Record stock rally masks weak capital raising

Pakistan’s capital markets posted strong gains during the first nine months of FY2026, with the benchmark KSE-100 index surging 18.2% to 148,743 points by the end of March, according to the Pakistan Economic Survey 2025-26 unveiled by Finance Minister Muhammad Aurangzeb on Thursday.

Market capitalisation rose 8.5% to Rs16,534 billion, adding nearly Rs1.3 trillion in value as investors responded positively to improving macroeconomic indicators and easing economic uncertainty.

The Pakistan Stock Exchange (PSX) also mobilised Rs18.3 billion in fresh funds during the period, while six new companies joined the bourse, taking the total number of listed firms to 536. However, despite the stock market’s impressive rally, the relatively modest amount of capital raised suggests that equities continue to play a limited role in financing business expansion and productive investment.

The government’s National Savings Schemes attracted net investments of Rs226.69 billion during July-March FY2026, up from Rs171.3 billion a year earlier. While the increase points to strong household savings, rising investments in government-backed schemes indicate that many investors remain cautious and prefer guaranteed returns over riskier private-sector opportunities.

Corporate registrations continued to grow, with 31,986 companies incorporated during the period with a combined capitalisation of Rs67 billion. Most new firms emerged in the information technology, trading and services sectors. Yet the relatively low capitalisation compared with the large number of registrations suggests that the majority of these businesses are small enterprises whose contribution to large-scale investment and employment generation remains uncertain.

Meanwhile, trading activity at the Pakistan Mercantile Exchange (PMEX) expanded sharply. More than 11.8 million commodity contracts were traded during the period, compared with 5.8 million a year earlier. The value of traded contracts climbed 41% to Rs9,238 billion. While the figures reflect growing participation in commodity and futures markets, increased trading volumes alone do not necessarily signal stronger economic fundamentals, as financial market activity can often outpace growth in the real economy.

The latest figures paint a picture of strengthening financial markets, but they also highlight a persistent challenge for policymakers: translating gains in stock prices, trading volumes and savings mobilisation into higher levels of industrial investment, productivity and job creation. Without stronger growth in the productive sectors of the economy, market gains may prove difficult to sustain over the longer term.

Analyst reactions

“Despite record volumes, only Rs16 billion of funds were raised through IPOs due to lack of incentives for companies to get listed and the disadvantage of tax on inter-company dividends after dilution of stake in its subsidiary,” AKD Securities Director Research Mohammed Awais Ashraf told The Express Tribune.

Investor response was encouraging as these companies received bids of more than Rs110 billion – seven times more than the asked price. The market continued its positive momentum this fiscal year due to improving macroeconomics, with the KSE-100 delivering a positive return of 18.4% from July to March with record volumes of 1,206 million shares on an average daily traded basis, up from 834 million last year, he said. This was despite the market losing some momentum from the beginning of February due to border tensions with Afghanistan and escalation of geopolitical tension in the region.

Meanwhile, PSX also allowed the government to raise Sukuks worth more than Rs5 trillion since December 2023, which were utilised to fund the government’s budget deficit. However, there are some structural issues creating hurdles for companies to be listed on the exchange.

According to Arif Habib Limited (AHL) economist Sana Tawfik, Pakistan’s capital markets recorded gains during July-March FY2026, broadly underpinned by an improving macroeconomic environment and successful reviews under the International Monetary Fund’s (IMF) Extended Fund Facility. Market capitalisation stood at Rs16,534 billion ($59.23 billion) as of end-March 2026, reflecting an 8.5% increase since end-June 2025. However, sustaining the market’s momentum will depend on continued fiscal consolidation, while global oil price movements and regional developments remain key risks to investor sentiment.

KTrade Securities’ Ahmed Sheraz commented that the surge in the KSE-100 reflects a valuation re-rating rather than a meaningful influx of fresh capital. Large-cap index heavyweights have driven the rally, supported by improved macroeconomic stability under the IMF programme and a declining interest rate environment. However, market breadth remains limited, with participation concentrated in a handful of stocks. Underlying capital formation remains weak. Mutual fund growth continues to be skewed towards fixed-income and money market products rather than equities, while IPO activity remained subdued. This suggests that investor confidence has improved, but fresh risk capital has yet to meaningfully enter the market.

JS Global Head of Equity Research Muhammad Waqas Ghani observed that the Economic Survey acknowledges that market momentum weakened from February 2026 onward as uncertainty stemming from tensions with Afghanistan, broader regional geopolitical developments, higher global oil prices, foreign selling, domestic profit-taking and the seasonal Ramadan slowdown weighed on investor sentiment. However, the underlying earnings outlook remains intact. As geopolitical uncertainties subside and investor confidence returns, the market is well-positioned to regain momentum and resume its upward trajectory. Besides, PSX also allowed the government to raise Sukuks worth more than Rs5 trillion since December 2023, which were utilised to fund the government’s budget deficit, he said.