India-Pakistan tensions escalate: Pakistan stock market index KSE-100 has dipped around 4% since the April 22, 2025 terrorist attack in Jammu & Kashmir. The escalating tensions between India and Pakistan post the terrorist attack have significantly impacted Pakistan stock markets.
In contrast, India’s Sensex has shown resilience by gaining 1.5%, highlighting the difference in economic stability and market confidence between the two countries.
Between April 23 and May 5, the Karachi Stock Exchange’s benchmark KSE-100 index recorded a 3.7% decline, affected by concerns of potential military conflict.
The market witnessed its steepest decline on April 30, with the KSE-100 falling 3.09%, marking its poorest performance in recent weeks. Major stocks including “LUCK, ENGROH, UBL, PPL, and FFC” contributed to the decline. Despite a 2.5% recovery on May 2, market experts suggest this uptick might be temporary without a reduction in regional tensions, according to an ET report.
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On the other hand, the Indian BSE Sensex has maintained positive momentum, advancing 1.5% post-attack. According to Anand Rathi brokerage, “except during the Parliament attack in 2001, Indian equity markets did not correct more than 2% during periods of high tension with Pakistan.” The firm anticipates that even with significant escalation, the Nifty 50 would likely experience a maximum decline of 5-10%.
Credit rating firm Moody’s has highlighted that continuous rise in India-Pakistan tensions could negatively impact Pakistan’s economic growth and hinder the government’s fiscal consolidation efforts. This could potentially disrupt the nation’s economic recovery, which has shown positive signs through declining inflation and growing forex reserves under the IMF programme. Moody’s also noted that a long-term crisis might restrict Pakistan’s ability to secure external funding and put additional pressure on its already strained reserves needed for upcoming debt payments.
In contrast, India’s economic position remains robust and protected. Moody’s assessment indicated that “Comparatively, the macroeconomic conditions in India would be stable, bolstered by moderating but still high levels of growth amid strong public investment and healthy private consumption.” The impact on India’s economy is predicted to be negligible, considering Pakistan represents less than 0.5% of Indian exports.However, Moody’s indicated that increased defence expenditure might affect India’s fiscal position.
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Foreign institutional investors maintain strong positions in India, demonstrating international trust in its crisis management capabilities. During recent trading sessions, foreign portfolio investors (FPIs) acquired shares worth Rs 401.47 billion ($4.8 billion), establishing the most sustained purchasing sequence in two years.
The Pakistani market decline indicates increasing concerns about capital exodus, as international investors express caution regarding security deterioration and economic instability.
