Trading on the Pakistan Stock Exchange was halted for one hour on Thursday, following a significant 7.2% drop in the benchmark index. This decline was triggered by heavy selling pressure in response to reports of drones being shot down in major cities including Karachi and Lahore. In contrast, the Indian benchmark Sensex experienced a milder drop, decreasing by around 138 points, highlighting a stark difference in market reactions amidst escalating tensions.
This recent market turmoil in Pakistan resembles a prior crash last month when the index plummeted by over 8,700 points after US President Donald Trump announced new trade tariffs, leading to a brief trading halt. The situation has been exacerbated by heightened tensions between India and Pakistan following an attack in late April that resulted in the deaths of 26 civilians on the Indian side. In retaliation, India executed military strikes targeting terror infrastructure in Pakistan, which has further unsettled investor confidence.
Analysts are predicting continued volatility in the markets as fears grow regarding potential escalations and more military actions. In an all-party meeting, India’s Defence Minister Rajnath Singh discussed “Operation Sindoor,” claiming the operation had successfully eliminated at least 100 terrorists, but he noted that updates would be limited due to the ongoing nature of the mission.
Despite the current volatility, some analysts express cautious optimism, suggesting that global powers may mediate to prevent a prolonged conflict. For India, while immediate tensions with Pakistan could present short-term challenges, the country continues to pursue broader economic opportunities, illustrated by the recent trade agreement with the UK and ongoing discussions for a pact with the US.
Radhika Rao, a Senior Economist at DBS Bank, emphasized that while market sentiments are sensitive to the immediate geopolitical climate, the foundational strengths of the Indian economy remain intact and poised for medium-term growth, bolstered by significant trade agreements and a supportive monetary policy from the central bank. Overall, although current circumstances may seem challenging, there are reasons for cautious optimism regarding the future outlook.