IND vs PAK: Why Pakistan’s Stocks Soared While India’s Paused
- Gabriela Galeena
- Dec 29, 2025
- 4 min read
In 2025, the stock markets of India and Pakistan - two neighbouring South Asian economies - told sharply different stories. While Pakistan’s equity market stunned investors with a powerful rally, India’s market slowed after a strong previous year. The contrast highlights how emerging markets, even within the same region, can move in very different directions depending on valuations, capital flows, and policy signals.
Pakistan’s stock market emerged as one of the surprise winners of the year. The benchmark KSE-100 index climbed by around ~56%, earning a reputation as one of Asia’s strongest-performing equity markets. This surge was less about rapid economic expansion and more about a reset in investor expectations. After years marked by economic stress, currency weakness, and political instability, Pakistani stocks were trading at extremely low valuations - some at price-to-earnings ratios of just 3 to 5X. Once fears of a sovereign default eased, investors began to reassess the market. Support from the International Monetary Fund, expectations of lower interest rates, and rising participation from local retail investors helped drive a sharp re-rating of equities. By late 2025, Pakistan’s total market capitalisation had risen to roughly USD 67.3 billion, reflecting renewed confidence.
This market revival has been closely tied to external funding and reform commitments. During the current quarter, the IMF disbursed USD 1.2 billion, exceeding the amount released in the same period last year. Saudi Arabia added further support through a USD 500 million oil facility, with planned investments across oil refining, agriculture, mining, power, technology, and aviation. The World Bank also approved USD 700 million in financing, largely linked to federal-level reforms and provincial development programmes in South Sindh. In return, Pakistan committed to policy changes spanning tax reform, energy-sector restructuring, and governance improvements, measures aimed at stabilising the economy and supporting medium-term growth. Global attention on the oil and gold-copper projects in Pakistan has been another driving point. The US and Europe are in talks with the agreement, while China has already established itself in the industrial region. Reflecting this momentum, Bloomberg described Pakistan as one of the strongest-performing equity markets of 2025, even as it remains among the world’s largest IMF borrowers.
India’s market, meanwhile, followed a far more measured path. With a total market capitalisation of about USD 5.13 trillion, India remains one of the world’s largest and deepest equity markets. Benchmarks such as the Nifty 50 and Sensex continued to show resilience, but foreign investors turned cautious. So far, foreign portfolio investors have withdrawn around USD 18.5 billion, driven by global risk aversion, valuation concerns, and capital shifting toward developed markets. Crucially, this selling pressure has been absorbed by domestic institutional investors, helping keep the market broadly stable.
The returns of Nifty 50 and KSE 100 to date are as follows:
RETURNS | INDIA | PAKISTAN |
|---|---|---|
6 MONTHS | 1.93% | 39.71% |
1 YEAR | 10% | 56.06% |
3 YEAR | 43.43% | 320.67% |
5 YEAR | 85.53% | 301.67% |
Even so, 2025 marked a clear slowdown for Indian equities. After delivering returns of around 22% in FY 2024, the market posted gains of only about 5% in FY 2025, making it one of the weaker performers among major global markets this year. Foreign direct investment also softened, with withdrawals estimated at USD 35.4 million. Elevated valuations, a slowdown in corporate earnings growth, and increased global competition for capital - particularly after China rolled out fresh stimulus measures to attract investors - have weighed on sentiment. That said, optimism remains that new tax cuts and structural reforms could revive earnings momentum in the periods ahead.
The wider economic backdrop explains much of this divergence. India’s economy, at nearly USD 4.13 trillion, is more than ten times the size of Pakistan’s USD 410.5 billion economy, giving it stronger buffers against global shocks. India is also more integrated into global trade, with exports accounting for about 21.2% of GDP, compared with 10.4% for Pakistan. Monetary conditions reflect this contrast: Pakistan’s interest rates, which peaked at 22% in 2023, remain high at 10.5%, while India’s rates have eased to around 5.2%, supporting domestic growth.
Inflation and employment trends further set the two economies apart. Pakistan continues to grapple with higher inflation of 6.1% and unemployment of 5.5%, which strains household incomes. India, by contrast, has seen inflation fall to 0.71% - its lowest level in a decade - while unemployment stands at 4.7%, supporting consumption. These differences show up in capital flows and currencies as well: Pakistan has faced volatile capital outflows and a weaker currency near 280.15 per US dollar, while India’s outflows have been more stable and its currency stronger at around 89.91 per dollar.
Ultimately, the divergent market performances of India and Pakistan reflect different stages of the economic and market cycle, rather than simple success or failure. Pakistan’s rally represents a catch-up trade, driven by low valuations and reform-linked confidence. India’s market, meanwhile, remains structurally grounded, supported by scale, domestic capital, and long-term growth potential, even as it goes through a period of consolidation.
Disclaimer: This content is for educational purposes only; please conduct your own research and consult a qualified investment advisor before making investment decisions.
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