How Often Does a Falling Rupee Drag the Sensex Down? The Surprising Patterns

How Often Does a Falling Rupee Drag the Sensex Down? The Surprising Patterns 12Dec2025

Follow @vrk100

 

 

(The views expressed here are for information purposes only and should not be construed as a recommendation or investment advice. While the author is a CFA Charterholder with nearly 25 years of experience in financial markets, this content is intended to share general insights and does not constitute financial guidance. Please consult your financial adviser before taking any investment decision. Safe to assume the author has a vested interest in stocks / investments discussed if any.)

 

Graph showing Dollar Rupee Exchange Rate 1973 to 2025 (St Louis Fed)

 

 

If you’ve followed financial news for any length of time, you’ve seen this movie before:

“Rupee crashes to a new low!”
“Currency weakness threatens markets!”

Every few now and then, headlines like these flash across screens and social media, instantly sparking anxiety among investors. And it’s understandable — a falling rupee feels like a sign that something big (and bad) is happening.

As someone who has followed the Indian economy and financial markets for over four decades, I’ve lived through some of the most dramatic currency moments in our history. I still remember the shock of the 1991 devaluation, the introduction of Liberalised Exchange Rate Management system (LERMS) soon after, the excitement and uncertainty around the unified (market determined) exchange rate in 1993, the sharp rupee wobble during the Asian Financial Crisis of 1998 and of course, the global tremors of the 2013 taper tantrum.

Each of these moments came with loud headlines, anxious commentary and plenty of predictions about how a falling rupee would drag the stock market into chaos.

To give a better perspective, take a look at the chart above -- a long-term US dollar-Indian rupee exchange rate (USD INR) graph stretching all the way back to 1973. It climbs steadily upward for five decades. At first glance, it looks like one long story of the rupee “falling.”

And yet…

During these same decades, the Sensex has grown since the early 1980s to over 85,000 today.

To put simply, the steady and natural depreciation of the rupee against the dollar has not stopped the Indian stock market for compounding wealth. 

When someone says a weak rupee leads to falling markets, it sounds believable. But actually, what does the data say?

The data-driven blog, using episodes of rupee fall in the past 35 years, is an attempt to find out answers. Let's delve deep. 

 

What the above long-term FRED chart shows:

1973 to 1990  Rupee was not market determined (rupee weakned gradually)

1991 to 1998 Sharp rupee devaluation and depreciation after LERMS in 1992 and unified (market determined) exchange rate in 1993

1999 to 2007 Somewhat stable rupee with episodes of rupee appreciation

2008 to 2025 Gradual rupee depreciation, Lehman Bros collapse, Taper Tantrum and COVID-19 

 

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Related articles:

Does a Falling Rupee Hurt Indian Stocks? The Data Say "Not Really" 02Dec2025

 

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2 Follow-up Article

Last week, I explored this very rupee-fall-leads-to-market-fall anxiety in a blog "Does a Falling Rupee Hurt Indian Stocks?" where I looked at 15 years of calendar-year data to understand whether a falling rupee generally drags Indian stocks down. The results showed no particular pattern in establishing a correlation betwen rupee weakness and Sensex movement.

But that analysis had one limitation: it used calendar-year movements, which often hide the real “shock periods” inside the year.

That’s what led to today’s follow-up. Instead of asking “How did the rupee and Indian stock market move over a whole year?”, this blog asks a sharper, more realistic question:

What actually happens when the rupee starts falling — right from the month the slide begins, until the point it peaks — and the rupee depreciation crosses 8 per cent?

In other words, this time I’m looking at actual episodes of sharp rupee weakness, not arbitrary year-end snapshots. The period may be short (one month), moderate (six months), or nearly a year — the common factor is a meaningful 8%+ rupee decline.

 

3 Historical Rupee Depreciation Episodes

India experienced 15 major rupee depreciation episodes between 1990 and 2022. These were driven by geopolitical shocks (like the 1990 Gulf War and 1998 Lehman Brothers collapse), domestic policy challenges (1991 crisis, 2011 policy paralysis), global financial tightening (2013 taper tantrum), high current account deficit and COVID-19 pandemic-related pressures. 

