Hello, this is Priyanka Salve writing from Singapore.
Welcome to the latest edition of Inside India. A one-stop-shop for the stories and developments of the world’s fastest growing large economy.
India’s quarterly economic growth has exceeded expectations multiple times over the past year despite a challenging global trade environment, high energy prices and geopolitical uncertainty. However, this has not boosted the country’s main stock benchmarks, which remain among the worst performing of the world’s major indexes.
To understand what’s behind that disconnect, I spoke to experts.
Do you have any thoughts on today’s newsletter? Share them with the team.
big story
India is outperforming growth expectations even as major economies such as the US, China and Japan are slowing down. But the country’s main stock benchmarks have struggled to reflect that strength, suggesting a deepening disconnect between the market and the economy.
India’s economy on Monday surprised with 7.8% growth in the June quarter, prompting global brokerages to upgrade their economic forecasts for the country. Analysts also highlighted that the Indian economy is firing on all cylinders, with high-frequency indicators showing that the country’s consumption and investment are holding up.
Global brokerages Morgan Stanley and Citi have raised their forecasts for India’s economic growth rate for the year to March 2027 to 7.3% from their earlier forecasts of 6.7% and 6.9%, respectively.
“The prophets were doomed and India has blossomed again,” Indian Prime Minister Narendra Modi said on Monday, celebrating the economy’s strong performance.
But when the market opens on Tuesday, nifty 50 His blood is red and he appears to be the biggest skeptic of the country’s robust economic growth prospects.
KOLKATA, WEST BENGAL, INDIA – 29/08/2026: Workers are seen welding joints on giant instruments at an ironware manufacturing unit in Kolkata.
Sopa Images | Light Rocket | Getty Images
The index, which has fallen 8% since the beginning of the year, again traded weakly, closing slightly lower. Since January, India’s benchmark index has been one of the worst performing among the world’s major stock markets.
Experts told CNBC that large-cap indexes such as the Nifty 50 are concentrated in stocks of financial services and IT companies and fail to capture the rise in economic activity in emerging sectors such as manufacturing, fintech and consumer technology.
“While the overall index has been slow due to weakness in some large-cap stocks, small and mid-cap stocks have performed much better,” HDFC Securities Managing Director and Chief Executive Officer Dheeraj Lehri told CNBC.
Experts say India’s big banks are reducing lending risks, while non-banking financial companies, which are underrepresented in the Nifty 50, are expanding lending to underserved groups such as micro-enterprises, rural consumers and used car buyers.
Meanwhile, IT service companies are facing pressure on revenues and profits amid the global adoption of AI.
IT companies and financial services companies together account for about 45% of the Nifty 50’s weight. Since the beginning of the year, the Nifty Bank index has fallen over 4% year-to-date, while the Nifty IT index has fallen nearly 18%.
Garima Kapur, deputy head of research and economist at Elara Capital, told CNBC’s “Inside India” that the story of India’s economic performance is shifting beyond large-cap benchmarks and toward mid-cap and small-cap stocks.
Mr. Kapur said there has been disruption to India’s consumption and banking landscape, which is expanding opportunities for small and mid-caps, adding that the profit pool is “substantially” shifting from large-caps to mid-caps.
underlying changes
India’s recent successes in electronics manufacturing are also not reflected in the top index. Earlier this year, India became the world’s second-largest mobile phone maker, with production exceeding 300 units, compared to just two in 2014.
electronic equipment manufacturing companies such as Dixon Technologies and amber enterprisesshares have risen 20% and 16% since the beginning of the year, but are not included in the benchmark stock index.
Mohammad Hassan, head of Asia-Pacific equity dividend forecasting at S&P Global Market Intelligence, told CNBC that mid-cap stocks and some small-cap stocks have “higher exposure to manufacturing, fintech, consumer technology and other emerging sectors that are increasing their share of economic activity.”
The average profit growth rate for Nifty 50 companies was 11% in the June quarter, while mid-cap stocks reported 31% year-on-year growth, according to data shared with CNBC by Indian brokerage firm Ambit Capital. In the fiscal year ended March, profits of Nifty 50 companies increased by an average of 12%, while profits of Nifty Midcap 150 companies increased by 44%.
Nitin Bhasin, head of institutional equities at Ambit Capital, told CNBC that mid-cap companies are also investing more in building new capacity.
Ambit Capital said in an August report that capital spending by listed companies in India more than doubled to 14.5 trillion rupees ($152.6 billion) in the past six years to March 2026. According to the report, the proportion of mid-cap stocks increased from 14% to 20%, while the proportion of large-cap 100 companies fell from 78% to 72%.
As a result of these changes, the Nifty 50 index fell over 2% last year, while the Nifty Midcap 150 index rose 10%, according to LSEG data.
HDFC’s Leli said the mid-cap and small-cap indexes “more directly represent the acceleration of the domestic economy” and that many of these companies have crossed the key milestone of $1 billion market capitalization, adding that “the bulk of India’s economic activity comes from sectors and companies that are either unlisted or have limited representation in major stock indexes.”
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