Stock markets experienced record-breaking gains. What to do next?

This report comes from this week’s CNBC “Inside India” newsletter, which brings you timely, insightful news and market commentary on the emerging powerhouse and the big players behind its meteoric rise. Like what you see? You can subscribe here.

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Indian stocks reached dizzying heights this week, posting a record 14-day gain.

The stock market also hit six all-time highs during this period.

However, this enthusiasm is not new. this nifty 50 Marching takes place all year round. According to CNBC statistics, 44 of the 169 trading days this year hit record highs.

However, the latest economic data shows the first flaw in the South Asian nation’s otherwise perfect growth story. GDP slowed to 6.7% in the second quarter, compared with 8.2% in the same period last year.

Bank of America quickly lowered India’s near-term economic growth rate for this fiscal year to 6.8%, compared with the previous forecast of 7.2%. Wall Street banks also expect GDP to grow only slightly to 7% next year, lower than the Reserve Bank of India’s forecast.

Rahul Bajoria, economist at Bank of America in India, said: “As other macro indicators indicate, such as low inflation, a small current account deficit and a rapidly consolidating fiscal balance, the economy is weak “This is further confirmed by the wavering of consumer and business confidence, even as asset prices continue to rise. “

If this continues, an economic slowdown could become a major risk for the stock market. Not only is this the first slowdown in economic growth since the Covid-19 pandemic, it also comes at a time of tightening monetary and fiscal policy.

Domestic politics also pose risks. If the government shifts spending from capital to welfare spending, a likely shift since Prime Minister Narendra Modi’s party lost its majority in the general election, it risks reigniting inflation while weakening what would otherwise be a fundamental shift in spending. Downward pressure came from corporate profits that benefited from construction spending.

Morgan Stanley said these risks could manifest in the form of a stock market correction, meaning stocks are down more than 10% from their recent peak.

But the most surprising concern for investors this week may come from the success of the stock market itself.

Indian stocks currently have the largest weighting in the MSCI Emerging Markets Investable Market Index at 22.14%, surpassing China’s 21.5%.

“Rising index weights could be a sign of prosperity,” Morgan Stanley’s Ridham Desai said in a Sept. 4 note to clients. “Of course, that could also be the case. This is due to fundamental factors such as improving free float and rising relative returns.

The equity strategist believes that as foreign investors allocate more funds to India, their bids are outstripped by systemic domestic flows, pushing up valuations.

Desai pointed to the history of China, which in 2008 became the country with the largest weight in the index. Over the next four years, Chinese stocks underperformed broader emerging market indexes.

“India does not need to follow the same template, but it is worth noting that India’s share of global GDP is increasing and therefore its share of global markets is increasing,” Desai said. “India does not need to follow the same template The weight in may still have some way to go before it reaches its peak.

need to know

India, Singapore reach agreement on chips. Following his historic visit to Brunei, Indian Prime Minister Narendra Modi paid a two-day visit to Singapore this week. The two governments signed a memorandum of understanding on cooperation in many key areas such as semiconductors. CNBC reporter Tanveer Gill managed to discuss it with Modi during his visit.

Water shortages may be brewing future wars. One expert told CNBC that dwindling water resources should be considered one of the most pressing environmental security challenges of this century. While not limited to India, there have been warnings that shortages could damage New Delhi’s sovereign credit strength, with both the Brahmaputra and Indus rivers described as particular flashpoints.

First stop India. (Subscriber Content) Malcolm Dorson, senior portfolio manager of the Global X ETF, told CNBC that investors are “looking for international allocations, and their first stop is India.” He has earmarked six large-cap stocks as a way to tap into the Indian market.