Escalating tensions between Pakistan and India have sent shudders through financial markets, triggering a sharp drop on the Pakistan Stock Exchange (PSX). The KSE-100 index plunged by 1,086.51 points during the course of the day to reach 116,139.63 by mid-morning on Thursday. The market response comes following rising diplomatic tensions after an April 22, 2025, terrorist attack on Pahalgam, India, took 26 lives.
In return, India downgraded the level of diplomatic relations with Pakistan, sent out military attachés, suspended the 1960 Indus Water Treaty, and closed the Attari land border. The events increased investor fears, further shaking the market.
To the economic uncertainty, the International Monetary Fund (IMF) also downgraded Pakistan’s growth projection earlier this year. It now projects the economy to grow only 2.6% this year and 3.6% next year, while inflation is expected to increase to 5.1% and 7.7% respectively.
The Pahalgam attack is the most fatal event after the 2019 Pulwama bombing when a suicide blast killed at least 40 Indian paramilitary police officers. This act forced India to carry out airstrikes against an army camp run by militants in Balakot, Pakistan, where they claim to have wiped out multiple terrorists.
