Pakistan Stock Exchange Declines 2% Following India’s Suspension of Indus
The Pakistan Stock Exchange experienced a significant downturn on Thursday, triggered by India’s recent diplomatic sanctions against Pakistan following a deadly terror attack in Pahalgam that claimed 26 lives. The KSE-100 index plummeted by 2.12%, a loss of 2,485.85 points, bringing it down to 114,740.29 during early trading. This market reaction reflects growing tensions between the two nations, compounded by the International Monetary Fund’s lowered GDP growth forecast for Pakistan to 2.6%.
Impact of India’s Sanctions
India’s External Affairs Ministry has enacted several stringent measures in response to the Pahalgam incident. These include the immediate suspension of the 1960 Indus Waters Treaty, which governs water sharing between the two countries. Additionally, operations at the Integrated Check Post at Attari have been halted, although valid permit holders will still be allowed to exit through this route until May 1, 2025. The Indian government has also revoked the visa privileges previously granted to Pakistani citizens under the South Asian Association for Regional Cooperation (SAARC) agreement. Current holders of the SAARC Visa Exemption Scheme (SVES) must leave India within 48 hours, and the Pakistani High Commission’s Defence, Naval, and Air Advisors in New Delhi have been declared Persona Non Grata, requiring them to depart within a week.
Market Reactions and Economic Concerns
The decline in the Pakistan Stock Exchange follows a series of losses earlier in the week, exacerbated by the IMF’s announcement regarding Pakistan’s GDP growth projection. Fitch Ratings has also raised concerns about the declining value of the Pakistani rupee, ongoing political instability, and security issues in Kashmir. These factors have collectively shaken investor confidence, leading to a cautious market environment. The KSE-100 index’s sharp drop reflects the immediate impact of these geopolitical tensions and economic forecasts on investor sentiment.
Indian Market Stability Amidst Tensions
In contrast, Indian stock markets showed minimal fluctuations on Thursday, indicating a degree of resilience amidst the escalating tensions. Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted that while the S&P 500 has seen a decline of 8.4% year-to-date, the Nifty index has managed to rise by 2.27%. This performance is attributed to the robustness of the Indian economy, anticipated slowdowns in the U.S., and continued foreign institutional investor inflows, which amounted to Rs 21,263 crore over the past six days. However, Dr. Vijayakumar cautioned that investors should remain vigilant regarding the potential repercussions of India’s response to the terror attacks.
Future Outlook
As the situation develops, both markets are likely to remain sensitive to further diplomatic and economic changes. The Pakistani economy faces challenges from reduced growth projections and investor apprehension, while Indian markets will be closely monitoring the government’s actions in response to the recent terror incidents. The diplomatic landscape between India and Pakistan continues to evolve, and its implications for both nations’ economies will be critical in the coming weeks. Investors are advised to stay informed and exercise caution as the geopolitical climate remains tense.
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