Bond market performed well, equities less so: RBI Deputy Governor Poonam Gupta on what lies ahead
India’s bond market has performed well in recent years, both compared to its past performance and in comparison with most other countries, but the same optimism has not been reflected in equities, Reserve Bank of India’s (RBI) Deputy Governor Poonam Gupta said in the apex bank’s bulletin published on Friday.
The divergence between bonds and equities performance raises questions about how financial markets could evolve as India’s economic growth remains resilient and the outlook stays strong as well.
This is also supported by a survey conducted by the World Economic Forum (WEF), which found that nearly three-fourths of chief economists expect India to record strong or very strong growth over the next 12 months.
Why bond markets are performing well?
According to Gupta, the relative strength of India’s bond market is driven by the government’s fiscal commitment and expectations of sustained high economic growth, which could make fiscal outcomes even better going forward.
She also pointed to the credibility of monetary policy and declining structural pressures on inflation as factors supporting the bond market. The Economist has also highlighted India’s orderly bond markets, noting that: “India’s experience shows the importance of cleaning up public finances and letting central bankers fight inflation in peace,” the top executive said in her speech.
Will Indian equities stage a comeback?
The equity markets, on the other hand, have not tracked the same optimism that was witnessed in the bond market. Gupta attributed this partly to the relatively more promising “AI-led growth” story in some other economies, which has supported their equity markets.
Some of the most sought-after equity markets for exposure to the AI theme include South Korea’s KOSPI and Taiwan’s TAIEX. Both markets have seen sharp swings this year, partly because their benchmarks are highly concentrated in a few large semiconductor and technology companies.
TSMC accounts for a significant share of Taiwan’s index, while Samsung Electronics and SK Hynix together make up more than half of the KOSPI.
“While the Indian equity market witnessed an exceptional run of its own, roughly from June 2022 to September 2024, some other economies are having a better run now, she wrote, adding that the strength of the underlying Indian economy could eventually support the equity market.
Going by the past experiences, it is only a matter of time before Indian equities look relatively more attractive again, the deputy governor, who was appointed for the position in April last year, projected.
Are global risks hampering India’s growth?
The RBI bulletin suggests that global risks have so far not significantly weakened India’s growth outlook. India’s financial and external sectors continue to draw strength from a resilient domestic economy, despite escalating geopolitical tensions and weather-related uncertainties, it noted.
Despite the challenging global environment, the Indian economy recorded strong GDP growth in the first quarter of 2026-27, the article mentioned.
The current account deficit remained moderate in Q1:2026-27, supported by robust services exports and remittance flows.
At the same time, foreign direct investment (FDI) flows also grew in July, with net FDI reaching its highest monthly level in five years. This further strengthened India’s external sector and provided additional support to the economy.
