(Bloomberg) -- Stocks in Pakistan and India rallied as a ceasefire agreement between the two nuclear-armed neighbors calmed markets that had been shaken by military clashes on their border.

Most Read from Bloomberg

A New Central Park Amenity, Tailored to Its East Harlem Neighbors As Trump Reshapes Housing Policy, Renters Face Rollback of Rights Is Trump’s Plan to Reopen the Notorious Alcatraz Prison Realistic? What’s Behind the Rise in Serious Injuries on New York City’s Streets? NYC Warns of 17% Drop in Foreign Tourists Due to Trump Policies

Pakistan’s stock benchmark KSE-30 Index surged as much as 9.2%, the most since 2008, in a rally that triggered an hour-long trading halt. The NSE Nifty 50 Index jumped as much as 3.5% in Mumbai, as both nations stepped back from the brink of war, allowing market participants to turn their focus back to the economic outlook for the South Asian nations.

“Given how quickly things were escalating last week, the developments over the weekend are a move in the positive direction,” said Brussels-based Vivek Dhawan, a fund manager at Candriam. “The focus could return to the Indian growth story.”

Investors had been nervous. The Nifty slid more than 1% on Friday — its steepest fall in over a month — while the rupee was one of Asia’s worst performers last week. Bond yields crept higher as risk premiums widened, although debt purchases by the Reserve Bank of India helped limit the declines. Pakistan’s key stock index had tumbled 9% since the April 22 attack in Kashmir, which prompted India to retaliate.

Foreign investors, who had been on a 16-day buying streak until Friday, may resume inflows, drawn by India’s positive economic signals, including prospects of an early US trade deal, ample liquidity, and anticipated interest rate cuts.

The Indian rupee rose as much as 0.9% versus the dollar in the offshore market. India’s bonds and currency markets are closed on Monday for a public holiday. The National Stock Exchange of India Ltd.’s volatility gauge fell to 17.2, its lowest level since April 30. The five-most traded Nifty 50 options were all bullish, with May 25,000-rupee calls expiring Thursday clocking the highest volume.

Still, the threat of renewed tensions remains, as India has yet to lift its abeyance on the Indus Water Treaty — a move that could harm a large part of Pakistan’s farm output. Meanwhile, a top Indian diplomat said that Pakistan violated the truce just hours after it was declared, a claim Pakistan has denied.

“Reports of violations within a few hours of the ceasefire announcement may cast some doubt on its sustainability,” Barclays Bank Plc. strategists including Avanti Save wrote in a note. The UK bank retained overweight on Pakistan credit and expects a reversal in Indian rupee losses.

Story Continues

Over in Pakistan, traders expect the country’s economic reforms to regain focus as border tensions had eclipsed a surprise interest-rate cut by the State Bank of Pakistan and prospects for additional IMF funding. The International Monetary Fund Friday approved $1 billion in immediate disbursement along with a new $1.4 billion plan for climate resilience, which will be a booster for its fragile finances. Dollar bonds rose, while the rupee traded steady.

Should the ceasefire hold, the upcoming review of the MSCI Inc.’s indexes — where Pakistan’s weight may increase — along with the federal budget will be the next catalysts for the rally to sustain, according to Karachi-based brokerage Arif Habib Ltd.

“With war tensions easing, investor focus is expected to shift back to accelerating economic reforms,” said Ali Raza, head of international equity trading at Bma Capital Management Ltd. “The SBP’s recent rate cut, previously overshadowed, and dual loan disbursement by IMF, will come back into play.”

--With assistance from Savio Shetty, Subhadip Sircar, Ashutosh Joshi and Malavika Kaur Makol.

(Adds Pakistan dollar bonds reaction in ninth paragraph.)

Most Read from Bloomberg Businessweek

US Border Towns Are Being Ravaged by Canada’s Furious Boycott How the Lizard King Built a Reptile Empire Selling $50,000 Geckos With the New York Liberty, Clara Wu Tsai Aims for the First $1 Billion Women’s Sports Franchise Maybe AI Slop Is Killing the Internet, After All Pre-Tariff Car Buying Frenzy Leaves Americans With a Big Debt Problem

©2025 Bloomberg L.P.