Stock market’s extraordinary rally: a bubble or sustainable growth

KARACHI: During the outgoing week, the Pakistan Stock Exchange (PSX) posted extraordinary rally, breaking records several days in a row. While the growth was driven by solid local investor demand and sustainable institutional backing, the market entered a territory not yet familiar to the country’s capital markets.

The benchmark KSE-100 index increased by 4,743.88 points week-on-week, closing at an all-time high of 89,993.97 points on Friday. During the final trading session of the week, the index also managed to surpass the 90,000 points mark briefly before slipping a few points down.

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The bullish sentiment was equally applicable on the trading volumes which saw average daily volumes shooting up by more than 51 per cent to 669.93 million shares, from previous week’s 442.26 million shares.

However, even this extraordinary climb was unable to stop the continued trend of foreign investors offloading their investments in the PSX. During the outgoing week, foreign investors withdrew $16.355 million from the equity market.

The recent market performance can be attributed to the upheaval and then peaceful stability seen in the power corners of the country, starting with the controversial constitutional amendment and culminating in the appointment of the new chief justice of the country.

Purely in money terms as well, the bourse poured out hearty earnings further boosting investor confidence. Pakistan Bureau of Statistics (PBS) also reported a current account surplus, as well as $771 million rise in Foreign Direct Investment (FDI) for the first quarter of FY25.

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While all of this hints at recovering capital market and improving investor sentiment, the history of PSX indicates an equally increasing fear of profit-taking and ‘bubble bursting’. Analysts, however, are of the opinion that the recent growth comes on the back of solid foundations and perhaps that will mean sustainable strength for the market.