Depreciation typically ranged from 6 per cent to 20 per cent. The largest drops occurred during the taper tantrum of 2013, the 1991 rupee devaluation, the 2008 global financial crisis (GFC) and the 2011 slowdown. Sensex performance during these periods varied widely: deep crashes in some episodes, strong rallies in others and mild moves in many cases.

Here are the charts > 

1) Chart Showing Historical Episodes of Large Rupee Depreciation Versus Dollar - From 1990 To 2000:

2) Chart Showing Historical Episodes of Large Rupee Depreciation Versus Dollar - From 2008 To 2022: 

Please click on the charts to view better >

 

 

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x Caveats, Shortcomings and Additional Nuances

Even though the episode-based, data-driven approach offers a much sharper picture than simple calendar-year averages, it still comes with some limitations that readers should keep in mind:

a. The Sensex reflects only 30 stocks

While the Sensex often captures the direction of the market, its reaction to currency swings may differ from the broader indices, mid-caps or small-caps. Sectors heavily exposed to imports or exports may react far more strongly than the headline index. 

Analysis of sectoral indices is outside the scope of this informal and educative blog. IT Services and pharma usually benefit from INR fall, but import-heavy sectors, like, airlines, oil market companies (OMCs) and electronics firms may react negatively to rupee depreciation.  

b. Currency movements reflect many forces, not just domestic factors

A sharp fall in the rupee may be due to global dollar strength, US monetary policy changes, geopolitical risk or weak capital flows — not necessarily India-specific stress. So the “INR fall leads to Indian stocks fall” logic doesn’t always hold.

c. Stocks and the rupee don’t always move at the same time

Currency markets and equity markets have different participants and different drivers. In several episodes, stocks may have fallen before the rupee weakened (anticipating risk), recovered while the rupee was still falling, or moved independently due to domestic policy reforms, earnings cycles or global liquidity. This time mismatch is an unavoidable challenge when defining “episodes.”

d. Results depend on the chosen time window

By design, the analysis identifies sharp falls of 8%+ over one to twelve months. But had we chosen 6 per cent, or 12 per cent, or used 2–18 month windows, the list of episodes — and some of the conclusions — might differ. 

e. Sensex returns can look very different depending on the measurement point

Even within the same episode, the Sensex may have dipped sharply mid-way, recovered before the rupee stabilised, or rallied despite currency volatility. Charts often smooth out this noise, so the lived experience may feel more volatile. 

f. Correlation does not imply causation

Even if the Sensex falls during an episode of rupee depreciation, that doesn’t prove the rupee fall caused the market decline. Many a time both are responding to the same macro stress — global risk-off, Fed tightening, crude oil price spikes and others. 

g. Recovery periods vary widely

Different INR-fall episodes have different recovery durations. A 10-per-cent depreciating spell may reverse in a few weeks in one era, and take a year in another — making comparisons tricky.

h. Regime change in exchange rate system

Another important limitation is that the exchange-rate regime itself has changed over time. Before 1993, the rupee was not market-determined — it moved under administrative controls, dual rates (LERMS) and one-off devaluations, making pre-1993 movements fundamentally different from today’s market-driven currency behaviour. 

After the 1993 unified exchange rate, the INR began responding much more to global flows, sentiment and domestic fundamentals, which means older episodes are not strictly comparable with post-1993 data. 

Curiously, the International Monetary Fund (IMF) recently dubbed India's exchange rate arrangement as "crawl-like."

i. Regime change in investment flows

Post-2016, the Sensex has become more responsive to domestic institutional investor (DII) flows (buttressed by EPFO Investments) than to foreign portfolio investor (FPI) flows. 

This means that even during periods of sharp INR depreciation driven by FPI outflows, strong DII buying has often cushioned the market, weakening the traditional link between rupee weakness and Sensex declines.

j. RBI forex intervention

A further complication is Reserve Bank of India's (RBI) intervention policy: sometimes the central bank intervenes heavily in the forex market and sometimes it allows the rupee to adjust freely, making it difficult to interpret how “natural” or policy-altered each rupee fall truly was.


 

Since 01Mar1992, Reserve Bank of India, India’s central bank, introduced a dual exchange rate system called Liberalised Exchange Rate Management System (LERMS). It was replaced by a unified exchange rate system on 27Feb1993 to make the exchange rate market-determined.  

