Stocks in India and Pakistan are poised for a potential bounce after an unexpected ceasefire agreement between the two nuclear neighbors on Saturday, as investors shift their attention back to a more optimistic economic outlook.
Foreign investors, who enjoyed a 16-day winning streak in Indian stocks until the recent conflict escalated on Friday, might see renewed investment once market volatility stabilizes.
In Pakistan, the International Monetary Fund is expected to provide crucial fiscal support, with the approval of a $1 billion immediate payment and an additional $1.4 billion plan aimed at climate resilience.
President Trump has expressed his willingness to collaborate with India and Pakistan to address the Kashmir issue.
“The short covering and deployment of idle funds will likely lead to a market surge on Monday,” stated Abhay Agarwal, chief investment officer at Piper Serica Advisors Pvt. “We should refocus on the fundamentals.”
Investor sentiment has been shaky. India’s NSE NIFTY 50 index fell over 1% on Friday, marking its largest drop in more than a month, while the rupee performed poorly among Asian currencies last week. Although debt purchases by the Reserve Bank of India helped mitigate the decline, bond yields continued to rise due to increasing risk premiums. Pakistan’s main stock index has dropped 9% since the Kashmir attack on April 22, which prompted a counter from India.
India’s bond and foreign currency markets will be closed on Monday for public holidays.
With immediate geopolitical threats easing, investors are expected to turn their focus to positive indicators in India, such as early trade contracts from the RBI, sufficient liquidity, and hopes for potential interest rate cuts.
Meanwhile, traders in Pakistan are looking forward to a relief rally, as border tensions have overshadowed the encouraging prospects for additional funding from the IMF, supported by the Pakistan Bank.
“Assuming no changes from today, it’s possible that Pakistan’s stock market could hit a 5% maximum limit,” remarked Mohammed Sohail, CEO of Karachi-based Topline Securities Ltd.
However, new tensions remain a concern, particularly as India has not fully committed to the Indus Water Treaty, which could have adverse effects on Pakistan’s agricultural production.
An Indian diplomat reported a violation of the ceasefire just hours after the declaration, a claim that Pakistan has denied.
The IMF’s Executive Committee has approved a billion-dollar loan tranche for Pakistan.
“There’s still some uncertainty regarding the ceasefire, and developments from both sides need to be monitored closely,” noted Tejas Shah, head of derivatives trading at Equirus Securities.
“I don’t anticipate a 4-5% jump in the Indian market on Monday. If that happens, some investors may choose to take profits.”
