Karachi, May 7, 2025 – The Pakistan Stock Exchange (PSX) witnessed a sharp nosedive on Wednesday, shedding 3,559 points, or 3.13% on a day-on-day basis, as investors reacted to rising tensions between Pakistan and India.
The benchmark KSE-100 index settled at 110,009 points, down from the previous day’s closing of 113,568 points.
This significant dip in PSX was largely driven by geopolitical uncertainty following fresh hostilities between Pakistan and India. According to a detailed report released by Topline Securities, the situation intensified overnight between May 6 and 7, when, as per media and official sources, India conducted several airstrikes across different regions of Pakistan. In response, Pakistan claimed to have shot down five Indian fighter jets, as stated in a press release by the Prime Minister’s Office.
The PSX initially plunged nearly 6% in early morning trading as panic selling gripped the market. However, a partial recovery during the day helped the benchmark index close with a more contained 3.13% loss. This decline adds to a broader negative trend, as the PSX had already lost 4.1% over the previous nine sessions, reflecting growing anxiety over potential military escalation with India.
Despite the conflict-driven decline, several fundamental economic developments in Pakistan have been largely overshadowed. These include the scheduling of an IMF board meeting on May 9 for the first review of Pakistan’s ongoing bailout program, a 100-basis point cut in the policy rate, and historically low inflation figures for April 2025 at just 0.3%.
Topline Securities also compared the current market behavior with previous Pakistan-India flashpoints. During the Pulwama-Balakot episode in February 2019 and the Uri strikes in 2016, the Pakistan stock market initially dipped but rebounded swiftly. For example, after the Balakot strikes, the market lost 2% on the day but trimmed losses to 1.4% within three days. Conversely, following the Uri strikes, the PSX posted gains of 0.6% in a day and 2.1% over three days.
Interestingly, yields on Pakistan’s Euro and Sukuk bonds have improved by 18 to 61 basis points despite the turmoil, suggesting that global investors still hold confidence in Pakistan’s debt sustainability.
Analysts now believe PSX performance will hinge on Pakistan’s next steps in response to India’s aggression, as well as the anticipated outcome of the IMF board meeting. The government has authorized the armed forces to respond, and investors are closely watching how both geopolitical and economic developments unfold in the coming days.