India's GDP Surpasses Estimates, but Dalal Street Struggles

India's GDP has clocked a 7.8% growth, surpassing estimates. However, the stock market is experiencing a downturn, with benchmark indices falling more than 1% and investors losing a substantial amount of money.

Since the start of 2026, the Sensex has declined by nearly 15%, while the Nifty50 has fallen by almost 13%. This decline is more pronounced compared to its global peers.

With South KoreaIt's Kospi having surged 63% despite its economy being expected to grow at a rate of 1.9%. In contrast, the US, where growth is forecast at 2.3%, has seen its stocks flirting with record highs.

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The disparity between India's GDP growth and the stock market's performance can be attributed to the difference in their underlying drivers. While the GDP is based on past actual economic activity, the market pricing is influenced by the future macroeconomic scenario, projected profitability, and perceived risks that investors anticipate may emerge in the future.

Foreign portfolio investors ended a two-month buying streak in September. With a significant monthly outflow of Rs 2,56,620 crore ($2.7 billion), their highest monthly outflow in six months. This has put foreign investors on track for record annual withdrawals.

India's reliance on crude imports makes it particularly vulnerable to sharp increases in international oil prices. Higher oil prices can also increase inflation risks and squeeze corporate margins, particularly for fuel-intensive businesses.

Initially, the rupee had strengthened to Rs 94.26 against the dollar, thanks to strong inflows under the RBI's FCNR(B) deposit scheme and record-high foreign exchange reserves. However, a stronger dollar, rising oil prices, and FPI outflows later weighed on the currency.

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The depreciation of the currency can have a negative impact on foreign investors' returns. As higher oil prices may worsen overall inflation and supply chain mechanisms, affecting corporate margins.

High bond yields can also reduce the cost-effectiveness of stocks compared to relatively safe instruments.

Despite strong GDP growth, the outlook for corporate earnings remains uncertain, with the immediate prospects described as volatile and event-driven, offering room for rallies but not enough reasons to suggest a turnaround just yet.