(the article is not yet completed; please bear with me till I finish it in the next 2 to 3 hours) 

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References:

RBI History: Chronology of Events: From 1926 to 2003

RBIcrisis and reforms 1991 to 2000 - chronology of events - Indian rupee devaluation in 1991 / LERMS / unified exchange rate

RBIpress release 27Feb1993 – Unified exchange rate from LERMS

 

 

 

NSE's Backtesting Claims Child Indices Beat Parent Indices – But Does It Hold in the Real World?

NSE's Backtesting Claims Child Indices Beat Parent Indices – But Does It Hold in the Real World? 09Dec2025

Follow @vrk100

 

 

(The views expressed here are for information purposes only and should not be construed as a recommendation or investment advice. While the author is a CFA Charterholder with nearly 25 years of experience in financial markets, this content is intended to share general insights and does not constitute financial guidance. Please consult your financial adviser before taking any investment decision. Safe to assume the author has a vested interest in stocks / investments discussed if any.)

 

1 Investor Interest in Smart Beta Indices and Passive Funds

In recent years, there has been a growing interest among investors in India in smart beta indices and the passive funds that track them. 

With the rise of smart beta strategies, there is now an increasing focus on alternative index strategies that aim to outperform traditional benchmarks by using factors such as value, size, momentum, quality and volatility.

Smart beta indices are designed to provide a systematic way to capture specific factors that have historically delivered higher returns than traditional market-capitalisation-weighted indices. As a result, both index funds and exchange-traded funds (ETFs) tracking these smart beta indices have seen a surge in popularity. 

These funds allow investors to gain exposure to these factor-based strategies without having to pick individual stocks, making it an attractive option for both retail and institutional investors. 

 

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Related articles:

Factor Investing in India: Do "Smart Beta" Indices Outperform Nifty 50 and Midcap 150? 24Nov2025

Nifty Midcap 150 Quality 50 Index: Has Quality Lost Its Edge? 10Aug2025

Decoding the Nifty Midcap 150 Quality 50: A Midcap Strategy Built on Fundamentals 07Aug2025 

Passive Titans of India: The Top 10 Equity Indices by Fund Size 17Jul2025

India Flagship ETFs with Low Fees and Fair Trading Volumes 12Jun2025 

 

Low Expense Ratios, High Returns: Why Passive Equity Funds Matter 06Jun2025 

 

How to Buy Nifty Midcap 150 Index (passive funds) 03May2024

Analysis of Nifty 100 Low Volatility 30 Index 12Sep2023

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2 What Are Parent and Child Indices?

In the context of smart beta and traditional market indices, "parent indices" refer to the broad-based market indices, such as the Nifty 50, BSE 500 or Nifty Midcap 150, which represent the entire market or a large portion of it. The parent indices are typically weighted by market capitalisation, meaning that the larger companies have a bigger influence on the index’s performance. 

The "child indices," on the other hand, are subsets or variations of these parent indices. Child indices are often constructed by applying specific filters or rules, such as selecting stocks based on a particular factor like low volatility or high dividend yield. Essentially, child indices are a way to segment the broader market to target specific investment characteristics and / or risk exposures.

For instance, the Nifty Midcap 150 might be considered a parent index, and a child index could be something like the Nifty Midcap 150 Momentum 50 Index, which includes the 50 most momentum stocks from the Nifty Midcap 150 universe. In this case, the parent index represents the entire midcap stock market, while the child index focuses on a specific subset based on momentum.

Chart showing select Nifty indices of Parent versus Child Indices >

 

3 Do Child Indices Outperform Parent Indices in Practice?

The NSE Indices Ltd claims that, based on their backtesting of historical data, child indices most of the time outperform parent indices. NSE Indices Ltd is the index provider of Nifty indices. 

The premise behind this assertion is that child indices, by focusing on specific factors like low volatility, momentum, high dividends or value can outperform the broader market index over time.

In theory, this makes sense. If the underlying factors in a child index are systematically designed to exploit inefficiencies in the market, then they may provide higher returns than the broader market. 

For example, low-volatility stocks tend to experience less dramatic price swings, which might help mitigate losses during market downturns, potentially leading to better risk-adjusted returns.

