The Pakistan stock market faced a dramatic downturn on Wednesday, May 7, 2025, as investors reacted to India's overnight military strikes targeting terrorist sites in Pakistan and Pakistan-occupied Kashmir under the operation named 'Operation Sindoor'. The Karachi Stock Exchange 100 index, known as KSE-100, plummeted by 6,272 points, or nearly 6%, dropping to a low of 107,296.64 from the previous close of 113,568.51.
This steep decline marks a significant financial blow, particularly following the terror attack in Pahalgam on April 22, 2025, which has heightened tensions between the two nations. Since that attack, the KSE-100 index has lost approximately 3.7% of its value, reflecting investor fears of escalating military conflict. In contrast, the Indian stock market exhibited resilience, with the BSE Sensex recovering from an initial drop.
According to reports, India executed 'Operation Sindoor' in the early hours of May 7, 2025, targeting nine locations associated with terrorist groups, including Jaish-e-Mohammed (JeM), Lashkar-e-Taiba (LeT), and Hizbul Mujahideen (HM). The strikes were conducted by the Indian Army, Navy, and Air Force, with precision munitions aimed at disrupting planning and execution capabilities of these groups.
"The operation was focused and non-escalatory," said Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services. The strikes reportedly took place at 1:44 AM, hitting four targets inside Pakistan and five in Pakistan-occupied Kashmir. News agency PTI reported that the operation was a direct response to the Pahalgam terror attack, which claimed the lives of several individuals.
In the wake of the strikes, Pakistan's military confirmed casualties, reporting that one child was killed and twelve others injured in Ahmedpur East, while two civilians died in Kotli. Lt Gen Ahmed Sharif Chaudhry, the Director General of Inter-Services Public Relations, condemned the strikes, labeling them as "cowardly" and asserting that Pakistan's Air Force was on high alert, with jets deployed in response.
Furthermore, the Pakistan military stated that it would respond to the Indian strikes at a time and place of its choosing, underscoring the potential for further conflict. "Let me say it unequivocally: Pakistan will respond to this at a time and place of its own choosing," said Lt Gen Chaudhry.
As tensions escalated, the Pakistan stock market bore the brunt of investor anxiety. The KSE-100 index's plunge was accompanied by heavy selling across trading floors, with no signs of recovery evident at the time of reporting. The market's response to the military action reflects broader concerns about economic stability amid rising geopolitical tensions.
In India, however, the mood was markedly different. The BSE Sensex initially opened lower but quickly rebounded, gaining 166 points, or 0.21%, to reach 80,802, while the Nifty50 index rose by 59 points, or 0.24%, to settle at 24,438. Analysts attributed this resilience to strong macroeconomic fundamentals and a continuous influx of foreign institutional investment.
"What’s key here is that the operation was focused and non-escalatory," Dr. Vijayakumar noted, explaining that foreign investors have shown confidence in India's economic stability amid the turmoil. Over the past fourteen sessions, foreign institutional investors have injected approximately Rs 43,940 crore into Indian equities, providing a cushion against geopolitical shocks.
Despite the initial volatility, market analysts remain optimistic about the long-term outlook for Indian stocks. Historical patterns indicate that Indian markets tend to rebound strongly after periods of geopolitical tension. For instance, following the Kargil War, the Sensex surged by 63% within a year, and similar recoveries were noted after the Parliament attack and the Mumbai attacks.
"While caution in the short term is understandable, history shows that Indian markets demonstrate strong resilience once clarity returns," said Pankaj Singh, founder and principal researcher at SmartWealth.ai. He emphasized that unless compounded by broader economic or global shocks, Indo-Pak tensions have not had lasting negative impacts on the Indian markets.
Meanwhile, the situation remains fluid as both nations navigate the aftermath of the military strikes. On the ground, Pakistan has reportedly violated the ceasefire along the Line of Control (LoC), engaging in heavy artillery fire directed at Indian positions in Jammu and Kashmir. The Indian Army has responded in a "calibrated manner," underscoring the ongoing volatility in the region.
The heightened state of alert in both countries coincides with India’s planned civil defense drills across 244 districts on May 7, which include air raid sirens, evacuation drills, and blackout exercises. As tensions continue to rise, the potential for further military action remains a concern for both investors and civilians alike.
As of now, the KSE-100 index reflects a broader crisis of confidence among investors in Pakistan, with fears of military escalation weighing heavily on market sentiment. Analysts warn that continued volatility could persist in the coming days as the situation develops and both nations reassess their military and diplomatic strategies.
In summary, the fallout from 'Operation Sindoor' has not only affected the immediate military landscape but has also sent shockwaves through the financial markets of both India and Pakistan. The ongoing conflict highlights the delicate balance of power in the region and the profound impact of geopolitical tensions on economic stability.
