Pakistan steals a march over D-St

The current bull market may have lulled Dalal Street into a self-congratulatory smugness, but an even stronger equity rally is underway in India's neighbourhood. And that too in the unlikeliest of places.

The Karachi Stock Index-100 (KSE 100), Pakistan’s benchmark stock market index, has surged to lifetime highs of 70,500, fuelled by optimism about economic recovery and political stability.

The intensity of the rally has seen the KSE 100 outperform the Sensex across various timeframes—year-to-date, oneyear, and three-year periods, and that too by a significant margin.

In fact, in 2023, Pakistan ranked among the top performing global indices, with gains exceeding 50%.

How has a country long viewed as the poster child of dysfunction managed to produce such an impressive bull run? Experts attribute this to the potent market driver: the hope for a brighter future.

The International Monetary Fund (IMF) provided a $3 billion bailout to Islamabad in July, helping Pakistan stave off a default on debt repayments.

This turbocharged investor sentiment, catapulting the KSE 100. In November 2023, the index breached its previous record high hit in May 2017.

The IMF approval came just a day after Saudi Arabia deposited $2 billion with Pakistan’s central bank. China and the United Arab Emirates (UAE), too, have helped the cash-strapped country.

The last $1.1 billion tranche from IMF was released in March.

That said, Pakistan’s $350-billion economy remains in dire straits.

Its foreign debt exceeds $130 billion, while its forex reserves are $8 billion— just enough for two months of imports.

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THE International Monetary Fund provided a $3 bn bailout to Islamabad in July 2023

THIS turbocharged investor sentiment, catapulting the KSE 100

$33 billion. To put it in perspective, India’s Reliance Industries Ltd (RIL), has a market valuation of $230 billion.

The Pakistani capital market also suffers from qualitative issues.

“High net-worth individuals, institutions and entities connected to the government and army control a major chunk of the market free float. These people, especially the last group, have inside information not available to common investors, and they often benefit from this aspect,” Kahloon said.

While Pakistan has robust mutual fund offerings, the average investor still favours real estate as a safer investment choice, he said.

The sector that dominates Pakistani stock market is commercial banks.

Oil and gas, cement, auto, and textiles are other major industries.

Analysts have set target levels around 85,000 for KSE 100, suggesting that the consensus is optimistic about the continued strength of the rally. However, whether Pakistan’s economy and political system can sustain this momentum remains uncertain.

Although inflation has declined, it remains high at 23%. Over the past two years, the Pakistani rupee has depreciated by over 50% against the dollar, exacerbating the country’s macro woes.

In this context, the IMF’s bailout could be seen as merely rearranging deck chairs on the Titanic.

However, the recent formation of a coalition government led by Shehbaz Sharif, following two years of political turbulence after the dismissal of Imran Khan’s regime, has fostered hopes of political stability.

These factors have sparked a relief rally, but can they fully explain the market’s enthusiasm?

“The first thing to understand is that Pakistan’s stock market is very shallow. There are just 250,000 to 300,000 active accounts in the market, compared to our population of around 23 crore. This means even small events can have disproportionate impact on market movement,” Khizar Kahloon, a Dubai-based Pakistani investor, told

Mint over a telephone call. Pakistan’s market capitalization is