After two consecutive bearish months, the Pakistan Stock Exchange (PSX) saw its first positive month of 2025 in March. The rally was largely fueled by the signing of a Staff-Level Agreement (SLA) with the International Monetary Fund (IMF), which sparked investor optimism. The agreement promised substantial dollar inflows, which are critical for Pakistan’s external debt obligations and efforts to stabilize the country’s economy through continued reforms.
Rally Triggered by IMF Agreement
The announcement of the SLA with the IMF served as a major boost to the market. Investors welcomed the agreement, which is expected to unlock much-needed foreign exchange reserves, enhancing Pakistan’s ability to meet external debt obligations and implement economic reforms. This optimism was reflected in the market, with the KSE-100 index surging by more than 1,100 points after the deal was signed late on a Tuesday night.
Mixed Market Sentiments and Short Week
Despite the strong rally following the IMF deal, the market experienced some volatility. The short trading week ended in the red, breaking a six-week winning streak. The momentum from the IMF announcement was not enough to sustain positive sentiment, especially as investor confidence was shaken by subsequent developments.
Challenges to Investor Confidence
One key factor that undermined market confidence was the IMF’s decision to approve only a Re1 reduction in power tariffs, contrary to earlier discussions within the government for an Rs8 per unit cut. This modest tariff reduction fell short of investor expectations and led to a cautious market response in the final session of the week. The market ended flat before the long Eidul Fitr break, signaling a shift in sentiment after the initial enthusiasm.
March Performance Overview: A Mixed Bag
Despite the market’s volatility, March turned out to be a positive month overall. The KSE-100 index closed at 117,807, reflecting a gain of 4,555 points or 4.02% compared to the previous month. Throughout March, the index reached an intra-month high of 119,422 but also saw a low of 111,717. The month saw fluctuations, with some ups and downs, but ultimately marked a recovery from previous bearish trends.
Sector-Specific Pressures: Cement and Energy Concerns
As noted by Arif Habib Ltd (AHL), the KSE-100 index displayed mixed trends, particularly influenced by sector-specific factors. The cement sector faced challenges due to the proposed increase in royalties, which raised concerns among investors. Additionally, the IMF’s cautious stance on tariff cuts added further uncertainty, particularly for energy stocks that had been anticipated to benefit from more aggressive reforms.
Looking Ahead: Sustaining the Gains
Looking ahead, the PSX’s performance will largely depend on the government’s ability to execute its reform agenda, particularly in the energy sector. Progress on resolving the circular debt issue and managing energy tariffs will be crucial for maintaining investor confidence. While the IMF agreement provides a solid foundation for economic recovery, the pace of reforms and the government’s ability to manage external and internal challenges will determine whether the market can sustain its recent gains.
Conclusion: Cautious Optimism with Uncertainty
While March 2025 delivered a positive month for the PSX, the road ahead remains uncertain. Investors remain cautious, with a keen eye on the government’s ability to deliver on its promises and navigate ongoing economic challenges. The outlook for the stock exchange will be shaped by the successful implementation of key reforms and how effectively the country manages its external debt obligations and inflationary pressures. Although the market has shown resilience, the coming months will be critical in determining whether this positive momentum can be maintained.
