Tensions between India and Pakistan escalated on the night of May 6 into the morning of May 7, as India carried out airstrikes in various locations across Pakistan. In retaliation, Pakistan shot down five Indian fighter jets, according to a press release from the Prime Minister’s Office (PMO).

Following the airstrikes, the Pakistani stock market initially dropped 6% but recovered to end with a decline of 3.13%. From April 23 to May 6, the market had already decreased by 4.1% due to uncertainty over a potential attack. Despite positive developments, such as the scheduling of the IMF board meeting for the first review of the program on May 9, a 100 basis point reduction in the policy rate, and low inflation at 0.3% in April 2025, the market remained weak.

Historically, the market has not reacted severely to similar conflicts. For example, during the Pulwama/Balakot incident in February 2019, the market lost 2% on the day of the airstrike but recovered in the following days. Similarly, after the Uri strikes in September 2016, the market gained 0.6% on the day of the strikes and 2.1% in the following three days.

IMF programs typically continue during tense times, as they are based on macroeconomic targets. The approval of the IMF program on May 9 may influence market performance going forward.

We maintain our index target of 127,000 for December 2025. If liquidity increases and successful IMF reviews and political stability occur, the index could potentially exceed 150,000.

Courtesy – Topline Pakistan Research