Last night, India carried out precision strikes under Operation Sindoor, targeting what Indian authorities described as terrorist camps inside Pakistan that supported groups aimed at harming India—the largest democracy in the world.

The strikes followed a terrorist attack in Pahalgam, Jammu & Kashmir, where militants killed tourists visiting from across India—Hindu civilians, including a Nepali citizen—targeted based on their identity.

Markets reacted swiftly: Pakistan’s KSE-100 index dropped further overnight, while India’s NIFTY 50 opened steady but cautious.

Many members of my Telegram Community invest in the Indian stock market. This moment offers a broader lesson:

• How do geopolitical shocks affect stock prices vs. business fundamentals?

• When does a market reaction signal real economic risk?

Let’s break it down—calmly, and based on fundamentals.

A tale of two markets

• India’s National Stock Exchange (NSE) lists ~1,800 companies with a market capitalization of ~$4.35 trillion USD (source).

• Pakistan Stock Exchange (PSX) lists ~375 active companies with a market capitalization of ~$20.36 billion USD(source).

India’s stock market is over 200 times larger, diversified across IT, financials, consumer goods, and energy.

Pakistan’s market is heavily concentrated in capital-intensive sectors like oil & gas, power generation, and banking (source).

Comparing market movements visually

When we look at the performance of Pakistan’s KSE-100 Index and India’s NIFTY 50 over recent months, a clear divergence emerges.

In the chart below, the green and red candlesticks represent the KSE-100, while the orange line tracks the NIFTY 50:

• NIFTY 50 remains positive YTD at +2.8%, showing resilience despite regional tensions.

• KSE-100 is down approximately -4.55% YTD, with sharper declines following Operation Sindoor.

This divergence isn’t just about headlines. It reflects deeper economic structures:

• India’s diversified market is less exposed to a single sector or shock.

• Pakistan’s capital-intensive sectors are more vulnerable to geopolitical risks, currency pressure, and capital flight.

Price action reacts faster than fundamentals adjust—but prolonged shocks may eventually pull fundamentals lower, especially in weaker economic systems.

This chart illustrates how markets weigh geopolitical events differently based on underlying resilience.

Short-term price vs. long-term fundamentals

In the short term, Operation Sindoor may drive:

• Volatility in both markets

• Foreign outflows from Pakistan

• Elevated regional risk perception

But deeper risks arise if the conflict escalates.

For Pakistan’s key sectors—energy, power, banking—a prolonged conflict could mean:

• Risks to critical infrastructure like pipelines and refineries

• Currency depreciation, raising import costs

• Higher borrowing costs as lenders demand risk premiums

• Delayed or canceled capital projects (source)

Pakistan’s debt burden: a ticking clock

• Pakistan’s external debt stands at ~$131.1 billion USD (source).

• Its annual government revenue is ~$47 billion USD (source).

Pakistan’s debt-to-revenue ratio is ~279%, signaling severe debt distress.

• Debt servicing consumes over 50% of revenue, limiting fiscal space.

• A weakening rupee increases the local currency cost of repaying foreign debt.

Pakistan’s economy depends heavily on IMF assistance, remittances, and external borrowing (source).

This isn’t just about market volatility—it’s about systemic fiscal strain impacting corporate fundamentals.

Comparing India’s debt position

• India’s general government revenue is ~$370 billion USD (source).

• India’s external debt is ~$717.9 billion USD as of Dec 2024 (source).

• Debt-to-revenue ratio is ~194%, but India services debt primarily in its own currency.

• Unlike Pakistan, India mainly borrows in domestic currency and rupees, insulating itself from currency shocks (source; source).

This gives Indian businesses a stronger macroeconomic foundation to weather regional instability.

What if Pakistan’s internal stability worsens?

Reports note tensions in Balochistan, Sindh, and Khyber Pakhtunkhwa, regions with separatist and insurgent movements.

• The Balochistan Liberation Army has engaged in armed conflict seeking greater autonomy or independence(source).

If Pakistan fractures further, businesses could face:

• Loss of centralized regulatory and financial systems

• Currency fragmentation or collapse

• Debt repayment chaos amid political fragmentation

• Infrastructure control disputes impacting operations

For Pakistan’s companies, this wouldn’t just be a stock price issue—it would strike at operational viability.

A crucial investing lesson

I’m sharing this analysis to equip my community with clarity—because moments like these teach us how markets react under stress, and why disciplined investors stay focused on fundamentals.

Price reacts first. Fundamentals adjust slower. But under prolonged stress, even fundamentals deteriorate.

In my free course Essentials for the Informed Investor, we explore:

• How governments raise money through sovereign bonds

• Why credit risk matters for countries and companies

• How structural risks impact stock market fundamentals

If you haven’t taken my course yet, I highly recommend it. It’s free, practical, and helps you see beyond headlines.

Visit www.InformedAndInvested.com to enroll.

And if you’re not already in our Telegram community, this is the kind of thoughtful, fact-based conversation we’re having.

Join us there to stay informed --> https://t.me/+cXiiPvS3aJw3YjJh 

Let’s stay grounded. Let’s stay informed.

— Amit Chandan

Disclaimer

This article is for educational and informational purposes only and does not constitute investment advice, financial advice, or a recommendation to buy or sell any securities. The views expressed are intended to promote financial literacy and informed investing but are not personalized recommendations. Readers should conduct their own research and consult a qualified financial advisor before making investment decisions. The information provided is believed to be accurate as of the date of publication but may be subject to change.