India’s economy may be expanding at a pace that commands global attention, but its stock market is telling a less comfortable story. The divergence is not a paradox. It is a reminder that economic growth and investment returns are related, but far from identical. A country can produce more goods and services while its listed companies fail to generate the earnings investors expect. Markets price the future, not the present. India’s recent experience suggests that investors are becoming less willing to pay a premium simply for the promise of rapid growth.

The immediate pressures are familiar but consequential. Prolonged disruption around the Strait of Hormuz has pushed crude prices sharply higher. For an economy that imports more than 90 per cent of its oil requirements, this is more than an energy problem. Expensive crude feeds into inflation, corporate costs, the current account and household purchasing power. It can therefore weaken both company profitability and the consumption that sustains economic expansion. At the same time, global capital has alternatives. Elevated US bond yields make American government securities relatively attractive without the risks associated with emerging markets. For foreign investors, a weakening rupee compounds the problem:........

© The Statesman