India’s economic growth and stock market at odds?

Hello, this is Priyanka Salve, writing to you from Singapore.

Welcome to the latest edition of “Inside India“ — your one-stop destination for stories and developments from the world’s fastest-growing large economy.

India’s quarterly economic growth has exceeded expectations several times over the past year, defying a bleak global trade environment, high energy prices and geopolitical uncertainties. But this has failed to boost the country’s key stock benchmarks, which have been among the worst-performing major indexes globally.

I spoke with experts to understand what’s behind that disconnect.

Any thoughts on today’s newsletter? Share them with the team.

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. Analysts also underscored that all cylinders of the Indian economy were firing, with high-frequency indicators showing that consumption and investment in the country were holding up.

Global brokerages Morgan Stanley and Citi raised their economic growth forecasts for India to 7.3% for the year ending in March 2027 from 6.7% and 6.9%, respectively, estimated earlier.

Celebrating the economic outperformance, Indian Prime Minister Narendra Modi said on Monday that “Doomsayers were doomed, and India bloomed … yet again.”

But when the markets opened on Tuesday, the Nifty 50 bled red, seeming like the biggest skeptic of the country’s robust economic growth outlook.

The index, which has dropped 8% since the start of the year, clocked another weak session, closing slightly lower. Since January, India’s benchmark indexes have been among the worst-performing across major global equity markets.

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.

“The headline indices have been held back by weakness in some large-cap names, while small- and mid-cap stocks have performed much better,” Dhiraj Relli, managing director and chief executive of HDFC Securities, told CNBC.

Large banks in India are taking fewer lending risks, while non-banking financial companies, which are underrepresented in the Nifty 50, are extending loans to unserved segments such as micro-enterprises, rural consumers, and used-vehicle buyers, several experts said.

IT service companies, meanwhile, are facing revenue and…