Business & Finance
India’s Stock Market Slumps Despite Strong Economic Growth
By Today News Hours Editorial Desk
India’s economy is expanding at more than 7% amid global energy shocks, rising interest rates, tariff uncertainties and weather‑related disruptions, yet its major equity markets have performed poorly in 2026. The benchmark Sensex and Nifty indices have risen only slightly since Monday after posting losses for eight straight weeks, the longest losing streak in 25 years, according to Reuters. Indian retail investors who have invested in the Nifty have seen their wealth fall by about 15% this year, compared with 62% returns on Korea’s Kospi since January or 170% over the last two years. Over the past decade, net foreign investment in Indian markets is almost zero; foreign institutional investors withdrew $40 billion in the last two years, according to Bernstein Research. Domestic institutional and retail money has helped prevent a sharper fall. Mutual‑fund assets under management grew from about $125 billion in 2016 to roughly $900 billion this year, and the number of Indians investing in stocks and mutual funds has more than tripled to 150 million individuals. This makes the recent market decline more concerning, as households already facing a weak job market, high inflation and faltering consumption are now seeing their equity savings erode.
Five factors explain why India’s booming economy has not lifted its stock market:
1. **Persistent energy shocks** – Crude oil prices have hovered between $90 and $100 a barrel as shipping disruptions through the Strait of Hormuz enter their eighth month. India imports more than 90% of its oil, half of which passes through the strait, and the country’s reliance on Russian oil and potential U.S. tariffs on Moscow‑linked trade add uncertainty. Fund manager Hari Shyamsunder of Franklin Templeton Asset Management India told the BBC that markets can absorb crude between $70 and $90, but prices above $100 strain inflation, earnings and margins.
2. **Rising global interest rates** – Higher oil‑driven inflation has pushed global rates up. The yield on U.S. government bonds is above 5%, near 25‑year highs, making risk‑free assets attractive. Consequently, foreign capital tends to leave riskier emerging‑market equities such as India’s for safer U.S. bonds.
3. **Falling rupee** – A weaker rupee has reduced foreign investors’ returns in dollar terms. Over the past decade, the Nifty has delivered only 6% annualised dollar returns, a figure that is unattractive compared with other emerging markets.
4. **High valuations** – The two‑year market correction has trimmed the premium that Indian stocks once held over other emerging‑market competitors. Shyamsunder notes that while Indian shares are cheaper than in the past decade, they remain expensive relative to earnings, especially as companies in South Korea and Taiwan have benefited from an artificial‑intelligence boom.
5. **Missing AI and new‑economy growth** – Bernstein Research says many of India’s large caps represent a bygone era and are not investing in future‑growth sectors. Smaller companies have not yet reached the scale to attract foreign institutional funds. While India is investing in data centres, chip fabrication and other deep‑tech areas, it has yet to produce a global AI giant, limiting the potential for high‑profit sectors.
Looking ahead, easing geopolitical tensions and attractive valuations could support a revival of foreign portfolio inflows, CareEdge brokerage suggests, though trade tensions and higher energy prices remain a challenge for corporate performance. Corporate margins will become clearer as companies report quarterly earnings from this week. Meanwhile, Indian savers continue to invest in mutual funds, and the real test will be whether this resilience endures a deeper correction in the future.