However, while this theory may hold in some cases, the real-world performance of these child indices can be more complex. In practice, the performance of child indices often depends on the specific factors they target and how those factors perform in various market cycles.

4 Examining Funds Tracking Smart Beta Indices

(Note: In a previous blog on factor investing / smart beta investing last month, I thoroughly examined whether select "smart beta" indices outperform broad based indices, like, Nifty 50 and Nifty Midcap. In the current blog, the attempt is to find out whether funds tracking smart beta child indices outperform their respective funds tracking parent indices)

To get a clearer picture of whether child indices really do outperform parent indices, it’s useful to look at some of the funds that track these smart beta strategies.

For example, consider a fund that tracks a low-volatility index (a child index) and compare it to a fund that tracks a broader market index like the Nifty 50. Over short periods, it’s possible that the low-volatility strategy could outperform the broader market, especially during periods of high market volatility. 

Conversely, during strong bull markets, the low-volatility strategy might underperform as it tends to underweight higher-growth, more volatile stocks.

Similarly, funds tracking momentum indices—child indices that emphasize stocks with strong medium term performance—could outperform in a trending market, where momentum plays a significant role. 

On the other hand, during periods of market stagnation or reversal, momentum-based strategies might underperform as the stocks driving the index may see sharp declines.

Let us see whether some of the smart beta funds have outperformed their parent indices in practice:

Example 1: Comparing the performance of index funds (tracking child indices), namely, Bandhan Nifty 100 Low Volatility 30, UTI Nifty 200 Momentum 30 and UTI Nifty 200 Quality 30 with Axis Nifty 100 Index fund tracking parent index Nifty 100.

(Note: In the absence of any passive funds based on Nifty 200, Nifty 100 is used as a proxy for Nifty 200 -- it may be noted the differences in actual returns between these two indices are small)

Image showing their performance >

Click on the image to view better >

This Value Research weblink can be used to track these funds in real time.

The above image shows:

> on a 1-year basis, while the Bandhan Nifty 100 Low Volatility 30 index fund outperformed its parent index fund, Axis Nifty 100 index fund; passive child funds based on Nifty 200 Momentum 30 and Nifty 200 Quality 30 failed to beat the parent index 

>  On a 2-year basis, Nifty 100 Low Volatility 30 (child) scored higher returns compared to the parent Nifty 100; while the Nifty 200 Momentum 30 (child) failed to beat the parent Nifty 100

> On a 3-year basis, both Nifty 100 Low Volatility 30 (child) Nifty 200 Momentum 30 (child) have beaten the parent index Axis Nifty 100's performance

> as stated above, volatility factor tends to outperform when markets face rough weather (Indian markets have been highly volatile in the past 15 months); while momentum factor is underperforming in the past 15 months due to loss of momentum in the market 

 

The following image from Rupee Vest shows the performance of  SBI Nifty 200 Quality 30 ETF (child) versus Nippon India ETF Nifty 100 (parent)

> On a 1-year, 2-year and 5-year basis, child index fund, SBI Nifty 200 Quality 30 fails to beat parent index fund, Nippon India ETF Nifty 100

> However, on a 3-year basis, child index outperformed parent index

 

Example 2: Comparing the performance of index funds (tracking child indices), namely, Tata Nifty Midcap 150 Momentum Index fund and DSP Nifty Midcap 150 Quality 50 index fund with parent index fund, Motilal Oswal Nifty Midcap 150 index fund >

Image showing their performance >

Click on the image to view better >

This Value Research weblink can be used to track these funds in real time.

The above image shows:

> on a 1-year, 2-year and 3-year basis, both the child index funds, Tata Nifty Midcap 150 Momentum 50 Index fund and DSP Nifty Midcap 150 Quality 50 index fund underperformed the parent index fund, Motilal Oswal Nifty Midcap 150 index fund

 

Example 3: Comparing the performance of index funds (tracking child indices), namely, Nippon India Nifty 500 Momentum 50 index fund and UTI Nifty 500 Value 50 index fund; with parent index fund, Motilal Oswal Nifty 500 index fund >

Image showing their performance >

Click on the image to view better >

This Value Research weblink can be used to track these funds in real time.

