ISLAMABAD (PEN) : The Pakistan Stock Exchange (PSX) witnessed a remarkable rally on Monday, as investor sentiment soared following the announcement of a ceasefire between Pakistan and India. The KSE-100 index surged by a staggering 9,928 points, reaching an intra-day high of 117,104.11 points, marking the highest day-on-day increase in points for the index.
Ceasefire and IMF Loan Approval Drive Market Surge
This sharp rise was fueled by two key factors: the significant de-escalation in tensions between Pakistan and India, and the International Monetary Fund’s (IMF) approval of a crucial loan tranche. The market saw strong buying activity as the outlook on both geopolitical stability and economic conditions improved.
The ceasefire agreement, hailed as a major diplomatic achievement, was seen as a significant reduction in regional risk, with investors responding positively. In addition, the IMF’s approval of a \$1 billion loan disbursement under Pakistan’s Extended Fund Facility (EFF) and a \$1.4 billion Resilience and Sustainability Facility (RSF) gave the market further confidence, as it ensures immediate external financing support and validates Pakistan’s ongoing reform efforts.
Circuit Breaker Activated Amid Volatility
As the KSE-100 index surged past the 9,000-point mark, trading was temporarily halted for an hour under the PSX’s circuit breaker mechanism, designed to control excessive volatility. Once trading resumed, the index remained strong, bolstered by the positive news flow.
Market experts, including Arif Habib Limited, identified the ceasefire agreement as the primary catalyst for the market’s sharp rebound. The ceasefire, coupled with improved economic prospects, played a central role in lowering investor concerns that had been fueled by earlier tensions, including the Pahalgam attack, which had caused a significant market correction.
Stronger Trade Relations and US Support
The announcement also coincided with positive developments in Pakistan’s trade relations with the United States. Former U.S. President Donald Trump expressed his support for resolving the Kashmir issue and emphasized the potential for enhanced trade between India and Pakistan. This move was seen as a potential game-changer in the broader regional dynamics, particularly as Pakistan’s exports to the U.S. reached \$4 billion in fiscal year 2025, compared to imports of \$1.5 billion, resulting in a significant trade surplus.
IMF’s Dual Support and Monetary Easing
In addition to the ceasefire, the IMF’s dual support, combined with the State Bank of Pakistan’s recent decision to cut the policy rate by 100 basis points to 11%, has been instrumental in reshaping investor sentiment. The rate cut is expected to reduce inflationary pressures, leading to better equity valuations, particularly in cyclical and leveraged sectors.
The combined effect of the ceasefire, IMF support, monetary easing, and improved U.S.-Pakistan trade relations formed a powerful set of factors contributing to the market’s bullish rally. This comes after a period of uncertainty, following a significant market drop due to the Pahalgam attack and rising regional tensions. However, the KSE-100 index’s 3.5% rebound on May 9 suggested that investor sentiment was already shifting in a positive direction.
Looking Ahead
As the PSX continues to respond to these developments, the outlook for the market remains optimistic. The KSE-100 index’s recovery could indicate a stabilization of investor sentiment, with geopolitical risks easing and macroeconomic conditions improving. However, market experts are advising caution, noting that while the rally is impressive, the volatile nature of the region’s political and economic landscape requires ongoing attention.
The renewed confidence in Pakistan’s economic future, buoyed by the ceasefire and IMF support, presents a more stable environment for investors, though challenges remain in navigating the region’s complexities.
