India’s stock market is confronting a more consequential problem than a bad year on the charts. The deeper question is whether the country can continue to command a premium from global investors when the sources of future growth are becoming harder to identify. For years, the Indian equity story rested on a compelling combination: rapid economic expansion, rising consumption, formalisation, infrastructure spending, a growing middle class and the prospect of India becoming an alternative manufacturing base to China.

That story remains intact in important respects. But markets do not reward potential indefinitely. They reward the companies and sectors that can convert potential into superior earnings. That is where the current unease matters. India’s relatively weak market performance comes despite improved corporate earnings and continued foreign investment. This suggests that investors are not simply abandoning India. They are becoming more demanding about what they are buying and what price they are prepared to pay for it. High valuations leave little room for disappointment, while concerns over growth, energy costs and the pace of economic reform can quickly alter the........

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