The connection between the Indian and US inventory markets has advanced considerably, reflecting the distinct financial landscapes and market dynamics of every nation. Not too long ago the rolling 1years correlation equation of India to the US inventory market has lowered to 0.10 after peaking at 0.96 in Sept 2024. Over the previous six months particularly, the 2 markets have exhibited divergent behaviour, shifting in reverse instructions—a departure from their historic sample.
If we go by the long-term correlation of India to the U.S., it’s comparatively excessive at 0.97 within the final 10 years, which is as good, whereas it’s comparatively low at 0.70 within the century. Typically, the equation is as constructive when the fairness market strikes in tandem primarily based on the event of every regional economic system, like India and the US economic system, which have performed properly within the final 10yrs, offering a CAGR of 12% and 10%, respectively.
Nonetheless, this relationship tends to fluctuate in response to shifts in home financial circumstances, political developments, geopolitical tensions, and altering investor sentiment between risk-on and risk-off. Not too long ago, the correlation between the Indian and U.S. inventory markets has remained comparatively low, suggesting that the 2 markets are shifting extra independently. For example, in Q4CY24, amidst world market volatility, the S&P 500 rose by 3%, whereas the Nifty 50 skilled a big decline of 4%, largely pushed by India’s premium valuations and company earnings downgrades.
In distinction, year-to-date 2025 (Jan to April finish), the U.S. market has declined by 6%, whereas the Indian market has edged up by 1%. Notably, in April alone, the Indian market surged by 9%, considerably outperforming world indices following the pause on reciprocal tariffs introduced on April 9. India’s relative outperformance to date in 2025 means that a lot of the draw back threat has already been priced into home equities. Extra importantly, it additionally displays the market’s resilience amid world commerce uncertainties, indicating lowered vulnerability to exterior tariff-related pressures.
Following a interval of consolidation within the Indian inventory market from September 2024 to March 2025, the latest constructive divergence in its efficiency could be attributed to a number of key components. Firstly, the Indian economic system is exhibiting stronger progress, supported by sturdy home demand and proactive authorities measures to reinforce infrastructure and drive funding. Company earnings are additionally projected to enhance in FY26 in comparison with FY25, including to investor confidence. Secondly, India’s economic system is closely skewed in direction of the companies sector, which accounted for ~55% of GDP in FY25, whereas the manufacturing sector contributes a relatively smaller share of round 17%. This sectoral composition makes the Indian inventory market much less uncovered to world tariff-related disruptions and extra conscious of service exports and home consumption traits.
Nonetheless, India’s position on this planet manufacturing sector is prone to multiply within the long-term as managers are in search of various suppliers. Equally, then again, the US economic system, which is experiencing progress slowdown right now, is prone to impression the India companies sector, like IT, within the quick to medium-term. The US inventory market is closely influenced by the efficiency of enormous multinational companies, equivalent to know-how firms making it vulnerable to coverage fluctuations, thus slowing the world market too.
U.S. financial information for Q1 2025 factors to indicators of a possible slowdown; nevertheless, that is largely considered as a short-term impact stemming from a buildup of inventories forward of anticipated tariff hikes. Whereas some enchancment is predicted within the upcoming quarter, sustainability stays unsure attributable to unresolved trade-related disruptions. The imposition of steep tariffs—such because the 145% levy on Chinese language imports and sector-specific duties of 25% on cars, metals, and different key items—mixed with a 90-day pause on reciprocal tariffs, has created appreciable uncertainty for companies in search of to safe various suppliers. This uncertainty is prone to result in larger enter prices, which can finally be handed on to customers, thereby fuelling inflationary pressures.
After the latest sturdy efficiency of the home market, Nifty50 trades above 24,000, market beneficial properties are trimmed within the near-term. Regardless of rising world optimism and heightened expectations surrounding a possible commerce settlement between the US and India, broad indices stay largely flat attributable to escalating tensions alongside the LoC. The latest rally has triggered revenue reserving and a rotation throughout sectors, like from broad indices & banks to IT shares currently. Neither the muted This autumn outcomes is offering supportive to take care of the final month’s optimism. Nonetheless, renewed momentum in US-China commerce negotiations and a weakening greenback are seen as constructive drivers for EMs like India, within the medium-term.
On this evolving world commerce panorama, India could also be positioned extra favourably. The sharp decline in correlation between Indian and U.S. inventory markets means that India is more and more shifting on a differentiated trajectory. With a resilient home economic system, increasing manufacturing prospects, and restricted publicity to direct tariff dangers, India may outperform different world markets within the medium time period, significantly if world provide chain realignments proceed to shift in its favour.
The creator, Vinod Nair is Head of Analysis at Geojit Monetary Providers.
Disclaimer: The views and suggestions made above are these of particular person analysts or broking firms, and never of Mint. We advise traders to test with licensed consultants earlier than making funding choices.
