In the wake of the devastating Pahalgam attack on April 22, 2025, which claimed 26 lives, the financial markets of India and Pakistan have responded in starkly contrasting manners, reflecting the broader geopolitical tensions between the two nations.

Pakistan's Karachi Stock Exchange (KSE-100 index) experienced a significant decline of nearly 4% between April 23 and May 5, with a notable drop of 3.09% on April 30, marking its worst performance in weeks. This downturn was driven by investor concerns over potential military escalation and economic instability following the attack attributed to Pakistan-based militants. Key sectors, including cement, banking, and energy, saw substantial sell-offs, with companies like LUCK, ENGROH, UBL, PPL, and FFC leading the decline. Although the market saw a brief recovery of 2.5% on May 2, analysts warn this may be a temporary rebound unless tensions subside.

Conversely, India's BSE Sensex demonstrated resilience, gaining 1.5% in the same period. This uptick suggests investor confidence in India's economic stability despite the regional unrest. Historical patterns indicate that Indian markets have often withstood similar geopolitical tensions without significant downturns.

The divergent market reactions underscore the differing economic fortitudes of the two nations amid escalating diplomatic strains. India's decisive measures, including suspending the Indus Waters Treaty and imposing trade restrictions, have further strained relations. Pakistan's retaliatory actions, such as suspending the Shimla Agreement and closing its airspace to Indian aircraft, have compounded the situation.

As both countries navigate this complex landscape, the financial markets serve as a barometer for investor sentiment and the broader implications of geopolitical developments.