
📋 The 2025‑26 Budget: A Market‑Friendly Surprise
One of the key catalysts for the bull run was the federal budget for fiscal year 2025‑26, presented in June 2025. In stark contrast to the "assessment substantial" budget feared in 2019, this budget was widely viewed as "neutral‑to‑positive" for the capital markets. The KSE‑100 jumped nearly 2,000 points on budget day, hitting an all‑time high of 124,000 points.[reference:19][reference:20]
Key budget highlights included a 10% increase in salaries, a 7% hike in pensions, and—crucially—no change to the tax rate on dividends and capital gains, which remained at 15%. The fiscal deficit was projected at 3.9% of GDP, the lowest since FY05. Topline Securities noted that the budget, if passed as proposed, could help re‑rate the market's price‑to‑earnings multiple from 5.2x to 7x.[reference:21][reference:22]
The total outlay of Rs 17.573 trillion targeted GDP growth of 4.2% for FY26, compared to 2.7% in the outgoing year. The Pakistan Stock Brokers Association described the fiscal plan as a "positive development for the stock market."[reference:23]
🔮 The 2026 IMF Outlook: Growth Downgraded, Inflation Rising
Even as the stock market surges, the IMF's latest World Economic Outlook, released in April 2026, offers a more sobering assessment. The Fund has cut Pakistan's growth forecast for fiscal year 2026‑27 to 3.5%, down from its earlier estimate of 4.1%. For the current fiscal year, the growth forecast remains unchanged at 3.6%.[reference:24]
Inflation expectations have been revised upward to 8.4% for FY27, up from 7.2% in the current year. The IMF's baseline outlook projects global economic expansion to slow to 3.1% in 2026 and 3.2% in 2027, with global headline inflation rising to 4.4% before easing to 3.7%.[reference:25][reference:26]
Pakistan's external financing requirements remain daunting: the country must meet gross external financing obligations of $19.398 billion in 2025‑26 and $19.123 billion in 2026‑27, including about $3.5 billion due to the UAE. The IMF's 75 reform benchmarks—covering taxation, energy sector reforms, and state‑owned enterprise restructuring—will be critical to maintaining the programme and securing continued multilateral support.[reference:27]
🏭 Sectoral Shifts: From Banks and Cements to Fertilizer and Energy
The 2019 article correctly identified that banking stocks might "figure out how to welcome reestablished purchasing keeping in view the high loan fee situation," while bond, steel, and automobile sectors would lead the decline. That prediction largely held true for the immediate aftermath, but the subsequent bull market saw a much broader rotation.[reference:29]
In 2025, banking and cement stocks led the gains, driven by easing interest rates and a construction boom. Fertilizer stocks surged in December 2025 after reporting 34% year‑on‑year sales growth, fuelled by expectations of further policy easing. Oil and gas exploration companies, which the 2019 article noted would benefit from rupee depreciation, have also performed strongly.[reference:30]
The real estate sector, meanwhile, has seen liquidity withdrawn as investors shifted capital into equities. The KSE‑100's valuation discount relative to regional peers—which persisted for years—created substantial upside potential once confidence returned. That re‑rating is now well underway.[reference:31]
📊 PSX & Pakistan Economy: 2019 vs. 2026
| Metric | 2019 (May, Pre‑IMF) | 2026 (Current) |
|---|---|---|
| KSE‑100 Index Level | 35,631 points (3‑year low) | ~150,000 points (post‑March 2026 correction) |
| All‑Time High | ~53,000 points (May 2017) | 187,761 points (January 2026) |
| Index Performance (Trailing) | ‑33% from 2017 peak | +51% in 2025; +300%+ over 3 years |
| IMF Programme | $6.5 billion EFF (2019‑2023) | $7 billion EFF (2024‑2027); 75 reform benchmarks |
| Inflation | Moderate (pre‑crisis) | 5.6% (Dec 2025); projected 8.4% for FY27 |
| GDP Growth | ~3‑4% (pre‑COVID) | 3.6% (FY26); 3.5% projected for FY27 |
| Foreign Investor Sentiment | Net sellers for 3+ years | 93% expect positive returns in 2026 |
| Market Outlook | "Hopeless"; further 500‑3,000 point decline expected | Targets of 206,000‑263,800 by December 2026 |
📋 The Bottom Line: Key Takeaways for 2026
📉 The 2019 Doomsday Predictions Were Wrong: Every analyst who forecast further declines of up to 3,000 points in May 2019 was wrong. The KSE‑100 bottomed at 35,631 points and never looked back, ultimately surging more than 500% to 187,761 points in January 2026.
💥 Pakistan Survived a Near‑Default in 2023: The 2023 balance‑of‑payments crisis brought Pakistan to the brink of sovereign default. A $3 billion IMF Stand‑By Arrangement averted catastrophe and laid the groundwork for recovery.
💰 The $7 Billion IMF EFF Is Anchoring Reform: The 37‑month Extended Fund Facility, with 75 structural benchmarks, is driving long‑overdue reforms in taxation, energy, and state‑owned enterprises. The programme is painful but necessary.
📈 The 2025‑2026 Bull Run Is Historic: The KSE‑100 delivered a 51% return in 2025 and surged to 187,761 points in early 2026. Retail participation, falling inflation, monetary easing, and improved corporate earnings have all contributed.
📋 The 2025‑26 Budget Was Market‑Friendly: In stark contrast to 2019 fears, the budget kept dividend and capital gains taxes unchanged at 15%, targeted a 3.9% fiscal deficit, and sparked a 2,000‑point rally on budget day.
⚠️ Geopolitical Risks Remain: The March 2026 sell‑off—the worst monthly performance in six years—demonstrated that Pakistan's market remains vulnerable to external shocks, particularly escalating Middle East tensions.
🔮 The 2026 Outlook Is Bullish but Cautious: Analysts project KSE‑100 targets of 206,000 to 263,800 by December 2026. But the IMF's downgraded growth forecast, rising inflation expectations, and $19 billion in external financing requirements are headwinds that cannot be ignored.
🔔 Enjoy evidence‑based financial market analysis? Subscribe for free weekly updates — no spam, just insight.