Shares at the Pakistan Stock Exchange (PSX) bounced back on Friday after a steep plunge on Wednesday.

The benchmark KSE-100 index increased by 2,787 points, or 2.5 per cent, to close at 114,113.93.

On Wednesday, the market had plunged by more than 3,500 points.

Yousuf M Farooq, director research at Chase Securities, noted, “The market is tracking India-Pakistan tensions, and some news flow has indicated de-escalation, prompting a rebound today.”

He continued that investors were also encouraged by the inflation data and the monetary policy announcement on Monday, with expectations of a rate cut ranging from 50 to 100 basis points.

“Additionally, Pakistan’s IMF [International Monetary Fund] board approval is scheduled for the 9th. As a result, market participants are primarily focused on developments regarding regional tensions, interest rates, and the upcoming IMF decision.”

Awais Ashraf, director of research at AKD Securities, also attributed the increase to the lack of any military action from India.

“The likelihood of a full-scale war between Pakistan and India remains low, constrained by the nuclear deterrence factor,” he said.

“[This] has boosted investor confidence, prompting them to take positions in stocks that align well with Pakistan’s improving economic conditions.”

In recent days, Washington urged India and Pakistan to work with each other to de-escalate tensions and arrive at a “responsible solution.”

The US State Department has said it was in touch with the nuclear-armed neighbours at multiple levels and Secretary of State Marco Rubio held calls on Wednesday with Prime Minister Shehbaz Sharif and Indian Foreign Minister Subrahmanyam Jaishankar.