Today, the Pakistan Stock Exchange (PSX) saw a big fall of over 5000 points in opening. India had struck several locations inside Pakistan in response to the April 22nd terrorist attack in Pahalgam. Pakistan has confirmed the attacks, with local media claiming that five Indian jets have been downed in response. The UN has urged restraint, while US President Trump has expressed hope for a quick end.

Given the strikes were on non-military locations, the situation is reminiscent of 2019 when India fired missiles on Balakot (a town in Khyber Pakhtunkhwa, Pakistan) in response to the Pulwama incident. While the strikes are not a surprise, the difference this time is that more locations have been targeted, including some in Punjab, deep into Pakistan’s territory. De-escalation took place quickly in 2019, and the episode was put to rest within two weeks with Pakistan returning a captured Indian pilot. The KSE100 lost 5% before recovering.

The KSE100 has lost about 4% since April 22nd. This is similar to the impact on equities in 2019. If no major escalation occurs, the KSE100 may see support after an initial downward knee-jerk reaction. However, past instances have shown equities may take more pressure in case of a major escalation from here (see graphs below), with Pakistan’s economy more exposed to a drawn-out conflict.

Ultimately, however, we believe both nations’ nuclear capabilities should act as a strong deterrent against major escalation.

Courtesy – IMS Research