Pakistan Stock Market Plunges 6% Amid India-Pakistan Tensions
| 2025-05-08
Trading at the Karachi Stock Exchange was halted after the benchmark index fell over 6% amid escalating India-Pakistan tensions.
Pakistan's KSE-100 index falls over 6%, triggering a trading halt, as military tensions with India escalate and economic uncertainty deepens.
The Karachi Stock Exchange experienced a sharp sell-off on 8 May, with the benchmark KSE-100 index falling 6.2% before trading was halted, according to a report by Reuters. The decline follows a series of losses driven by escalating hostilities between India and Pakistan, and has pushed the index into a four-day losing streak.
This latest drop comes in the wake of military strikes by India targeting alleged terrorist bases in Pakistan and Pakistan-administered Kashmir. The strikes, carried out under “Operation Sindoor,” were reportedly in response to a terrorist attack on Indian civilians in the town of Pahalgam on 22 April, which left 26 people dead.
Tensions have continued to mount since the cross-border military activity began, with financial markets reacting strongly. According to data reviewed by financial outlet Moneycontrol, the KSE-100 index has lost 13% of its value since the Pahalgam attack. The broader KSE-30 index has suffered comparable declines.
Pakistan’s fragile $350 billion economy, already under strain, is facing added pressure. Market participants are awaiting a decision from the International Monetary Fund (IMF) on whether it will extend a critical funding facility. That verdict is expected on Friday.
“Investors are clearly anxious, not just about the geopolitical implications but also about the IMF’s pending verdict,” said a local financial analyst who asked not to be named. “A funding extension could provide some relief, but sentiment is extremely sensitive at the moment.”
Indian Markets Remain Steady
In contrast, Indian stock exchanges showed relative stability, despite the volatile backdrop. The BSE Sensex and the NSE Nifty ended Thursday’s session largely unchanged.
Analysts attribute this resilience to the limited and calculated nature of India’s military action. “What stands out in Operation Sindoor from the market perspective is its focused and non-escalatory nature,” said Dr VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services. “The market is unlikely to be impacted by this retaliatory strike, since that was known and discounted.”
Historical trends support the notion that India’s markets have been less sensitive to geopolitical shocks. With the exception of the 2001 Parliament attack, most major incidents have not led to prolonged declines in Indian equities.
Context: Diverging Market Fundamentals
The diverging reactions in Indian and Pakistani markets also highlight stark differences in size and structure.
India's stock market is among the five largest in the world, with a total market capitalisation nearing $5 trillion. Pakistan’s market, by comparison, is valued at just over $20 billion, according to Bloomberg data.
There are over 5,000 companies listed on Indian exchanges, compared to approximately 500 in Pakistan. Indian equities also benefit from widespread participation by domestic and international institutional investors, as well as a growing base of retail investors.
This breadth and depth make Indian markets more resilient during periods of stress. Pakistan’s market, which is more sentiment-driven and less liquid, tends to react more sharply to geopolitical developments.
On 7 May, the KSE-100 index had already fallen 5.7% in intra-day trading before closing 3% lower. That marked its steepest single-day decline since 2021.
The contrast extends beyond equities. India’s foreign exchange reserves stood at $688 billion at last count, while Pakistan’s reserves are just $15.25 billion.
Performance Trends
Despite the current downturn, Pakistan’s market had posted strong gains in 2023 and early 2024. The KSE-100 surged more than 84% in 2024, following a 54% gain in 2023. During the same period, India’s Sensex posted more modest returns—up 8.17% in 2024 and 18.74% in 2023.
However, the longer-term trend favours India. From 2017 to 2022, the Sensex consistently outperformed Pakistan’s benchmark.
So far in 2025, the Sensex has risen 3.4%, while the KSE-100 has fallen over 6%.
Outlook
As investors brace for further developments, much will hinge on the IMF’s decision and the next steps taken by both governments.
While India's stock market appears buffered by its structural advantages and diversified investor base, Pakistan’s remains vulnerable to rapid swings as geopolitical uncertainty and economic fragility converge.
This latest drop comes in the wake of military strikes by India targeting alleged terrorist bases in Pakistan and Pakistan-administered Kashmir. The strikes, carried out under “Operation Sindoor,” were reportedly in response to a terrorist attack on Indian civilians in the town of Pahalgam on 22 April, which left 26 people dead.
Tensions have continued to mount since the cross-border military activity began, with financial markets reacting strongly. According to data reviewed by financial outlet Moneycontrol, the KSE-100 index has lost 13% of its value since the Pahalgam attack. The broader KSE-30 index has suffered comparable declines.
Pakistan’s fragile $350 billion economy, already under strain, is facing added pressure. Market participants are awaiting a decision from the International Monetary Fund (IMF) on whether it will extend a critical funding facility. That verdict is expected on Friday.
“Investors are clearly anxious, not just about the geopolitical implications but also about the IMF’s pending verdict,” said a local financial analyst who asked not to be named. “A funding extension could provide some relief, but sentiment is extremely sensitive at the moment.”
Indian Markets Remain Steady
In contrast, Indian stock exchanges showed relative stability, despite the volatile backdrop. The BSE Sensex and the NSE Nifty ended Thursday’s session largely unchanged.
Analysts attribute this resilience to the limited and calculated nature of India’s military action. “What stands out in Operation Sindoor from the market perspective is its focused and non-escalatory nature,” said Dr VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services. “The market is unlikely to be impacted by this retaliatory strike, since that was known and discounted.”
Historical trends support the notion that India’s markets have been less sensitive to geopolitical shocks. With the exception of the 2001 Parliament attack, most major incidents have not led to prolonged declines in Indian equities.
Context: Diverging Market Fundamentals
The diverging reactions in Indian and Pakistani markets also highlight stark differences in size and structure.
India's stock market is among the five largest in the world, with a total market capitalisation nearing $5 trillion. Pakistan’s market, by comparison, is valued at just over $20 billion, according to Bloomberg data.
There are over 5,000 companies listed on Indian exchanges, compared to approximately 500 in Pakistan. Indian equities also benefit from widespread participation by domestic and international institutional investors, as well as a growing base of retail investors.
This breadth and depth make Indian markets more resilient during periods of stress. Pakistan’s market, which is more sentiment-driven and less liquid, tends to react more sharply to geopolitical developments.
On 7 May, the KSE-100 index had already fallen 5.7% in intra-day trading before closing 3% lower. That marked its steepest single-day decline since 2021.
The contrast extends beyond equities. India’s foreign exchange reserves stood at $688 billion at last count, while Pakistan’s reserves are just $15.25 billion.
Performance Trends
Despite the current downturn, Pakistan’s market had posted strong gains in 2023 and early 2024. The KSE-100 surged more than 84% in 2024, following a 54% gain in 2023. During the same period, India’s Sensex posted more modest returns—up 8.17% in 2024 and 18.74% in 2023.
However, the longer-term trend favours India. From 2017 to 2022, the Sensex consistently outperformed Pakistan’s benchmark.
So far in 2025, the Sensex has risen 3.4%, while the KSE-100 has fallen over 6%.
Outlook
As investors brace for further developments, much will hinge on the IMF’s decision and the next steps taken by both governments.
While India's stock market appears buffered by its structural advantages and diversified investor base, Pakistan’s remains vulnerable to rapid swings as geopolitical uncertainty and economic fragility converge.
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