What the markets are telling us about real growth

The other day, a conversation with a savvy investor friend stayed with me longer than I expected. His advice on asset allocation, and a gentle warning against blind equity dependence, pushed me to revisit some data points I had grown comfortable ignoring.

As a small equity investor, and a long-time bull, I’ve often treated stock markets as a proxy for economic progress. Lately, that signal feels uncomfortable. Not volatile uncomfortable, structurally uncomfortable.

Yes, headline indices have compounded over time. But markets, I’m realising, don’t reward symbolism without depth, or narratives without durability. Over the past few years, equity performance has narrowed sharply. A handful of large cap stocks now account for a disproportionate share of index returns, while the median stock quietly underperforms. This isn’t broad confidence. It looks more like capital gravitating toward perceived safety.

Historically, long term Nifty earnings CAGR has struggled to stay above 10–12% on a sustained basis. Adjust for inflation, and real earnings growth thins further. Which raises an uncomfortable question: how do we read GDP growth if it doesn’t translate into earnings power? And how do earnings sustain without consumption?

Because markets ultimately discount future cash flows, and those cash flows are demand-led. India is often described as a consumption-led economy. But private consumption as a share of GDP has hovered closer to the mid-50% range in recent years, well below what one would expect for an economy driven by domestic demand. That number matters, because private consumption is not an abstraction. It is how people actually live.

Food. Rent. Transport. School fees. Healthcare. Gas bills. A train ticket home. An occasional meal out. Maybe a phone upgrade, on EMI. And here’s the part we don’t like confronting.

A large part of the country still lives on very small average incomes. Roughly 90% of Indians earn less than ₹25,000 a month. A significant share earns far less. Disposable income, for most households, is thin. Savings are fragile. Shocks, medical, employment, inflationary, hurt immediately.

When job creation slows, wage growth flattens, or MSMEs struggle, consumption doesn’t collapse overnight. It compresses. Discretionary spending disappears first. What remains is survival spending. Yet socially, we are surrounded by a very different signal.

Aspirations have globalised faster than incomes. Social media normalises lifestyles that balance sheets cannot support. The pressure to appear upwardly mobile is relentless, better phones, better weddings, better holidays, better cars. The gap between what people earn and what they feel they should consume is widening. Credit fills that gap.

Credit card penetration has expanded rapidly. “Pre-approved” limits land on phones with alarming ease. EMIs now fund not just assets, but consumption, gadgets, travel, even groceries. Monthly instalments quietly replace affordability checks.

For a while, this props up demand. It creates the illusion of resilience. But debt-fuelled consumption is not the same as income-led consumption. One compounds. The other eventually cracks.

Early signs already exist, rising delinquencies in unsecured credit, stress in sub-prime lending, and households juggling EMIs with shrinking buffers. When repayment overtakes resilience, consumption doesn’t just slow, it retreats sharply.

And markets, once again, notice before narratives do. If markets are a mirror, then growth must translate into broad-based corporate profitability, not just a few fortress balance sheets. Narrow leadership is not confidence. It is caution disguised as optimism.

Renaming cities, rewriting history, or amplifying cultural symbolism does not expand balance sheets. It doesn’t raise disposable incomes. It doesn’t improve return on capital. It doesn’t ease household stress.

Wealth is compounded at the ground level, through jobs, wages, productivity, and sustainable consumption, not through optics.

Markets are already delivering their verdict: selective optimism, periodic corrections, and increasingly narrow leadership. The challenge, then, is not perception management.

It is performance. It is income. It is consumption that comes from earning, not borrowing. And the willingness to recalibrate, honestly, around data that actually compounds wealth.

I hope policymakers are listening.