Karachi, April 24, 2025 — The Pakistan Stock Exchange (PSX) witnessed one of its sharpest single-day declines this year, with the KSE 100 Index nosediving over 2,500 points on Thursday. This dramatic sell-off came on the heels of rapidly escalating tensions between India and Pakistan following the deadly April 22 terror attack in Pahalgam, Jammu and Kashmir, which left 26 tourists dead, including one Nepali citizen.
The tremors of rising geopolitical uncertainty and grim economic forecasts have spooked investors, triggering widespread panic on the trading floor in Karachi.
Geopolitical Tensions Hit Boiling Point
India’s government, in a swift response to the Pahalgam tragedy, initiated a series of bold diplomatic and security measures. Prime Minister Narendra Modi, chairing an emergency Cabinet Committee on Security meeting, greenlit several significant actions, including:
- Suspension of the Indus Waters Treaty
- Termination of SAARC Visa Exemption Scheme for Pakistani nationals
- Expulsion of military attachés and diplomatic staff cuts
- Closure of the Attari land check post, with a May 1 deadline for legal cross-border movements
These decisions sent shockwaves through regional markets, adding fuel to already smouldering investor anxiety in Pakistan.
Pakistan retaliated by testing a surface-to-surface missile — likely the Shaheen-III or Babur cruise missile — within its Exclusive Economic Zone off the Karachi coast. Simultaneously, the Indian Navy’s latest warship, INS Surat, conducted a successful live test of its new Medium-Range Surface-to-Air Missile (MRSAM) system, developed jointly with Israel.
In a fiery public address in Bihar’s Madhubani district, PM Modi vowed to pursue terrorists and their backers globally, observing a moment of silence for the Pahalgam victims and pledging justice.
Market Meltdown in Karachi
The PSX opened deep in the red, with panic selling across sectors. The KSE 100 Index fell over 2,500 points, marking one of its steepest drops in months. Analysts say the market reaction was directly tied to geopolitical developments.
“The dip in market sentiment was primarily driven by concerns over the India-Pakistan relationship,” said Sana Tawfik, Head of Research at Arif Habib Limited, in a statement to Dawn.
“The market opened lower amid fears of escalating tensions between Pakistan and India,” echoed Yousuf M. Farooq, Director of Research at Chase Securities. “However, positive corporate earnings have supported a partial recovery by midday.”
Despite a late session rebound in some blue-chip stocks, the psychological damage was done — investor confidence remains rattled, and the market faces an uncertain road ahead.
Economic Gloom Adds to the Fire
Adding to the market’s woes, the International Monetary Fund (IMF) on April 23 downgraded Pakistan’s economic growth forecast for fiscal year 2025 to 2.6%, down from its January projection of 3%. The IMF cited rising global trade tensions — especially a fresh wave of U.S. tariffs — and Pakistan’s internal structural vulnerabilities.
Inflation forecasts have also been revised upward, with the IMF now projecting 5.1% inflation for FY25 and 7.7% for FY26, stoking fears of continued economic instability and further currency devaluation.
A Crossroads for Pakistan’s Economy
The confluence of military saber-rattling and economic warning signals has placed Pakistan in a difficult position. Domestic and foreign investors are now watching closely to see how the government manages the dual crises of rising cross-border hostility and looming fiscal shortfalls.
As tensions continue to flare and economic pressures mount, the country’s financial future seems increasingly tethered to regional stability — or lack thereof.
