This report is from this week's CNBC's"Inside India" newsletter which brings you timely, insightful news and market commentary on the emerging powerhouse and the big businesses behind its meteoric rise. Like what you see? You can subscribeBut an 8% rally in U.S. stocks since the big Aug. 5 sell-off has left the Indian benchmark in the dust.
"We believe that potential beats in Autos, Industrials, Healthcare, and IT may not be enough to offset the misses in Financials, Metals, and Energy," said Amish Shah, equity strategist at Bank of America."Besides, slowing global growth is a risk." Since the stock market isn't representative of the Indian economy — energy makes up a significant portion of the Nifty 50 while being a relatively small portion of the GDP — any hit to oil and gas firms' earnings leaves investors with wobbling returns. GDP growth, meanwhile, might continue to stay the course.
"Indian equities are enjoying strong price momentum and earnings growth, but remain highly correlated to, and arguably dependent on, the continued performance of US equities in a late cycle environment," said Maximilian Macmillan, a senior investment director at U.K. asset manager Abrdn, told CNBC's Inside India."Bonds offer diversification from this dominant and singular source of performance, though they are not risk immune.
"While foreign investor flows in equities are volatile, India is attracting heavier foreign debt inflows owing to the listing of Indian sovereign bonds on global bond indexes," said Shumita Deveshwar, chief India economist at TS Lombard.