The above image shows:

> on a 1-year basis, both the child indices, Nifty 500 Momentum 50 and Nifty 500 Value 50 underperformed the parent index, Nifty 500 (as stated above, Momentum factor is faring badly in the past 15 months) -- however, value factor seems to be recovering in the past six months

> on a 2-year basis, child index Nifty 500 Value 50 outperformed parent index Nifty 500 (it may recalled Value factor has done well in 2023 and 2024, though it did poorly in 2025 and 2022)

> track record for three year returns is not available for the above child index funds 

 

Example 4: Comparing the performance of index funds (tracking child indices), namely, DSP Nifty 50 Equal Weight index fund and Nippon India Nifty 50 Value 20 index fund; with parent index fund, Nippon India Nifty 50 index fund >

Image showing their performance >

Click on the image to view better >

This Value Research weblink can be used to track these funds in real time.

The above image shows:

> on a 1-year, 2-year, 3-year, 5-year and 7-year basis, child index Nifty 50 Equal Weight index has consistently outperformed its parent index Nifty 50

> but child index Nifty 50 Value 20 has a mixed record; on a 3-year basis, it has delivered better returns compared to its parent Nifty 50 -- however, on a 1-year and 2-year basis, Nifty 50 Value 20 underperformed its parent Nifty 50 

 

Summary of the above four examples > 

One standout performance is the consistent outperformance of Nifty 50 Equal Weight over its parent Nifty 50; whereas factors, like, Low volatility, momentum and quality have shown varied performance depending on market conditions.

Nifty 50 Equal Weight has been doing well since 2020 outperforming Nifty 50 in every calendar year (2020-2025); though it underperformed Nifty 50 prior to 2020 (see chart below for data). 

As you know, Nifty 50 is market-cap weighted, meaning the largest companies by market cap (like HDFC Bank, Reliance Industries, ICICI Bank, Bharti Airtel and Infosys) dominate the index. The top five or 10 stocks can often make up a significant portion of the index’s overall performance.

Nifty 50 Equal Weight, on the other hand, gives the same weight to all 50 stocks, meaning no single stock has an oversized influence on the performance. This creates more balanced exposure across the index, mitigating the risk of heavy concentration in a few large-cap stocks. 

During the half-yearly rebalancing time (March and September), each stock will be adjusted to a weight of nearly 2 per cent each in the Nifty 50 Equal Weight index.  

There is no guarantee Nifty 50 Equal weight will continue to deliver superior performance versus Nifty 50. 

The Nifty 50 Equal Weight index outperformed Nifty 50 during periods when mid-cap and small-cap stocks experienced strong growth, particularly in 2024, 2023 and 2021, which were recovery years post-pandemic.

This reinforces the importance of market conditions when deciding between market-cap weighted indices and Equal Weight strategies. 

What would cause Nifty 50 Equal Weight to underperform Nifty 50? 

The Nifty 50 Equal Weight index underperforms when the market rally becomes narrow and heavily concentrated in a few mega-cap stocks. This is because the traditional Nifty 50 is dominated by its top 5-10 stocks (like Financials and certain IT/Oil & Gas heavyweights), which disproportionately drive returns during periods of market polarisation. 

Furthermore, the Nifty 50 Equal Weight's inherent value / contrarian tilt—by selling winners to rebalance—works against it when market momentum is firmly with the mega-cap stocks. Lastly, its higher exposure to relatively smaller, often more volatile, Nifty 50 constituents can also lead to deeper cuts during market corrections. 

Disclaimer: This analysis is provided for informational purposes only and should not be construed as investment advice or a recommendation. Please consult a financial advisor before making any investment decisions.

 

Calendar year returns of select "smart beta" indices versus Nifty 50 and Nifty Midcap 150 (see previous blog for more) >

5 Conclusion 

The idea that child indices can outperform parent indices is intriguing, and there is evidence to suggest that, in some market conditions, these factor-based indices can deliver superior returns. However, it’s important for investors to recognize that past performance does not guarantee future results.

In practice, child indices do not always outperform parent indices, and it’s crucial to take a holistic view of the market, including risk considerations and long-term investment objectives, when evaluating such strategies.

