India’s economy keeps beating expectations, yet its stock market is stubbornly refusing to celebrate. The disconnect has left investors wondering what’s going on, and experts say the answer lies in the composition of the benchmark indexes.
On Monday, India reported 7.8% growth for the June quarter, prompting global brokerages to raise their forecasts. Morgan Stanley and Citi both lifted India’s economic growth outlook for the year ending March 2027 — to 7.3% from 6.7% and 6.9%, respectively. Prime Minister Narendra Modi celebrated the data, declaring on Monday that “Doomsayers were doomed, and India bloomed … yet again.”
But when markets opened Tuesday, the Nifty 50 bled red, closing slightly lower. The index is down 8% since the start of the year, putting India’s large-cap benchmarks among the worst-performing major global equity markets — a stark contrast to the economy’s strength.
Experts told CNBC that the headline indexes are heavily concentrated in financial services and IT companies, which aren’t capturing the surge in activity across emerging sectors like manufacturing, fintech, and consumer tech.
Where the growth actually is
“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 CEO of HDFC Securities, told CNBC.
Large banks in India are taking fewer lending risks, while non-banking financial companies — underrepresented in the Nifty 50 — are extending loans to underserved segments like micro-enterprises, rural consumers, and used-vehicle buyers, according to several experts. IT service firms, meanwhile, face revenue and margin pressure amid global AI adoption.
IT and financial services together account for about 45% of the Nifty 50’s weight. The Nifty Bank index has fallen more than 4% this year, while the Nifty IT index is down nearly 18%.
“The story of India’s economic performance is moving outside of the large-cap benchmarks and more into mid- and small-caps,” Garima Kapoor, deputy head of research and economist at Elara Capital, told CNBC’s “Inside India.” She added that disruptions in how India consumes and banks have expanded opportunity for smaller companies, with profit pools “materially” shifting from large-caps to mid-caps.
India’s manufacturing boom, especially in electronics, is also missing from the top indexes. India became the world’s second-largest mobile manufacturer this year, with more than 300 production units versus just two in 2014. Yet companies like Dixon Technologies and Amber Enterprises — whose stocks are up 20% and 16% this year — aren’t part of the benchmark indexes.
“Mid-cap and some small-cap stocks have greater exposure to manufacturing, fintech, consumer technology, and other emerging sectors that are capturing a growing share of economic activity,” Mohammad Hassan, head of APAC equities dividend forecasting at S&P Global Market Intelligence, told CNBC.
The earnings gap
The divergence shows up in earnings. In the June quarter, Nifty 50 companies posted average earnings growth of 11%, while mid-caps reported 31% growth from a year earlier, according to data from Indian broking firm Ambit Capital. For the financial year ending March, Nifty 50 profits rose by an average of 12%, but Nifty Midcap 150 profits surged 44%.
Mid-cap firms are also ramping up investment. Listed Indian companies’ capex has more than doubled to 14.5 trillion rupees ($152.6 billion) over the six years ending March 2026, Ambit Capital said in an August report. The mid-cap share of that capex rose to 20% from 14%, while the share of 100 large-caps fell from 78% to 72%.
The results are visible in index performance: over the last year, the Nifty 50 has declined by more than 2%, while the Nifty Midcap 150 is up 10%, according to LSEG data.
Midcap and small-cap indexes are “more direct proxies for domestic economic acceleration,” Relli said, noting that a growing number of these firms are crossing $1 billion market-cap milestones. He added, “A large part of India’s economic activity comes from sectors and businesses that are either unlisted or have limited representation in the major equity indices.”
Source: www.cnbc.com — https://www.cnbc.com/2026/09/03/india-nifty-sensex-manufacturing-economy-gdp.html
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