Moaaz Manzoor

Pakistan’s stock market is expected to remain stable in 2026 as strong domestic investor participation continues to support equity prices, with the benchmark index projected to reach 208,000 points by December next year.

After delivering exceptionally strong returns in recent years, the market is now entering a phase of more measured growth. During calendar year 2024, the benchmark index rose by 84%, followed by a further 49% year-to-date increase in calendar year 2025. As of December 23, 2025, the index stood at 171,074 points.

According to the Pakistan Investment Strategy 2026, prepared by Arif Habib Limited, local investor liquidity has become the primary driver of stock market performance. The report explains that sustained domestic participation has reduced reliance on foreign portfolio inflows and helped stabilize the market during periods of global uncertainty.

The valuation outlook remains supportive. The market is currently trading at a forward price-to-earnings ratio of 8.0 times for calendar year 2026, which is in line with its long-term average. Despite strong gains in recent years, the market continues to trade at a 52% discount to regional equity markets.

According to the document available with Wealth Pakistan, Arif Habib Limited said current valuations are also around 22% lower than levels recorded in 2010, when the market traded at higher multiples despite relatively stronger macroeconomic conditions at the time.

The total market value of listed companies stands at approximately 16.0% of gross domestic product. This remains below the 20-year average of 18.8%, indicating that the equity market has not yet fully reflected the underlying size of the economy.

Corporate earnings growth is expected to remain moderate in 2026. Earnings are projected to grow by 5.9% during the year, before accelerating to 11.4% in 2027. Despite modest earnings growth, equities continue to offer attractive returns compared to other asset classes.

Dividend yields remain a key attraction. The overall market dividend yield is estimated at 7.2%, while the benchmark index offers a dividend yield of 5.9%, providing a steady income stream for investors. Macroeconomic conditions are expected to support equity performance.

Inflation is projected to average 6.9% during fiscal year 2026, while the policy rate is expected to remain broadly stable, averaging 10.5% in FY26 and easing modestly to 10.0% in FY27. Arif Habib Limited notes that fresh capital formation will also support the market in 2026, with 10 to 12 initial public offerings expected across sectors, including energy, insurance, real estate investment trusts, technology, and manufacturing.

Credit: INP-WealthPk