No straight path for markets

Consolidation after rapid advance does not invalidate investment case PSX bullish Pakistan stock market's extraordinary rally from around 40,000 to beyond 180,000 in 2.5 years from June 2023 to January 2026 reflected improving fundamentals (from low 3.5x price-to-earnings (P/E), liquidity (rate cut from 22% to 11.5%), sentiment and diplomatic goodwill. Much good news arrived – and was priced in remarkably quickly. After roughly eight frustrating months, investors are questioning equities and eyeing property or fixed income. With the index closing October 1 near 168,637, disappointment is understandable. But consolidation after an exceptional advance does not invalidate the investment case. In my August 25, 2025 Tribune column, "KSE-100 races to 150,000 – too fast, too soon?", I highlighted the rapid re-rating from 6x to 8x earnings. On February 23, 2026, I wrote: "The KSE-100's long-term average P/E of 8x to 9x has been reached relatively quickly." The implication remains relevant: earnings must eventually catch up with expectations. The government deserves credit for navigating a prolonged regional war. September's $3 billion Eurobond, sovereign-rating upgrades and fiscal consolidation demonstrate resilience. SBP still projects the FY27 current-account deficit within 0-1% of GDP. UAE deposits were repaid, although Saudi support helped finance the outflow. These are meaningful achievements, although borrowed reserves must ultimately give way to export earnings and investment. Successful IMF reviews would unlock $1.2 billion later this year, subject to board approval. I would support another two or three years of reform continuity under an IMF framework, if necessary. Pakistan needs durable institutions and export competitiveness; fresh dollars, bilateral deposits and prospective swap facilities cannot substitute for them. The export package offers a tangible bridge towards growth. Budget measures reduced collection on export proceeds from 2% to 1.25%, with super-tax exemption for qualifying exporters. Working-capital financing at 8.5% and long-term financing at 2% for two years, followed by 5% for eight, can support investment. Rebates apply to incremental exports: 1% where annual growth is up to 10% and 2% where it exceeds 10%. Redirecting fiscal space from remittance incentives towards productive capacity is sensible; the discontinued incentives reportedly cost around Rs76 billion last year. Policymakers should also review Naya Pakistan Certificate yields against global alternatives, balancing overseas investors' expectations with sovereign borrowing costs. Domestic demand has support too. Around Rs60 billion has been disbursed under the prime minister's Apna Ghar programme, with a substantially larger approved pipeline. Progress towards privatising Fesco, Gepco and Iesco could become a stronger catalyst than another financing announcement, provided ownership changes deliver investment, lower losses and better service. Energy remains the principal threat. Refined-product prices, freight and insurance can magnify the crude-oil shock. Disrupted LNG supplies through Hormuz and reliance on expensive replacement fuels threaten electricity costs, industrial margins and household purchasing power. Sustained oil prices below $100 would improve the outlook. A sudden 4-5% rupee depreciation or rate increase exceeding one percentage point could postpone recovery by several quarters; these are stress scenarios, not mechanical thresholds. Companies are adapting. Nishat Mills and DG Khan Cement recently announced solar-and-battery projects, while Lucky Cement is expanding renewables. Textile firms such as Nishat Mills, Indus Dyeing, Kohinoor Textile, Gul Ahmed, Premium Textile, Saif Textile, etc are installing large-scale solar, wind and battery projects. Such investments can improve resilience and margins. But industrial migration away from the grid leaves remaining consumers carrying more fixed costs. Competitive incremental energy pricing and removal of industrial cross-subsidies must accompany DISCO reform. Recovery also requires discrimination. SBP reports improving activity after a weak June quarter. September results, largely available by end-October, should help distinguish sustainable volume growth, operating-margin improvement and cash generation from tax relief or exceptional gains. Investors should identify businesses capable of compounding earnings over the next two to three years. Market participation offers another encouraging signal. PSX had 656,218 investors in September, roughly 0.25% of Pakistan's population. India's NSE reported 127 million unique investors in January, approximately 9% of its population. Although reporting dates and coverage differ, Pakistan's participation gap is enormous. Digital onboarding and simpler KYC can broaden ownership; lasting stability requires regular saving, rather than leveraged retail speculation. Recent IPOs and the listing pipeline broaden the opportunity set across electronics, dairy, poultry, tyre exports, property, oil marketing, pharmaceuticals and credit information. Successful offerings demonstrate demand, but subscriptions are no substitute for valuation discipline. New businesses must prove cash generation, governance and returns on reinvestment. For young savers, equities also overcome practical property barriers: large deposits, title verification, transaction costs, maintenance and slow exits. Diversified shares or equity funds permit smaller, regular investments and partial withdrawals. Accumulate quality on weakness with a five- or ten-year horizon, reinvest distributions and avoid leverage. Owning businesses means participating in production, employment and capital allocation – not merely betting on the next price tick. Expectations must normalise. A 15-20% nominal annualised return is a reasonable long-term ambition under favourable conditions, not an annual entitlement. Entry valuations, inflation, taxes and costs matter. At 15%, capital roughly doubles in five years and quadruples in ten; eight disappointing months do not destroy that arithmetic. If war risks recede and earnings strengthen, my conditional December 2027 scenario is 225,000-250,000. A valuation near 9x forward earnings would require commensurate earnings growth and dividend yields; the multiple alone cannot establish an index target. To highlight, KSE-100 companies earned Rs2,000 billion profits in fiscal year 2026 and that is real money not speculative crypto coins. A sustained 10-12x P/E rating would demand much stronger foundations: export- and investment-led growth above 5%, better ties with eastern and western neighbours, political accommodation, widening tax-to-GDP ratio, improved security in Balochistan and Khyber-Pakhtunkhwa and goodwill converted into FDI. A high index level does not automatically mean expensive businesses. The opportunity is to buy improving businesses at sensible prices while uncertainty persists. Buybacks such as of Engro Holdings support that assessment, but cannot replace it. Pakistan's next durable rally must be earned through productivity, exports and reform. Young investors who save consistently stand to benefit more. The writer is an independent economic analyst.