Investor confidence soared on Tuesday as Pakistan’s equity market extended its blistering rally, lifted by a combination of renewed calm following the Pakistan-India ceasefire, a substantial funding boost from the International Monetary Fund (IMF), and anticipated income tax relief in the upcoming federal budget.

The Pakistan Stock Exchange’s (PSX) benchmark KSE-100 Index settled at 118,575.88 points, up 1,278.15 points, or 1.09%, from the previous close of 117,297.73.

During the session, the index surged to an intraday high of 120,067.12 points, gaining 2,769.39 points, or 2.36%, before dipping to a low of 116,859.93 points, down 437.80 points, or -0.37%.

The 100 Index had previously hit a high of 120,796 on April 4.

“Early trade is showing the continuation of an eye-watering rally yesterday, the mutual funds were aggressively active on the business yesterday, and that trend is expected to continue today. The positive events, such as the IMF approval and a rate cut, had not been factored in due to ongoing tension with India, which are slowly being incorporated," said Ahfaz Mustafa, CEO of Ismail Iqbal Securities.

“Another positive will be the fact that reportedly the Pakistani budget is made at Rs290 a dollar, as reported by the newspaper, which indicates tame inflation going forward.”

Finance Minister Mohammad Aurangzeb, in an interview with Reuters, downplayed the fiscal impact of the military escalation, saying it could be absorbed without a revised economic assessment.

He confirmed that Pakistan would receive a $1 billion tranche from the IMF on Tuesday, part of its ongoing $7 billion Extended Fund Facility (EFF). The IMF Executive Board also approved an additional $1.4 billion under the Resilience and Sustainability Facility (RSF) to support climate-related initiatives.

Looking ahead, Aurangzeb said budget talks with the IMF will be held from May 14 to 23, and the 2025–26 federal budget would be finalised within three to four weeks.

The government has proposed a reduction in the income tax burden of up to Rs50 billion for the salaried class, with efforts underway to offset the gap through other tax measures. In the first ten months of FY25, salaried taxpayers contributed over Rs450 billion, significantly more than the combined collections from retailers and exporters.

Adding to the market’s bullish sentiment, April inflation fell to a record low of 0.3% year-on-year, while the State Bank of Pakistan cut its policy rate by 100 basis points to 11%, marking a shift toward pro-growth monetary policy.

These developments, alongside diplomatic calm and fresh external financing, have fuelled investor optimism.

On Monday, the KSE-100 Index posted its largest single-day gain in history, surging by 10,123.09 points, or 9.45%, after Pakistan and India agreed to a surprise ceasefire.

The breakthrough, facilitated in part by the United States, helped defuse weeks of escalating tension and triggered aggressive buying across major sectors.