The Pakistan Stock Exchange (PSX) witnessed a sharp decline in early morning trade on Thursday, following India’s announcement of stringent diplomatic measures against Islamabad in response to the deadly terror attack in Pahalgam, Jammu and Kashmir, which claimed 26 lives.
Within the first five minutes of trading, the benchmark KSE-100 index plunged 2.12%, or 2,485.85 points, settling at 114,740.29. This sudden drop highlights the market’s sensitivity to escalating geopolitical tensions between the two nuclear-armed neighbors.
Diplomatic Fallout After Terror Attack
The Indian Ministry of External Affairs unveiled a set of aggressive diplomatic actions late Wednesday, citing Pakistan’s failure to act against terrorist groups operating from its territory. Key measures include:
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Suspension of the Indus Waters Treaty, a historic water-sharing agreement dating back to 1960.
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Immediate closure of the Wagah-Attari border, halting all cross-border trade and travel.
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Revocation of SAARC visa exemptions for Pakistani nationals, restricting their entry into India.
These actions come just a day after the Pahalgam terror attack, which India has attributed to Pakistani-based militant group Lashkar-e-Taiba. The incident has reignited concerns about regional stability and cross-border militancy, drawing global attention.
Investor Panic and Market Reaction
Investor sentiment in Pakistan turned distinctly bearish, as traders feared the diplomatic backlash would intensify economic isolation and deter foreign investment. Brokers at the PSX reported heavy selling in key sectors including banking, cement, and energy.
“Markets hate uncertainty, and the sudden escalation with India—especially such drastic diplomatic steps—has shaken confidence,” said Ahsan Mehdi, a Karachi-based investment analyst. “Add to that Pakistan’s ongoing economic troubles, and you have the perfect storm.”
Economic Headwinds Already Brewing
The market shock was compounded by other troubling developments earlier this week. On Wednesday, the International Monetary Fund (IMF) cut Pakistan’s GDP growth forecast from 3.5% to 2.6%, citing deteriorating macroeconomic indicators.
In a separate report, Fitch Ratings warned of significant economic risks, pointing to the continued depreciation of the Pakistani rupee, increasing political instability, and security unrest in Kashmir as red flags for investors.
The cumulative effect of these economic, political, and now diplomatic shocks has led to a widespread selloff, eroding investor confidence in Pakistan’s near-term financial outlook.
Regional and Global Implications
Geopolitical analysts believe India’s retaliatory measures could strain South Asian diplomacy further, potentially impacting trade, water-sharing agreements, and counterterrorism dialogues. With both nations having a history of military skirmishes and cross-border attacks, the situation remains volatile.
“The suspension of the Indus Waters Treaty, in particular, is a major move. It’s a signal that New Delhi is willing to upend long-standing agreements if terror continues unchecked,” said Professor Anjali Mishra, an expert on South Asian geopolitics.
She added, “The global community, especially allies of both nations like the U.S. and China, will likely push for de-escalation—but in the short term, more volatility is expected.”
Domestic Political Reactions
In Islamabad, the government condemned India’s decisions, calling them “reckless and provocative.” Pakistan’s Ministry of Foreign Affairs has stated that it would raise the issue at the United Nations and other international forums.
Opposition parties in Pakistan have used the opportunity to criticize Prime Minister Shahbaz Sharif’s administration for its weak diplomatic stance and failure to prevent international isolation.
“The economy is collapsing, and now our foreign policy is collapsing too,” said senior opposition leader Imran Khan in a video address. “This government has no strategy to defend national interests.”
