The Pakistan Stock Exchange (PSX) has experienced significant volatility in recent days, primarily driven by escalating tensions between India and Pakistan. The benchmark KSE 100 index tumbled over 9% in the span of four trading sessions. This downturn reflects investor anxiety and market instability in response to the heightened conflict.
Market Performance and Recent Events
The KSE-100 index has decreased by 6.91% since the beginning of 2025. The index experienced a significant intraday loss of over 6% on Thursday, which triggered a temporary trading halt. The KSE-100 index had lost over 9% during its four-day losing streak. As of May 9, 2025, the KSE 100 index closed at 1,04,326.46, climbing 799.65 points, or 0.77 percent.
The market's downturn can be traced back to April 22, the day of the Pahalgam terror attack, since when the index has lost 12.5%. In response to the attack, India launched "Operation Sindoor" on May 7, conducting strikes on alleged terrorist infrastructure in Pakistan and Pakistan-administered Kashmir. These actions have further fueled regional tensions and exacerbated investor concerns.
On May 9, the Pakistan Stock Exchange saw a recovery in the trading session, with the KSE 100 index gaining over 800 points in early trade. The stocks showed some recovery and were up two percent in the first 30 minutes of trading.
Economic Impact and Context
The recent market crash has eroded investor wealth, with estimates suggesting losses of over 820 billion rupees in the last three days. Amidst escalating tensions, Pakistan's Ministry of Economic Affairs has appealed to international partners for additional loans, citing heavy losses and a stock market crash.
The Asian Development Bank (ADB) projects Pakistan's real GDP to grow by 2.5% in FY25 and 3.0% in FY26. This growth outlook is supported by a more stable macroeconomic position and ongoing economic reforms. The ADB also anticipates that average inflation will decrease to 6.0% in FY25 and 5.8% in FY26. The IMF projects a real GDP growth of 2.6% and a consumer price increase of 5.1% for 2025. Successful implementation of reform programs is expected to create a more stable macroeconomic environment and remove structural barriers to growth.
Comparison with India's Stock Market
The market reactions in India and Pakistan reflect the fundamental differences in the size and resilience of their economies. India's stock market is approximately 245 times larger than Pakistan's, with a significantly greater capacity to absorb geopolitical shocks. As tensions rose, India's Nifty50 slipped 1.4% since Operation Sindoor, while Pakistan's KSE-100 plunged nearly 10%. Since the April 22 attack in Jammu and Kashmir, Pakistan's benchmark index is down 13.5%, while the Nifty has declined just 0.57%.
India's market boasts over 5,000 listed companies, supported by robust participation from mutual funds, retail investors and systematic investment plans (SIPs). Pakistan's market, with just over 500 listed companies, is more sentiment-driven and vulnerable to political instability. India's stronger macroeconomic position, including $688 billion in forex reserves compared to Pakistan's $15.25 billion, further bolsters its resilience.
Analysts' Perspectives
Experts suggest that short-term market volatility and corrections are normal features of equity markets. Some analysts advise long-term investors to maintain discipline during periods of uncertainty and gradually build their portfolios. It has been noted that investors have shown some resilience, with stocks showing recovery, and that no major escalation had calmed the market. Some investors have started accumulating stocks at attractive valuations, assuming the conflict will not escalate into a full-scale war.
Ceasefire Agreement
On May 10, 2025, a ceasefire was announced following an agreement between India and Pakistan. The two governments agreed “to start talks on a broad set of issues at a neutral site,”. Top military officials from the two sides will hold discussions on Monday.
