The evolving dynamics between the Indian and U.S. stock markets highlight significant shifts in their economic landscapes. Recent data indicates that the correlation between these two markets has plummeted to 0.10, a stark contrast to the 0.96 peak recorded in September 2024. This notable decline signifies a growing divergence, with both markets now often moving in opposite directions—a departure from their historical trends.
Shifting Correlations: A Long-Term Perspective
When examining the long-term correlation, India has maintained a relatively high connection with the U.S. market, with a remarkable 0.97 over the past decade. However, this figure drops to 0.70 when considering a century’s worth of data. Typically, such correlations indicate that equity markets move in tandem, influenced by regional economic developments. Over the past ten years, both economies have performed well, achieving a CAGR of 12% in India and 10% in the U.S.
- Current correlation: 0.10 (as of recent analysis)
- Decadal correlation: 0.97
- Century correlation: 0.70
Divergence in Market Performance
The recent trend showcases a significant disparity in market behavior. For example, during the last quarter of 2024, while the S&P 500 gained 3%, the Nifty 50 saw a drop of 4%. This decline was primarily attributed to India’s inflated valuations and lowered corporate earnings forecasts. In contrast, from January to the end of April 2025, the U.S. market experienced a 6% decline, whereas the Indian market managed a modest 1% increase, underscored by a robust 9% surge in April alone.
- S&P 500 Q4 2024: +3%
- Nifty 50 Q4 2024: -4%
- YTD 2025 U.S. Market: -6%
- YTD 2025 Indian Market: +1%
- April 2025 Surge in Indian Market: +9%
Factors Driving India’s Recent Performance
The recent uptick in the Indian stock market can be attributed to several key factors:
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Economic Growth: India’s economy is witnessing robust growth, fueled by strong domestic consumption and proactive government initiatives aimed at enhancing infrastructure.
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Earnings Outlook: Projections for corporate earnings in FY26 are optimistic, instilling greater confidence among investors.
- Sector Composition: The services sector, which constitutes approximately 55% of India’s GDP, offers a buffer against global trade disruptions, unlike the manufacturing sector, which accounts for roughly 17%.
Despite these positive indicators, it’s essential to recognize the potential long-term implications of India’s expanding role in global manufacturing. As companies seek alternative suppliers, India’s manufacturing capabilities may see significant growth.
Impacts of U.S. Economic Trends
On the flip side, the U.S. economy is currently facing a slowdown, which could have downstream effects on India’s service sectors, particularly in IT. The performance of large U.S. corporations, especially in technology, heavily influences the stock market, making it susceptible to policy changes and global economic shifts.
Recent Q1 2025 economic data from the U.S. suggests a slowdown, driven in part by inventory buildups ahead of expected tariff increases. While some recovery is anticipated in the following quarter, uncertainties remain, particularly related to trade disruptions and increased tariffs on imports, including a staggering 145% on Chinese goods and 25% on various key industries.
Future Outlook for Indian Markets
After a strong performance that pushed the Nifty50 above 24,000, recent trading reflects some profit-taking and a shift in focus among sectors. While optimism surrounding a potential trade agreement between the U.S. and India prevails, geopolitical tensions, particularly along the Line of Control (LoC), have resulted in a more cautious market approach.
Ultimately, the diminishing correlation between the Indian and U.S. stock markets illustrates India’s increasingly independent trajectory. With a resilient domestic economy, expanding manufacturing capabilities, and limited direct exposure to tariff risks, India may have a favorable position in the global market landscape in the medium term, especially if the realignment of global supply chains continues to shift in its favor.
In conclusion, while both economies face distinct challenges, India’s proactive growth strategies and market resilience may set the stage for a promising future.
Vinod Nair is the Head of Research at Geojit Financial Services.
