Mumbai/Islamabad – Stock markets in both India and Pakistan experienced sharp falls on Friday as tensions over a recent terrorist attack in Jammu and Kashmir sent shockwaves through investor confidence and regional economic outlooks.
India’s benchmark BSE Sensex experienced a drop of 1.8%, shedding over 1,200 points; NSE Nifty then fell below 22,000 on fears of military or diplomatic conflict between India and Pakistan, leading investors to seek safer assets like financial and energy stocks as riskier assets became less attractive for investment.
Cross-border, the Pakistan Stock Exchange (PSX) saw its KSE-100 Index decline 2.3% and wipe out recent gains. Furthermore, Pakistani rupee weakened against the U.S. dollar due to rising investor concern about economic fragility amid renewed geopolitical unpredictability.
This selloff follows rapid developments since a deadly attack on Indian tourists in Pahalgam region, which New Delhi blames on Pakistan-based militants. India responded swiftly, suspending Indus Waters Treaty, closing Attari-Wagah border crossing and issuing 48-hour ultimatum to Pakistani nationals living within Indian territory to leave.
Pakistan has denied any involvement and held emergency security meetings to plan its diplomatic and military response. With border alerts being set off between both countries and senior diplomats being summoned as witnesses, an atmosphere of regional instability has developed.
“Markets are reacting to the growing likelihood of conflict or long-term diplomatic freeze between India and Pakistan,” stated Rajiv Malhotra, a Mumbai-based market analyst. “Political events have now begun affecting economic sentiment.”
Currency and bond markets also showed signs of strain. India’s 10-year government bond yield increased slightly while Pakistan’s credit default swaps widening signaled greater risk perception among international investors.
Economists warn that prolonged tensions could hamper trade, discourage foreign investment, and destabilize regional markets already dealing with global inflation and supply chain disruptions.
International bodies including the UN and IMF have issued statements calling for calm and restraint between both nations, encouraging them to resolve any disputes through diplomatic channels in order to minimize further economic repercussions.
As tensions escalate, market watchers will remain attentive to both governments’ actions, particularly their potential de-escalation or further confrontation.