In India, the track record for smart beta funds and passive funds based on smart beta indices is still relatively short, with several funds having only three to five years of performance data.

While backtesting shows that child indices often outperform their parent indices, real-world performance hasn’t always lived up to these expectations.

Even the asset size of smart beta passive funds is smaller compared to passive funds based on Nifty 50 or Nifty Midcap 150 (for more, see blog on passive titans of India discussing asset size)

In practice, many smart beta funds struggle to deliver superior returns compared to traditional passive funds that track broad market indices. This discrepancy highlights the challenges of translating historical data-driven strategies into consistent real-world success.

Ultimately, the performance of child indices relative to parent indices varies depending on the market environment, time horizon and the specific factors the child indices focus on. While there are instances where child indices outperform, there are also periods when the broader market (parent indices) may perform better.

  

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References:

 

Tweet 02Mar2025 The Baloney of Smart Beta Indices

Nifty Return Profile (strategy indices) 

NSE Index dashboard monthly 

NSE Index dashboard archives 

NSE Indices Research Papers / working papers 

Nifty Indices factsheets  

Methodology document for Nifty indices, including smart beta indices 

Screenshot of returns of Nifty 50 versus Nifty 50 Equal Weight from 2000 to 2020 > source Nifty 50 Equal Weight whitepaper 24Feb2021 >

 

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India’s Dangerous Drift Toward Market Concentration and Corporate Power

India’s Dangerous Drift Toward Market Concentration and Corporate Power 07Dec025

Follow @vrk100

 

 

(The views expressed here are for information purposes only and should not be construed as a recommendation or investment advice. While the author is a CFA Charterholder with nearly 25 years of experience in financial markets, this content is intended to share general insights and does not constitute financial guidance. Please consult your financial adviser before taking any investment decision. Safe to assume the author has a vested interest in stocks / investments discussed if any.)

 

In the first week of Dec2025, IndiGo Airlines (InterGlobe Aviation) cancelled hundreds of flights across India — at one point over a thousand in a few days — after failing to staff enough pilots under stricter duty‑time rules, leaving thousands of passengers stranded. Because IndiGo controls roughly 60–65 per cent of domestic air traffic, the disruption effectively crippled much of India’s civil‑aviation network. 

Under pressure, the government and the regulator DGCA granted IndiGo a temporary exemption from the tighter pilot rest and night‑duty norms — postponing enforcement till Feb2026. 

That episode illustrates how a virtual duoopoly (or a near‑monopoly) in a critical sector can force regulatory roll‑backs, showing how concentrated market power undermines both reliability and regulatory discipline.

That disruption is not just an isolated operational hiccup; it is a vivid example of how India’s concentrated corporate landscape — dominated by a few giant players in critical sectors — shapes policy, limits competition and ultimately affects everyday consumers.

 

Corporate power 

It has now become impossible to ignore: India’s economy is increasingly dominated by a handful of giant conglomerates and corporate groups; and a small set of large digital platforms. Market after market inevitably ends up with a monopoly, a duopoly or at best a tight oligopoly. Sometimes this happens because of natural economics like high fixed costs or network effects. 

But often it happens because of policy choices, regulatory capture or weak competition enforcement.

Economists like Viral Acharya saw this coming years ago. He warned that India’s “big five” business groups were gaining too much market power and that this concentration would ultimately suppress competition and hurt long-term growth. 

His main point was simple: profits grow for the big firms, but overall private investment and innovation slow down. The economy becomes top-heavy, not broad-based.

The Big-5 conglomerates in India identified by Acharya are  Reliance (Mukesh Ambani) Group, Tata Group, Aditya Birla Group, Adani Group and Bharti Airtel Group. The share of these "big five" conglomerates in India in total assets of non-financial sectors rose from 10 per cent in 1991 to nearly 18 per cent in 2021, wrote Acharya in his paper. 

They "grew not just at the expense of the smallest firms, but also of the next largest firms", said Mr Acharya, because the share in total assets of the next five business groups halved from 18 per cent to 9 per cent during this period. 

You don’t need an economics degree to see what he meant. Just look around at everyday sectors.

Due mainly to deleterious effects of Demonetisation, GST and COVID-19, informal sector has been shrinking in India; while the the formal corporate sector / India Inc has been growing. Pronab Sen, former chief statistician has been harping on this point for several years.  

