Despite facing adverse trade conditions and rising energy prices, India’s economy expanded 7.8% in the June quarter, beating forecasts. However, this resilient economic growth story is not reflected in the country’s key stock benchmarks.
Market experts say that India’s economic growth is shifting away from large banks to non-banking financial companies (NBFCs), from mass-market staples to consumer tech companies, and from IT to manufacturing:
Many companies in the emerging sector are represented in the midcap and small-cap indexes and not the Nifty 50:
The big story
India is beating growth expectations even as major economies such as the U.S., China, and Japan are seeing a slowdown. But the country's key stock benchmarks are struggling to reflect that strength, hinting at a festering disconnect between markets and the economy:
On Monday, the Indian economy surprised with a 7.8% growth in the June quarter, leading global brokerages to upgrade their economic forecasts for the country:
Celebrating the economic outperformance, Indian Prime Minister Narendra Modi said on Monday that "Doomsayers were doomed, and India bloomed … yet again." However, when the markets opened on Tuesday, the Nifty 50 bled red, seeming like the biggest skeptic of the country's robust economic growth outlook:
Experts told CNBC that large-cap stock indexes such as the Nifty 50 are heavily concentrated on stocks of financial services and IT companies, which do not capture heightened economic activity in emerging sectors such as manufacturing, fintech, and consumer tech:
Small- and mid-cap stocks have performed much better:
Underlying shift
India's recent success in electronic manufacturing has also not been captured by top indexes:
Earlier this year, India became the world's second-largest mobile manufacturer, with more than 300 production units:
Mid-cap companies are also investing more in building new capacity:
As a result of these shifts, in the last year, while the Nifty 50 has declined by more than 2%, the Nifty Midcap 150 index is up 10%:
