KARACHI: Pakistan’s stocks lost more than 500 points on Tuesday after early morning gains as risk-averse investors remained wary of the country’s ongoing tensions with nuclear-armed neighbor India, analysts said. 

The benchmark KSE-100 Index rose as much as one percent or 900 points after trading kicked off at the bourse in the morning, following a surprise move by the central bank on Monday to slash the key policy rate by 100 basis points 11 percent to spur growth amid challenges posed by US trade tariffs and geopolitical tensions with archrival India.

However, as the day progressed, profit-taking emerged across key sectors, gradually eroding the morning gains. The index ultimately succumbed to selling pressure, hitting an intraday low of 683 points and closing the session at 113,568 level, down by 533 points or 0.47 percent.

“Index remained bullish in intraday trade following the State Bank of Pakistan’s 100 basis points policy rate cut [on Monday],” Najeeb Ahmed Khan Warsi, head of international trading at Foundation Securities Ltd., told Arab News in Karachi, adding that the rate cut had lifted investor sentiment and triggered buying across key sectors such as oil, cement, and energy. 

Market participants were optimistic about lower financing costs and improved earnings potential under a more accommodative monetary policy stance, Warsi added.

At 11 percent, the interest rate is at its lowest since December 2021, creating further room for the economy to expand amid easing inflation.

Shankar Talreja, director of research at brokerage firm Topline Securities Ltd., said the market was positive in the morning primarily on the back of reports that banks would release payments to settle energy sector debt, also called circular debt.

Energy scrips like Pakistan State Oil, Oil & Gas Development Company Ltd. and Pakistan Petroleum Ltd. rallied more than two percent in daily trade “on the hope of payment disbursement from the banking sector to settle the Rs1.2 trillion circular debt,” said Muhammad Rizwan, director brokerage at Chase Securities Pakistan, in a note to clients.

Talreja said there was a solid ground for the central bank to cut borrowing costs. 

“However, the market was uncertain earlier on the timings just due to geopolitical tensions,” he said in a text message to Arab News.

But Tuesday’s early morning rally proved short-lived as investors started selling their shareholdings to book profits, dragging the benchmark index 0.5 percent to close at 113,568 points.

Cement stocks bore the brunt of profit-taking and dropped as much as three percent.

“Indo-Pak issues (are) clouding the gains actually,” Talreja said. 

“Despite an unexpected cut in the monetary policy statement, investors preferred to book gains in PSX as border tensions are still at a high level,” said Rizwan of Chase Securities.

Warsi said profit-taking, regional uncertainty with India and caution ahead of the new federal budget for FY26 were weighing on investor sentiment despite a supportive monetary stance.

Pakistan is expected to announce its budget for 2025-26 next month. 

On Monday, Moody’s said the standoff with India could hurt Pakistan’s $350 billion economy, which is on a path to recovery after securing a $7 billion bailout program from the International Monetary Fund last year and staving off a default threat.

“Sustained escalation in tensions with India would likely weigh on Pakistan’s growth and hamper the government’s ongoing fiscal consolidation, setting back Pakistan’s progress in achieving macroeconomic stability,” Moody’s said.

“A persistent increase in tensions could also impair Pakistan’s access to external financing and pressure its foreign-exchange reserves,” it added.

The report comes two days after Reuters reported that India has asked the IMF to review its loans to Pakistan.

India’s economy is not expected to see major disruptions since it has “minimal economic relations” with Pakistan — although higher defense spending could weigh on New Delhi’s fiscal strength and slow fiscal consolidation, Moody’s added.

Pakistan on Tuesday also accused India of altering the flow of the Chenab River, one of three rivers placed under Pakistan’s control according to the now suspended Indus Waters Treaty of 1960. 

The stoppage of water is likely to negatively impact Pakistan’s agriculture, which contributes more than 20 percent to gross domestic product.

ISLAMABAD: Pakistan’s special representative to Afghanistan, Ambassador Muhammad Sadiq, said on Tuesday it was important for Islamabad to continue engagement with Afghanistan to better manage the country’s western border with India, amid friction between the neighbors over a surge in militancy in Pakistan.
Pakistan has witnessed a surge in militant violence since the Pakistani Taliban, or the Tehreek-e-Taliban Pakistan (TTP), called off their months-long ceasefire with the government in late 2022. Islamabad has frequently accused that militant groups use Afghan soil to launch cross-border attacks in Pakistan, an allegation the Afghan Taliban deny, maintaining there are no militant groups operating in their territory.
Late last month, Pakistan’s army said it had killed over 70 militants who were attempting to cross into Pakistan from Afghanistan. The development came amid Pakistan’s tensions with another neighbor to the east, India, following an attack in Indian-administered Kashmir that killed 26 tourists on April 22. Pakistani Information Minister Attaullah Tatar has said that New Delhi blamed the attack on Islamabad to divert Pakistan’s security focus from its western border.
“The important thing [for Pakistan] to do, particularly with Afghanistan, is to continuously remain engaged with them, to act when it’s required and act in a required way,” Sadiq said, addressing a regional conference in Islamabad on ‘Pathways to Peace and Prosperity in Turbulent Times.’
“The sooner we act on something, the sooner we engage with Afghanistan and the government and people of Afghanistan, the sooner we will get results and whenever we delay, we actually get into trouble, more and more trouble.”
Pakistan’s focus should be prevention of smuggling and promotion of trade with Afghanistan, according to the envoy. The “one-document regime” should regulate travel between the two countries and not “hinder people-to-people contact.”
“Anybody who’s going to Afghanistan or coming from Afghanistan should take a passport and get a visa, so that we can have a proper record of entry and exits,” he added.
Pakistan implemented the one-document regime with Afghanistan on January 1, 2023, which requires Afghan nationals to present a valid passport and visa for entry into Pakistan, ending the previous practice of cross-border movement showing local identity documents. The regime aims to regulate travel, enhance border security, and maintain a proper record of entry and exit.
Speaking at the event, Faisal Karim Kundi, governor of Pakistan’s northwestern Khyber Pakhtunkhwa (KP) province that borders Afghanistan, said Islamabad seeks peace not for political gains, but to unlock the true potential of the region.
“Pakistan always believes in dialogues, but dialogues are not our weakness as we are ready for any adventure from India,” he said, adding that Pakistan’s defense was in “safe hands” which was portrayed in the past as well.
Defense analysts and security expert term simultaneous pressure on both eastern and western borders a “serious strategic challenge” for Pakistan, warning it could dilute the country’s focus in its fight against militancy.
Besides a surge in militancy in the northwest, Pakistan is also facing an intensifying separatist insurgency in the southwestern Balochistan province, where separatist militants have mounted their attacks on security forces, police and foreign nationals in recent months.
Dr. Qamar Cheema, a defense analyst, said if India engaged Pakistan through “kinetic means,” it could undermine Pakistan’s ability to effectively combat militancy.
“Any direct attack on Pakistan at the eastern border will definitely challenge [Pakistan’s] capabilities because it will stretch the armed forces,” he told Arab News on the sidelines of the conference.
Muhammad Ali, a security expert, agreed with Cheema.
“It seems that India seeks to divert Pakistan’s attention, resources and force posture to provide relief to TTP and BLA (Baloch Liberation Army) in KP and Balochistan,” he said, adding that Islamabad was “well aware of the challenges” in simultaneously facing rising militancy and an escalation on the Pakistan-India border.
Cheema said Pakistan did not want to be stretched further, which was why it was telling the international community that the transnational militant threat was more important.
“I think this is where the West needs to jump in so that Pakistan’s efforts against the war against terrorism and militant organizations do not get compromised,” he added.