Markets Mirror Mistrust: India’s Economic Resilience Shines as Pakistan’s Markets Crumble Amid Tensions

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The stock markets in India and Pakistan reacted starkly differently to the escalating tensions that followed the April 22 terror attack in Jammu and Kashmir’s Pahalgam and the initiation of Operation Sindoor, with India’s NSE Nifty50 experiencing only marginal declines while Pakistan’s KSE-100 plunged significantly, underscoring the contrast in economic fundamentals, market depth, and investor confidence between the two neighbouring nations.

The recent Pahalgam attack, which claimed the lives of 26 tourists, followed by India’s precision counter-terror operation “Operation Sindoor” on May 7, has reignited geopolitical tensions across South Asia. Yet, the financial markets in both countries have responded in markedly different ways.

India’s benchmark index Nifty50 recorded only a modest decline of 1.52 per cent since Operation Sindoor began, whereas Pakistan’s KSE-100 index slumped by a severe 5.55 per cent. Since the April 22 attack alone, the Pakistani index has shed 9.5 per cent of its value, while the Nifty dipped only 0.66 per cent, according to data from Bloomberg.

This disparity, analysts say, reflects more than just market sentiment—it reveals a tale of two economies. With a market capitalisation of nearly $5 trillion, India’s equity market is currently ranked among the top five globally. Pakistan, in contrast, holds a market capitalisation of just $20.36 billion. India lists over 5,000 companies with strong participation from mutual funds, retail investors, and systematic investment plans (SIPs), ensuring structural stability even during geopolitical stress.

“Pakistan’s market is more fragile and reacts sharply to uncertainty due to lower liquidity and a narrow investor base,” said a senior market strategist quoted in The Economic Times. With only around 500 listed companies and thin trading volumes, the Karachi Stock Exchange (KSE) remains especially vulnerable.

India’s economic strength is further reflected in its $688 billion forex reserves, compared to Pakistan’s meagre $15.25 billion. Moreover, India ranks as the world’s fifth-largest economy by nominal GDP and is on track to become the fourth-largest in 2025 and third-largest by 2028, overtaking Japan, according to Finance Ministry projections.

Pakistan’s economic position, by contrast, is far more precarious. The country is not among the top 40 global economies and is under increasing pressure from the International Monetary Fund (IMF) over allegations of misusing bailout funds to support activities related to regional instability. In a notable diplomatic move, India recently abstained from voting on Pakistan’s latest IMF loan request, citing concerns about the redirection of international funds.

Moody’s, the global credit rating agency, also issued a sharp warning this week, stating that “heightened tensions with India would adversely affect Pakistan’s economic growth and further undermine fiscal consolidation efforts.” It added that continued unrest would damage investor sentiment and complicate macroeconomic stabilisation efforts.

Meanwhile, in a development aimed at cooling tensions, both nations agreed to a ceasefire on May 9, with further high-level military talks scheduled for May 12. Former US President Donald Trump commented on Truth Social, “Common sense prevailed,” praising the temporary de-escalation after direct military-to-military communication.

However, market observers remain cautious. “This is no ceasefire,” tweeted former Jammu and Kashmir Chief Minister Omar Abdullah as drone activity and explosions continued across border areas, including Srinagar and Punjab, suggesting a fragile calm.

In this unfolding theatre of conflict and diplomacy, the economic divide between India and Pakistan is becoming as pronounced as their military posturing—one demonstrating fortitude, the other flailing under financial strain.