What is the reason for the sudden 11% decline in the Pakistan Stock Exchange after a record rise?

Is the 11 percent decline in the Pakistan Stock Exchange’s 100 Index over a short period merely a market “correction,” or is it a sign of an impending market crash? This is the question currently circulating in the minds of many investors.

Just a month ago, the Pakistan Stock Exchange’s 100 Index reached its highest-ever level at around 190,000 points, and over the past year investors in Pakistan’s stock market earned returns of up to 50 percent.

The bull market that began in July 2023 on the PSX has broken several historical records. At that time, the market was hovering around 50,000 points, and in less than three years it grew 4.7 times. During this period, thousands of new investors entered the stock market.

Now, after the 100 Index has recorded an 11 percent decline from its peak within just a few days, some analysts are pointing to the situation in the Middle East, while others are reminding new investors that “the market does not only go up.”

Which sectors were affected by the 11 percent decline?

In terms of market capitalization, all major companies in the 100 Index have been affected by the recent decline, including Fauji Fertilizer, UBL, Engro Holdings, Meezan Bank, Hubco, HBL, OGDCL, Lucky Cement, MCB, and Mari Energies.

The fact that companies from fertilizer, cement, oil and gas, IT, and nearly all other sectors have seen a drop in value indicates that this is not a problem limited to one sector. For example, the market-cap leader Fauji Fertilizer has seen a 15 percent decline in its value over the past 30 days.

In its February 23 market summary, Topline Securities analyzed that major index companies such as Fauji Fertilizer, Lucky Cement, Engro Holdings, National Bank, and Habib Bank experienced the largest declines in value.

Securities firm Arif Habib Limited stated in its February 23 market analysis that the KSE-100 Index may remain around the 170,000 level during the current week, but downward pressure is likely to persist as March approaches.

Referring to Pakistan’s air operations against Afghanistan, it said that “regional tensions have impacted the index, and this may continue into next week.”

Will the selling trend continue in the Pakistan Stock Exchange?

Some analysts say that besides the regional situation, the decline is also due to listed companies reporting lower-than-expected growth and profits. For example, weaker profits in the oil and gas sector have negatively affected the market.

Stock market analyst Shehryar Butt said that the main reason behind the bearish trend is tension between Iran and the United States, which has kept market sentiment negative in recent days.

He said that “this tension has been ongoing for quite some time, which has reduced investor confidence,” and that “foreign investors are exiting.”

He added that on Friday alone, foreign investors sold shares worth more than 190 million dollars in the local market.

However, Topline Securities head Muhammad Sohail believes that “this is a market correction,” meaning that after an excessive rise, the market is moving closer to its true financial valuations.

Muhammad Sohail said that in June 2023 the index was at 40,000 points. At that time, Pakistan secured a loan from the IMF. After that, the market experienced a historic rally and grew nearly 4.7 times.

“During this period, the index went through corrections of more than 10 percent three times in December 2023, May 2025, and now. In the first two instances, as long as economic and political stability was maintained, the market recovered.”

According to him, “this time as well, no major economic shock has emerged. The increase in selling appears largely due to above-average foreign investor outflows, concerns related to Reko Diq, relatively weak corporate results, and stock futures activity.”

But how long will this decline continue?

Analyst Shehryar Butt believes that “as long as tensions between the United States and Iran persist, the market will remain under pressure.”

He said that besides geopolitical conditions, the financial results announced by listed companies were not very strong, which also contributed to the market’s decline. In addition, the Pakistan-Afghanistan conflict has also weighed on the stock market.

According to the analyst, investors are waiting for some development that would revive market interest.

Meanwhile, analyst Ahsan Mehanti said there is also a risk that interest rates could rise again in the country. He noted that the situation in the recent auction of one-year bonds by the State Bank suggests the possibility of higher interest rates.

He said that inflation has increased due to Ramadan, which could affect the inflation outlook, and the central bank may raise interest rates, which would negatively impact the market.

Economic affairs analyst Najam Ali believes that “after 30 months of a strong bull run, many investors, especially new ones, forgot that the market does not always go up.

It can also go down, and sometimes very sharply. That is why a long-term strategy is extremely important. As long as the economy is not collapsing, every correction should be seen as an opportunity, not a reason to panic.”