 

High Cost of Capital and Inflation

India’s cost of capital has remained high for years and cumulative inflation has been elevated. This combination quietly kills smaller firms. They either die out or get acquired, leaving only a few big players with the financial muscle to survive bad cycles. 

India's low inflation prints in recent months and 125 basis point Repo rate cut by Reserve Bank of India (RBI) this year should have brought down India's cost of capital, but cost of capital is not coming down, especially for small- and medium-sized firms. 

High interest rates and a risk-averse banking system make it almost impossible for new entrants to scale in capital-intensive sectors.

India's banking regulator RBI and Govt of India have aided oligopoly behaviour in the banking sector by not giving new banking licenses for a long period of time.

Regulatory Capture and Policy Tilt

The other part of the story is how government rules, spectrum licenses, auctions and approvals often tilt the playing field toward the largest conglomerates. Whether intentionally or accidentally, policies in key areas like telecom, airports, power distribution, mining and digital markets often end up favoring incumbents or politically close corporate houses. Over time, this reinforces dominance.

Crony capitalism: The doubling of quality control orders (QCOs) by Govt of India in the past three years also resulted in increasing market power of Reliance Industries in polyester fibre and dominance of Aditya Birla group (Grasim Industries) in viscose stable fibre.  After the pressure from 50% US tariffs on Indian goods, the government is quietly rolling down many of these QCOs. 

Sector by Sector: A Country of Duopolies and Monopolies 

Telecom (mobile telephony) is now basically Airtel and Reliance Jio. Vodafone Idea is a shadow, surviving* but irrelevant. This didn’t happen naturally. Jio’s predatory pricing and the government’s tolerance of it during the first few years effectively wiped out a dozen competitors. Once the competition died, tariffs began rising again. This is a classic textbook case of how market power forms.

(* Airtel's Sunil Mittal derisively described Vodafone Idea as a half player saying Indian telecom market is a two and a half player market)

Power distribution is dominated by Tata Power and Adani Electricity wherever privatisation has happened. These are sectors where new entry is nearly impossible because of regulatory hurdles and capital intensity.

Online food delivery is an airtight duopoly: Zomato and Swiggy. A decade-long cash-burn war ensured that no one else could stand. 
 

In India's civil aviation sector, IndiGo dominates domestic skies, with Air India the only meaningful alternative. SpiceJet is stuggling. Everyone else has died or merged.

Airports? After the last major privatisation round, most large airports are now run by either Adani group or GMR group. That’s it.

Cement and steel behave like old-fashioned cartels. Prices move in parallel. Capacity is coordinated. Consumers pay more — it’s that simple. In addition, the steel sector in India is protected by the government (trade protectionism), to an extent, by import tariffs and safeguard duties.

Cinemas have PVR Inox Ltd, basically one company after the merger. Soft drinks are Pepsi and Coca-Cola (Camap Cola with help from Reliance Industries is trying to make a comeback). Taxi rides are Ola and Uber. Digital ads are Google and Meta. E-commerce is Amazon and Flipkart. 

Stock exchanges are NSE and BSE, with NSE being a near monopoly in volumes. DTH is effectively just Tata Play and Airtel Digital. Even in UPI payments, where India loves to claim “world-leading competition,” the reality is that PhonePe and Google Pay control the lion’s share.

And power trading? IEX or Indian Energy Exchange is practically a monopoly. PXIL and HPEX are mere footnotes. The IEX controls almost the entire short-term power market.

Quick Commerce: Blinkit, Instamart and Zepto

The newest addition to India’s oligopoly story is quick commerce. Blinkit (backed by Eternal Ltd, formerly Zomato Ltd) is the runaway leader. Instamart (Swiggy) is second. Zepto is a distant third. First mover Dunzo collapsed. As always, the sector started with a frenzy of new players, but within a couple of years became a three-player market already drifting toward a duopoly.

This is because quick commerce is insanely capital-intensive, heavily reliant on dense networks of dark stores, low margins and fast delivery fleets. Only companies with huge balance sheets can survive. Blinkit leverages Eternal Ltd’s cash and public markets. Instamart leans on Swiggy’s capital. Zepto burns venture capital funding. Everyone else disappeared.

