The recent escalation in tensions between India and Pakistan, marked by India’s “Operation Sindoor” targeting terrorist bases in Pakistan, has had contrasting effects on the stock markets of both nations. While Pakistan’s Karachi Stock Exchange (KSE) experienced significant declines, India’s stock market maintained stability amid geopolitical uncertainties.
Pakistan’s Stock Market Faces Sharp Declines
On May 8, 2025, the KSE-100 index plummeted over 6%, prompting a temporary halt in trading. This decline was attributed to investor concerns over escalating military actions and the potential for further conflict. The market’s downturn reflects underlying economic vulnerabilities and investor apprehension about the country’s stability.
India’s Stock Market Demonstrates Resilience
In contrast, India’s benchmark indices, the BSE Sensex and NSE Nifty 50, showed minimal fluctuations during the same period. Despite initial volatility, the markets stabilized, supported by substantial foreign institutional investments and robust economic indicators. Analysts suggest India’s diversified economy and proactive fiscal policies have contributed to this stability.
Foreign Investments Bolster India’s Market Confidence
Foreign institutional investors (FIIs) have continued to invest in Indian equities, with net inflows of approximately ₹2,585 crore on May 7. This sustained investment indicates confidence in India’s economic prospects, even amid geopolitical tensions. The country’s focus on infrastructure development and favourable trade agreements further enhance its investment appeal.
Historical Context: Market Reactions to Past Conflicts
Historically, India’s stock market has shown resilience in geopolitical conflicts. Following events like the Kargil War and the Balakot airstrike, markets experienced short-term declines but recovered swiftly, often reaching new highs within months. This pattern suggests that long-term market fundamentals remain strong while immediate reactions to conflicts may cause volatility.
Global Economic Factors and Their Influence
Global economic developments, such as the U.S. Federal Reserve’s decision to maintain interest rates, also shape investor sentiment. While high U.S. interest rates could potentially divert investments from emerging markets, India’s strong GDP growth forecast and strategic economic reforms continue to attract global investors.
Sources: Reuters, The Guardian, Economic Times, Business Standard, India Today, Livemint
