The Pakistan Stock Exchange (PSX) witnessed a steep downturn on Thursday, with the benchmark KSE-100 index plummeting more than 2,200 points as geopolitical tensions between India and Pakistan intensified.
The market opened under pressure following India’s announcement of a series of diplomatic actions against Pakistan in the wake of a deadly militant attack in Indian-occupied Kashmir’s Pahalgam, which claimed over two dozen lives.
By 11:13am, the KSE-100 had dropped by 1,086.51 points (0.93%) to 116,139.63. The decline deepened throughout the day, hitting a low of 115,109.22 at 2:56pm — a loss of 2,116.92 points (1.81%). The index ultimately closed at 115,019.81, marking a loss of 2,206.33 points or 1.88% from the previous session.
Investor Sentiment Wavers Amid Political Uncertainty
Yousuf M. Farooq, Director of Research at Chase Securities, attributed the initial slump to investor concerns over potential escalation between India and Pakistan. He noted that while strong corporate earnings offered some cushion, overall sentiment remained shaky.
“Future market direction will largely depend on developments in India-Pakistan relations, upcoming corporate results, and the monetary policy decision expected in early May,” he said.
Farooq also pointed to some stabilizing macroeconomic indicators — including record-low inflation, a current account surplus, and a stable real effective exchange rate (REER) at 101.
Geopolitical Risk Overshadows Economic Positives
Sana Tawfik, Head of Research at Arif Habib Limited, cited geopolitical tensions as the primary reason for the market’s downward trend, despite relatively positive domestic economic indicators.
She also referenced the International Monetary Fund’s (IMF) recent revision of Pakistan’s growth outlook and concerns about a potential depreciation of the rupee. “Fitch has projected the rupee to fall to Rs285 by June and possibly reach Rs295 by fiscal year-end — though we expect it to stabilize around Rs283,” she added.
India Suspends Indus Waters Treaty Amid Fallout from Pahalgam Attack
India’s government has escalated diplomatic pressure by suspending the Indus Waters Treaty with Pakistan — a major step in response to the Pahalgam attack that left 26 dead and 17 injured. Pakistan, in turn, has convened a National Security Committee meeting to assess its response.
The attack took place in the tourist-heavy region of Pahalgam in Indian-occupied Kashmir, an area known for drawing thousands of visitors annually.
Markets React to Geopolitical Shock
Shahbaz Ashraf, Chief Investment Officer at FRIM Ventures, said the market had slightly recovered from its early 2% dip, but uncertainty remained.
“Investors are staying cautious, watching for further retaliatory moves between the two countries,” he said. However, Ashraf noted that Pakistan’s economic fundamentals in FY2025 are stronger compared to FY2019 — during the Pulwama attack fallout.
“At that time, the country was grappling with high inflation and fiscal stress. Today, we’re in a more stable position. Short-term market dips of 2–4% could actually present buying opportunities for long-term investors,” he added.
Topline Securities CEO Mohammed Sohail echoed similar views, stating that geopolitical uncertainty continues to influence market sentiment.
The IMF’s latest update revised Pakistan’s GDP growth estimate down to 2.6% for the current fiscal year and 3.6% for the next. Inflation is projected at 5.1% this year, rising to 7.7% in FY2026. Meanwhile, a state-owned think tank warned that increased tariffs on Pakistani exports could be damaging — highlighting the urgent need for economic diversification.
Indian Markets Also Feel the Strain
Across the border, Indian financial markets also reflected growing unease. Forex and interest rate traders adopted a cautious stance following the Kashmir attack, fearing possible escalation with Pakistan.
The Indian rupee weakened, hitting its lowest point in two weeks at 85.6625 against the US dollar. According to banking officials, the rupee’s slide was influenced by both geopolitical tension and a strengthening dollar index.
Forward premiums on dollar-rupee contracts rose, Indian bonds declined, and interest rate swap rates increased. The 5-year Overnight Index Swap (OIS) rate jumped 12 basis points from Wednesday, while the 1-year OIS climbed half as much.
India’s benchmark 10-year bond yield reached 6.36% on Wednesday and remained near that level Thursday. Alok Sharma, Head of Treasury at ICBC, expects it to stay above 6.30% as caution persists.
Manish Bhargava, CEO of Straits Investment Management, summed up the sentiment: “The market is reacting to uncertainty, not fundamentals. What happens next depends on how the situation unfolds.”
