The terror attack in Jammu and Kashmir’s Pahalgam on April 22, which left 26 Indian civilians—mostly tourists—dead, has not only intensified diplomatic and military tensions between India and Pakistan but also triggered financial tremors in the region. While Indian markets have shown surprising resilience, Pakistan’s stock market has taken a beating, reflecting investor anxiety and deepening economic instability.
Pakistan’s Stock Market in Free Fall
Following the Pahalgam massacre—blamed on Pakistan-based proxy group The Resistance Front (TRF)—the Karachi Stock Exchange’s benchmark KSE-100 index plunged by nearly 3.7% between April 23 and May 5, according to a report by The Economic Times. The market sentiment worsened as political uncertainty and fear of retaliation from India loomed large over Islamabad.
The most dramatic crash came on April 30, when the index fell by a staggering 3,545 points, closing at 111,326.57. Heavy selling was witnessed in key stocks such as LUCK, ENGROH, UBL, PPL, and FFC, which alone dragged the index down by over 1,100 points.
Brief Recovery, But Worries Persist
On May 2, the KSE-100 saw a modest 2.5% recovery, but market experts warn that this bounce may be short-lived.
“This is not a structural recovery; it’s a nervous rebound,” said a Karachi-based financial analyst.
Until geopolitical stability returns, especially between India and Pakistan, foreign and domestic investors are expected to remain cautious.
India’s Market Remains Buoyant
In stark contrast, India’s BSE Sensex rose by 1.5% during the same period, signaling investor confidence in the country’s macroeconomic stability despite external threats.
According to brokerage firm Anand Rathi, “barring the 2001 Parliament attack, geopolitical tensions with Pakistan have historically not caused more than a 2% dip in Indian markets.”
Even if the current standoff escalates further, analysts believe Nifty 50 is unlikely to drop more than 5-10%, underlining the resilience of India’s diversified economy and robust investor sentiment.
Moody’s Issues Stark Warning for Pakistan
Amid the market turmoil, global credit rating agency Moody’s has issued a stern warning. The agency stated that a prolonged standoff with India could further destabilize Pakistan’s already fragile economy, especially its access to international funding.
“If tensions persist, Islamabad may struggle to secure external financing, adding pressure on its foreign exchange reserves,” Moody’s said in its recent note. With IMF negotiations ongoing and foreign reserves already under strain, Pakistan faces a precarious financial road ahead.
Investor Confidence Mirrors Geopolitical Perception
The contrasting stock market trends between the two nations reveal a deeper narrative—global and domestic investors trust India’s institutional strength and policy continuity far more than Pakistan’s economic and political stability.
While India positions itself as a growing global economy, attracting steady FDI and building tech-driven infrastructure, Pakistan remains mired in political chaos, rising debt, and mounting extremism-related tensions.
What Lies Ahead?
If the India-Pakistan tensions worsen in the coming weeks, the ripple effects may deepen across markets, particularly in Pakistan. Analysts suggest that unless Islamabad takes serious steps to de-escalate tensions and rebuild investor trust, the KSE-100 could face continued pressure, further weakening Pakistan’s economic fundamentals.
On the other hand, India, while vigilant on the military front, seems poised to weather short-term geopolitical storms, with investor sentiment largely optimistic about long-term growth prospects.
