ISLAMABAD: Pakistan’s benchmark KSE-100 index fell on Friday amid escalating tensions with Afghanistan as Pakistan bombed government targets in Kabul and Kandahar where the Afghan Taliban leadership is based, triggering early selling pressure before the market recovered from sharp intraday losses.

The strikes marked a significant escalation in cross-border tensions between Islamabad and Kabul, raising concerns about potential retaliation and broader regional instability. The development comes at a time when relations between the two sides have been strained for months over security issues along the border and militant attacks in Pakistan that it blames on Afghan-based groups. Kabul denies it harbors such outfits. 

Heightened geopolitical risk tends to weigh on investor sentiment, particularly in emerging markets, as uncertainty over security and diplomatic fallout can prompt risk-off positioning and capital outflows. Traders said investors reacted swiftly to the headlines, pricing in the possibility of further escalation.

“KSE 100 Index opened on a negative note and declined to make an intraday low of -3,081 points (down by -1.82 percent), this negativity can be accredited to regional tension with Afghanistan, where Pakistan targeted key military installation of Afghanistan Taliban regime in Kabul,” brokerage house Topline Securities said in its market review.

The index dropped as much as 3,081 points, or 1.82 percent, during the session before recovering part of the losses after no retaliatory strikes were reported.

It settled at 168,062 points, down 0.49 percent on the day.

Losses were led by United Bank Limited, Fauji Fertilizer Company, Oil and Gas Development Company, Pakistan Petroleum Limited and MCB Bank Limited, which together shaved 658 points off the index.

National Bank of Pakistan, MCB Bank, Pakistan Petroleum Limited, Bank of Punjab and Bank Alfalah led trading by value.

Traded volume and value for the day stood at 533 million shares and 25.5 billion respectively.

Separately, a brokerage house said Pakistan’s headline inflation is likely to rise to around 7.4 percent in February ahead of the State Bank of Pakistan’s March 9 monetary policy meeting.

“Headline inflation is estimated at ~7.4 percent for Feb’26, compared to ~1.5 percent in SPLY and ~5.8 percent in preceding month,” Insight Research said. “The increase in mainly driven by low base effect.”