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Geopolitical tensions often cast a shadow over financial markets, creating uncertainty that prompts investors to adopt a risk-off stance. The recent flare-up between India and Pakistan, sparked by the April 22, 2025, terror attack in Pahalgam, Kashmir, had weighed heavily on both nations’ stock markets. However, the ceasefire agreement announced on May 10, 2025, has flipped the narrative, igniting a robust market rally.
This blog post examines how the ceasefire understanding has influenced the Indian and Pakistani stock markets, with a focus on the performance of the Sensex, Nifty, and PSE-100, and offers insights into the implications for investors.
The Ceasefire Agreement: A Turning Point
On May 10, 2025, India and Pakistan agreed to a “full and immediate ceasefire,” halting all military actions across land, air, and sea. The agreement, brokered through direct military communication, came after days of escalating hostilities, including India’s Operation Sindoor and Pakistan’s hostile strikes. The ceasefire was confirmed by Indian Foreign Secretary Vikram Misri and Pakistani Foreign Minister Ishaq Dar, with both sides committing to further talks on May 12, 2025.
This de-escalation removed a significant overhang on investor sentiment, paving the way for a sharp market rebound.
🔗Also See: Impact of Geo-Political Tensions on your investments
Market Reactions: India’s Sensex and Nifty Soar
The Indian stock market responded with enthusiasm to the ceasefire news. On May 12, 2025, the BSE Sensex surged by 2,975.43 points (3.74%) to settle at 82,429.9, while the NSE Nifty rose by 916.7 points (3.82%) to close at 24,924.7. This rally was fuelled by broad-based buying across sectors, with IT, realty, and metals leading the charge.
Key Drivers of the Rally
- Reduced Geopolitical Risk: The ceasefire alleviated fears of a full-scale conflict between the two nuclear-armed neighbors, prompting investors to shift from risk-off to risk-on strategies. Prashanth Tapse of Mehta Equities noted that the de-escalation marked a “strategic victory for India,” boosting market confidence.
- Sectoral Gains: The Nifty IT index gained nearly 7%, driven by stocks like Infosys (7.69%) and Wipro (5.99%). Nifty Metal rose 5.86%, and realty stocks also saw significant buying. Sectors like travel, tourism, and hospitality, which had been under pressure due to border tensions, rebounded sharply.
- FII Inflows: Foreign Institutional Investors (FIIs), who had sold equities worth ₹3,798.71 crore on May 9 amid heightened tensions, resumed buying, supporting the rally. Sustained FII inflows, coupled with strong domestic flows, were highlighted as key drivers by Dr. VK Vijayakumar of Geojit Financial Services.
- Global Sentiment: Positive developments in U.S.-China trade talks further bolstered global market sentiment, contributing to the upbeat mood in India.
Technical Insights
Analysts noted that the Nifty held above the critical 24,000 level, with support at 23,500 and resistance between 24,250 and 24,300. The rally saw the Nifty break out of its recent consolidation zone, touching its highest level since December 16, 2024. Experts like Ajit Mishra of Religare Broking suggested a “buy on dips” strategy, given the strong momentum.
Pakistan’s PSE-100: A Record-Breaking Surge
The Pakistan Stock Exchange’s benchmark PSE-100 (also referred to as KSE-100) experienced an even more dramatic rally, soaring by 10,119 points (9.44%) to close at 117,104 on May 12, 2025. Trading was halted for an hour after the index hit its upper circuit, reflecting the intensity of the buying frenzy.
Factors Behind the Rally
- Relief from Tensions: The PSE-100 had been under severe pressure, plummeting 15,000 points since April 22 due to the India-Pakistan conflict. The ceasefire announcement reversed this trend, restoring investor confidence.
- Economic Context: Pakistan’s market had been buoyed by a recent IMF bailout and falling global oil prices before the conflict. The ceasefire, coupled with a provisional $1 billion IMF loan secured on May 9, further fueled optimism. Amar Ambani of YES Securities suggested a link between the IMF loan and the ceasefire agreement.
- Market Resilience: Despite recent losses, the PSE-100’s 84% return in 2023 had attracted global investors like BlackRock. The ceasefire provided a catalyst for renewed interest.
Challenges Ahead
Analysts cautioned that the bullish sentiment in Pakistan’s market hinges on the ceasefire’s sustainability. Any violations, as seen briefly on May 10, could trigger volatility. The PSE-100’s 3.4% decline in May 2025 underscores its sensitivity to geopolitical developments.
Broader Market Implications
The ceasefire’s impact extended beyond headline indices. In India, midcap and smallcap stocks advanced nearly 4%, reflecting broad market optimism. The market capitalization of BSE-listed companies surged by over ₹11 lakh crore in a single hour, reaching ₹4,29,11,065.99 crore. In Pakistan, the PSE-100’s rally signaled a return to economic focus, though analysts warned of potential consolidation if geopolitical or earnings uncertainties resurface.
Safe-Haven Assets
The reduced geopolitical risk weakened the appeal of safe-haven assets like gold, which took a beating as equities rallied. This shift underscored investors’ preference for riskier assets in the wake of the ceasefire.
Global Context
The simultaneous progress in U.S.-China trade negotiations, with tariff cuts boosting Chinese indices like the Hang Seng, created a favorable global backdrop. The interplay of these developments amplified the positive sentiment in South Asian markets.
What Investors Should Watch
While the ceasefire has sparked a relief rally, investors should remain vigilant. Key factors to monitor include:
- Ceasefire Sustainability: Pakistan has been accused of violations of the ceasefire arrangement, and the agreement’s fragility could impact market sentiment.
- Earnings Season: With over 500 Indian companies set to announce Q4 results, earnings growth will be critical.
- FII and DII Activity: Sustained FII buying, alongside strong domestic inflows, will be pivotal for maintaining the rally’s momentum.
- Technical Levels: For the Nifty, support lies at 23,500, with resistance at 24,250–24,300. The PSE-100’s volatility requires close monitoring of geopolitical news.
Conclusion
The India-Pakistan ceasefire agreement of May 10, 2025, has proven to be a game-changer for financial markets, driving significant gains in the Sensex, Nifty, and PSE-100. By alleviating geopolitical tensions, the ceasefire has restored investor confidence, with sectors like IT, realty, and travel leading the charge in India, and Pakistan’s market rebounding from recent losses.
However, the rally’s sustainability depends on the ceasefire holding and positive macroeconomic developments. Investors should adopt a cautious yet opportunistic approach, focusing on fundamentally strong stocks and monitoring geopolitical and earnings updates.
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