The Pakistan Stock Exchange (PSX) experienced a sharp decline of nearly 4% following the recent terror attack in Pahalgam. Investors were rattled by fears of potential military escalation between Pakistan and India. In contrast, India’s Sensex defied regional risks and gained 1.5%, reflecting strong market sentiment.
Foreign investors have remained confident in the Indian market despite the unrest. Moody’s warned of potential economic strain on Pakistan, while India responded by suspending the Indus Waters Treaty, further adding to geopolitical tensions. Historical context suggests that Indian markets have weathered such tensions better than their regional counterparts in the past.
Shares at the PSX rebounded by as much as 900 points on Tuesday as investors gained confidence from an unexpected interest rate reduction. The State Bank of Pakistan’s decision to cut rates by 100 basis points to 11% provided a much-needed boost to investor confidence.
Pakistan Stock Exchange decline explained
Analysts noted that the likelihood of a full-scale war between Pakistan and India remains low, constrained by the nuclear deterrence factor. Escalation on a wider scale would have severe consequences for both nations, given their dependence on external financing and exposure to short-term external liabilities. International rating agencies have cautioned that sustained India-Pakistan tensions could negatively affect Pakistan’s growth and disrupt its access to foreign funding.
Moody’s noted that while macroeconomic conditions in India would remain stable, higher defense spending could impact its fiscal strength and slow fiscal consolidation. The divergence in stock market performance underscores the varying degrees of economic stability and market confidence in the two countries. The Sensex’s increase highlights investor confidence in India’s economic prospects, despite regional tensions.
The global business community continues to monitor these trends closely, particularly regarding their potential regional impacts. The reactions of both markets serve as a reflection of the underlying economic sentiments and varying levels of investor confidence in Pakistan and India.
