07-05-2025
Pakistan Stocks Drop, Indian Assets Steady After Military Strike
(Bloomberg) -- Pakistan's stocks slid, while Indian assets were steady after both countries retaliated in expected tit-for-tat blows following a militant attack last month in Kashmir.
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The benchmark KSE-30 Index tumbled as much as 6.1% to the lowest since Dec. 4, before paring most of those losses. India's NSE Nifty 50 Index swung between gains and losses, after initially dropping as much as 0.7%. The nation's currency fell as much as 0.6% against the dollar in choppy trade.
India said it carried out military strikes against Pakistan early Wednesday, hours after announcing a free-trade agreement with the UK. While the timing of the trade deal helped cushion the impact on Indian financial assets, a further escalation may threaten a nascent recovery in foreign inflows into local shares.
'The new conflict between India and Pakistan is definitely a setback for India's equity market,' said Homin Lee, senior macro strategist at Lombard Odier Singapore Ltd. 'We will re-assess the outlook if it unexpectedly spirals beyond the usual cycle of tension and diplomacy.'
The action follows a month of relative strength for Indian markets. In April, the Nifty's logged its second straight monthly gain, and the rupee hit a five-month high, driven by renewed foreign inflows and optimism around a potential US trade deal.
The question now is whether the skirmish will escalate further. Past conflicts between the two nuclear-armed neighbors have shown that Indian equities tend to recover quickly from an initial knee-jerk reaction. For instance, in February 2019, the Nifty index rose over 1% a week after India launched targeted strikes in response to a terrorist attack.
'The tensions will keep markets on tenterhooks in the short term, as the situation remains fluid,' said Sonal Varma, an economist at Nomura Holdings Inc. 'That said, past episodes show that the market and economic impact of similar geopolitical events tends to be short-lived.'
While Indian assets enjoyed a strong April, Pakistan's stocks and dollar bonds suffered their worst monthly performance in two years. The country is pulling itself out of an economic crisis that brought it close to bankruptcy in 2023 — helped by a $7 billion International Monetary Fund loan program.
