Diverging Fortunes: Analyzing the Pahalgam Attack\’s Impact on Indian and Pakistani Financial Markets (Ashwini & Dr.Dharmanada)

This article examines the financial market responses in India and Pakistan following the terrorist attack in Pahalgam, Jammu and Kashmir, on April 22, 2025, which resulted in the death of 26 civilians and injuries to several others. Contrary to expectations of market disruption, Indian stock indices like the Nifty 50 and BSE Sensex showed remarkable resilience, gaining nearly 2.9% and 2.6% respectively between April 22 and April 30. Sector-specific gains, especially in defence stocks, and a significant fall in the India VIX volatility index reflected a composed investor sentiment. Factors such as falling global crude oil prices, a strengthening rupee, robust foreign portfolio investment inflows amounting to ₹14,620 crore, and encouraging corporate earnings contributed to this stability. In contrast, Pakistan’s KSE-100 index plunged over 7%, highlighting economic fragility, investor anxiety over geopolitical retaliation, and fears regarding stalled international financial assistance. Drawing upon historical patterns, macroeconomic data, and scholarly literature, the study concludes that structural economic resilience, investor trust, and policy consistency play a greater role in market stability than the shock of geopolitical events alone. The article underscores a growing divergence between India and Pakistan in terms of economic credibility and investor confidence in times of regional crisis.