Indian Stock Markets Surge as Pakistan’s Economy Faces Challenges

Indian and Pakistani stock markets are currently reflecting starkly contrasting economic conditions, driven by recent geopolitical tensions. Following the Pahalgam terror attack, the Pakistan stock market has experienced a significant downturn, while India’s markets have shown resilience and growth. The contrasting performances highlight the underlying economic strengths of India compared to the vulnerabilities faced by Pakistan, particularly in light of recent military actions and economic policies.

Pakistan’s Market Decline Amidst Tensions

In the wake of the Pahalgam terror attack, the Karachi Stock Exchange has faced a steep decline, plummeting over 6% in just two weeks. On the day of India’s Operation Sindoor, which targeted terrorist facilities in Pakistan and Pakistan-occupied Kashmir, the KSE 100 index fell by more than 5% before closing down over 3%. This sharp decline reflects the heightened investor anxiety in Pakistan, exacerbated by India’s recent economic measures, including the suspension of the Indus Waters Treaty and bans on imports. Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments, noted that the Karachi index’s drop contrasts sharply with the Nifty 50’s modest rise of around 1% during the same period, indicating a greater vulnerability in Pakistan’s market.

India’s Stock Market Resilience

In contrast, the Indian stock market has demonstrated remarkable resilience. Since April 22, 2025, the Nifty 50 and BSE Sensex indices have shown strong upward trends, even closing positively on the day of Operation Sindoor. The stability of India’s markets can be attributed to the country’s robust economic fundamentals. Currently, India stands as the world’s fifth-largest economy and is on track to surpass Japan, further solidifying its position as a major global player. The influx of Foreign Institutional Investors (FIIs) has also bolstered market confidence, with significant investments recorded in recent weeks. The Indian market’s ability to withstand geopolitical tensions underscores its attractiveness to global investors, who view it as a stable environment for capital.

Historical Context of Market Responses

Historically, Indian markets have shown resilience during periods of military conflict with Pakistan. Research indicates that significant geopolitical events, such as the Kargil conflict and the Uri and Balakot attacks, have had minimal long-term impact on the Nifty 50, which has averaged a decline of only 5.27% during such crises. In contrast, the Pakistani market has exhibited greater susceptibility to fluctuations, reflecting deeper economic vulnerabilities. The limited trading activity in Pakistan often leads to rapid withdrawals by international investors when risk perceptions rise, further destabilizing its market.

Economic Outlook for Both Nations

The contrasting economic outlooks for India and Pakistan are stark. India’s economy is characterized by strong growth, bolstered by public investment and healthy consumer spending. In contrast, Pakistan’s economy is struggling, heavily reliant on International Monetary Fund (IMF) bailouts and facing challenges such as currency instability and inflation. Moody’s has warned that ongoing tensions with India could severely impact Pakistan’s economic recovery, potentially hindering its access to external financing and putting pressure on its foreign-exchange reserves. As both nations navigate these turbulent waters, the resilience of India’s economy stands in stark contrast to the precarious situation faced by Pakistan, highlighting the broader implications of their geopolitical rivalry.

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