Pakistan Stock Market Declines Approximately 4% Following Pahalgam Terror Incident
India and Pakistan are experiencing heightened tensions following a terrorist attack in Jammu & Kashmir on April 22, 2025. This escalation has had a significant impact on the financial markets of both nations. While Pakistan’s KSE-100 index has plummeted by approximately 4%, India’s Sensex has demonstrated resilience, gaining 1.5%. The contrasting market performances reflect the differing economic stability and investor confidence in the two countries amidst ongoing geopolitical strife.
Impact on Pakistan’s Stock Market
The Karachi Stock Exchange’s KSE-100 index has faced a notable decline since the terrorist attack, dropping 3.7% between April 23 and May 5. The market’s most significant downturn occurred on April 30, when the index fell by 3.09%, marking its worst performance in recent weeks. Major companies such as LUCK, ENGROH, UBL, PPL, and FFC contributed to this downturn. Although there was a slight recovery of 2.5% on May 2, market analysts caution that this rebound may be short-lived unless regional tensions ease. The ongoing uncertainty has led to increased concerns about potential military conflict, further destabilizing investor sentiment in Pakistan.
India’s Market Resilience
In stark contrast, India’s BSE Sensex has shown a positive trajectory, advancing by 1.5% following the attack. According to the Anand Rathi brokerage, historical data suggests that Indian equity markets have not typically corrected more than 2% during periods of heightened tensions with Pakistan, except for the 2001 Parliament attack. The brokerage anticipates that even in the event of significant escalation, the Nifty 50 index is likely to experience a maximum decline of 5-10%. This resilience underscores the stability of India’s economic environment, which is bolstered by strong public investment and healthy private consumption.
Moody’s Assessment of Economic Implications
Credit rating agency Moody’s has issued a warning regarding the potential long-term economic repercussions for Pakistan due to the escalating tensions with India. They noted that ongoing instability could hinder Pakistan’s economic growth and disrupt fiscal consolidation efforts. This situation poses a risk to the country’s recovery, which has shown signs of improvement through declining inflation and increasing foreign exchange reserves under the International Monetary Fund (IMF) program. Moody’s also highlighted that a prolonged crisis could limit Pakistan’s access to external funding, putting additional pressure on its reserves needed for upcoming debt obligations.
Foreign Investment Trends
Foreign institutional investors (FIIs) continue to demonstrate confidence in India’s market, with recent trading sessions showing significant acquisitions. In total, FIIs purchased shares worth approximately Rs 401.47 billion ($4.8 billion), marking the most sustained buying streak in two years. Conversely, the decline in Pakistan’s market raises concerns about capital flight, as international investors express caution regarding the deteriorating security situation and economic instability. This divergence in investor sentiment further emphasizes the contrasting economic landscapes of the two nations amid ongoing geopolitical tensions.
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