Ninety years ago, John Maynard Keynes compared the stock market to a newspaper beauty contest. Readers win not by choosing the prettiest face, but by guessing which face everyone else will choose. In The General Theory he formulated the game's ultimate refinement: “We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be.” Keynes fathomed that prices are verdicts on belief, not inventories of fact. India has spent the past eight weeks relearning his lesson at a ruinous price.
Even a cursory glance at the facts ought to have flattered India. Its economy grew by 7.8 percent between April and June, much faster than every major rival. Its fifty biggest listed companies swelled their profits by 18 percent, the steepest climb in ten quarters. Yet on last Friday, the Sensex closed at 71,910, bruised by its eighth losing week in a row. It was its longest streak of falls since the Covid 2020. The jury of Keynes's contest had studied India's handsome figures and they chose another face.
Both the financial and political costs of the Indian market mayhem were staggering. Since August 5, the index has lost nearly 6,700 points, about 8.5 percent. On a rough reckoning, between ₹30 lakh crore and ₹40 lakh crore of market capitalisations has evaporated. Measured against other emerging markets, India has turned in its weakest performance in more than two decades.
Behind these abstractions stand real people. The stock market clerk in Kanpur and the nurse in Kochi who poured a few thousand rupees each month into an SIP were promised that patience pays. They did not lose their savings in a single terrifying afternoon. They watched them seep away week after weary week. The humiliation lies in the company India kept. In the same weeks the Nasdaq struck a record, Korea's Kospi reclaimed 7,000 and Japan's Nikkei loitered near its summit. Across 2026, Seoul has soared about 68 percent, Tokyo by 29 percent and New York by 13 percent. The Sensex has sunk more than 12 percent in rupees and nearly 18 percent in dollars. All weathered the same war, the same crude and the same Fed. They flourished while India floundered.
The plunge unfolded in three acts. In August, oil crept upward as Washington and Tehran squared up across the Strait of Hormuz. In September, the Federal Reserve raised rates, American bond yields reached their highest since 2007 and the rupee crashed through 96 to the dollar. Then, on September 28, US President Donald Trump spurned Iran's peace proposal. That day 47 of the 50 Nifty stocks fell, in a session that was less a retreat than a rout.
Why did India alone bleed? The storm was shared, but the ships were not. Three haemorrhages, long patched and long postponed, burst open together. The first was oil. India imported most of the crude it burnt, so every price surge swelled the import bill, sank the rupee and stoked inflation, which reached 4.82 percent in August. Carmakers, ports and engineering firms, all wagers on India's own growth, headed the casualty list. The second haemorrhage was artificial intelligence, the gold rush of this decade. Korea's chip exports leaped about 170 percent in eight months as Samsung and SK hynix sold the memory that data centres devour. India sells the world almost none of that hardware, and its proud IT giants are cast as prey for automation rather than its predators. When global capital went shopping for the future, they found India's shelves empty. How, then, can booming profits coexist with a bleeding market? Benjamin Graham, the mentor of Warren Buffett, supplied the answer long ago. In the short run, he taught, the market is a voting machine; in the long run, it is a weighing machine. GDP weighs the quarter just gone. Share prices are votes on the year ahead, cast by people who can move their money to Seoul before lunch. Those voters saw softer consumption and an oil shock with no end in sight. Even the Reserve Bank of India expected growth to cool to 6.4 to 6.8 percent. When External Affairs Minister S Jaishankar warned the United Nations last month of a crisis in fuel, food, fertiliser and finance, he gave voice to fears the market had already priced.
What happens next hinges partly on forces far from New Delhi? When the Reserve Bank meets on October 7, it must choose between shielding the rupee and sparing borrowers. A ceasefire in the Gulf would revive Indian shares faster than any budget. Yet hope is not a policy. India is now cheaper against its peers than at any point in two decades. The real question is whether India can give investors a reason to return.
It can, if it builds on three pillars at once. The Modi government must deliver a liberal dose of vitamin M (more money) for boosting domestic demand. Indian savers have already shown their steel. During the last week of September, foreigners sold about ₹11,500 crore of shares, while domestic institutions bought ₹16,400 crore. A market anchored in a confident consumer is far less hostage to a fund manager in London or New York. The second accelerator is investment. Fixed investment grew by almost 12 percent in the June quarter, and it must now be aimed squarely at the wounds this September exposed. Every rupee spent on solar power, storage and electric transport trims the war tax India pays whenever crude spikes. Every serious wager on chips, electronics and data centres offers global capital something it cannot yet buy in Mumbai.
The third booster is trust, and it is the hardest to build. Capital flees from caprice, as the sudden rise in the tax on derivatives trading showed on Budget day in February. Steady taxes would shrink the premium investors’ demand. So would swifter trade deals with America, Europe and the Gulf, and a diplomacy that secures energy rather than bemoaning its price. India has long told the world it is the next great market. Now it must behave like one. None of this will restore the lost lakhs of crores by Diwali. Yet the lesson is plain. India's economy did not fail these past eight weeks; investors' faith did. Keynes's conviction rewards the face the crowd expects to win. India must now make itself that face.
Read all columns by Prabhu Chawla
Prabhu Chawla
POWER & POLITICS
(prabhuchawla@newindianexpress.com)
(On X @PrabhuChawla)
