A rally in Indian stock market to a record high is masking an underlying weakness - the market has been lifted by just a handful of stocks of exporters reaping the benefits of a slump in the rupee.
When Indian shares powered to a record high in January 2008, it marked the peak of a six-year rally in an economy with enviable average growth of 9 percent that was hot on the heels of China. India was tipped as the next Asian powerhouse.
This time around the disconnect with the economy could not be greater.
"The economic environment of 2008 and now is very different," said Aneesh Srivastava, chief investment officer of IDBI Federal Life Insurance in Mumbai.
"Then, we had strong economic growth and strong earnings growth. Today, the currency is a challenge. We have policy paralysis, an economic slowdown, and global risks," he said.
India's economy is growing at its weakest pace in a decade and the currency, which slumped to a record low in August, is barely out of the sick bay. Consumer spending and corporate investment is weak and a minority coalition government is paralysed as it stumbles towards national elections in the face of an invigorated opposition under a business-minded leader.
Yet, India's benchmark stock index, the BSE Sensex, rose on November 3 to a record high and is on the cusp of reaching a new peak as foreign investors pile into the market targeting India's exporters who are benefitting from the weakness of the rupee.
They have made net purchases of $17.6 billion so far this year, making India the number one recipient of overseas stock investment in emerging Asia, Deutsche Bank figures show.
The result is that since the rupee and stocks hit their lows in late August, the BSE index has risen 20 percent off the back of the foreign money and despite heavy selling by sceptical domestic investors.
The rise in the BSE index, widely known as the Sensex, has been fuelled almost exclusively by exporters such as software services provider Tata Consultancy Services (TCS) and Sun Pharmaceuticals Industries, both of which are up close to 60 percent this year.
Information technology and pharmaceutical exporters have benefitted from an improving outlook in the U.S. economy and a dollar earnings stream. The rupee, which at its record low had fallen 20 percent this year, is now down 11 percent since the start of 2013.
Illustrating the rupee