Media Capture and Conglomerate Power

The media landscape mirrors the economy. The Times Group (Sahu Jain family), Network18 (Reliance Industries), Zee (Subhash Chandra's Essel group), India Today (Aditya Birla group), NDTV group (controlled by Adanis) and Hindustan Times (controlled by Shobhana Bhartia, daughter of late KK Birla) are almost entirely owned by big business families and conglomerates. This reinforces the cycle of concentration: economic power feeds into media power, which feeds into political power, which feeds back into economic advantage.

The Curious Case of Public Sector Monopolies

But here’s a twist. Some of India’s remaining monopolies — Indian Railways, India Post, IRCTC, Coal India, Hindustan Aeronautics (HAL) — do not behave exploitatively. They have political and social mandates that force them to keep prices stable or even subsidised. Railways does not gouge passengers (but Tatkal and Premium Tatkal services are a scam). India Post does not overcharge. 

These public monopolies show that monopolies per se are not always harmful. What matters is the incentive structure and public accountability. But some of these public sector monopolies are inefficient is a different matter.

In Nov2024, opposition leader Rahul Gandhi wrote an op‑ed in The Indian Express accusing a new breed of monopolists of using government influence to crush competition and enrich themselves, while clarifying he is “not anti‑business, but anti‑monopoly/oligopoly,” and advocating fair space for all businesses. 

 

Oligopolies (a handful of dominant sellers)

An oligopoly is a market structure in which a small number of large firms have the majority of the market share. Firms are mutually interdependent and competition is often non-price based (for example, quality, advertising, services).

Automobiles: Maruti Suzuki, Hyundai, Tata Motors and Mahindra & Mahindra are dominant. While many brands exist, these few players dominate sales volumes in the passenger vehicle segment.

Cement: UltraTech Cement, Ambuja Cements / ACC (Adani Cement) and Shree Cement rule the roost. The market is controlled by a few companies that collectively dictate output and pricing. Moreover, the sector is undergoing consolidation.

Media & Entertainment: Reliance Industries' JioHotstar is leading here. It wants to dominate the OTT (over the top) and VOD (video on demand) segments with its aggressive growth / acquisition strategy. Other rivals in this sector are Amazon Prime Video, Netflix and SonyLIV. This sector is fast turning into an oligopoly.   

Even ports sector looks like an oligopoly. Several major ports in India are controlled by Govt of India. But in the private sector, Adani Ports & Special Economic Zone Ltd is trying to dominate with more than 25 per cent market share. Multi-national corporations, like,  DP World, PSA International (Singapore) and APM Terminals (Maersk) have market concentration in Indian ports sector. 

Why the Concentration Problem Matters

What Acharya argued — and what India is now experiencing — is that concentration undermines the competitive process. When five or six conglomerates dominate most important sectors, smaller firms can’t grow. Innovation slows down. The economy becomes dependent on a few giants. 

The banking system becomes overexposed to them. The stock market becomes over-reliant on a handful of companies. And long-run growth becomes fragile.

India’s policymakers occasionally celebrate “national champions,” but the hidden cost is a weaker competitive ecosystem. True growth comes from broad participation, not from a few giants and their satellites.

The story of monopoly and duopoly capitalism in India isn’t a secret anymore. It’s visible in every bill you pay, every app you use, every product you buy, every service you depend on. And unless policy changes, the next decade will see this concentration deepen even further — until India’s economy resembles a set of private empires instead of an open, competitive marketplace.

 

Implications of Market Power for Indian Equity Investors

India’s market power concentration in monopolies, duopolies and oligopolies creates distinct risks and rewards for equity investors. The risks include concentration risk, as dominant firms like Tatas, Adanis and Reliance heavily influence equity indices, posing outsized risks if disrupted.  

This entails regulatory risk also, since profitability often relies on favorable policies that can change suddenly; and systemic fragility, where shocks to key monopolies could lead to sector-wide cascading effects. 

On the rewards side, dominant firms offer stable earnings with steady cash flow and predictable profits, though growth may be capped. Digital duopolies benefit from strong network effects that help maintain long-term dominance and returns. These firms also often receive higher valuations due to barriers to entry and sustained pricing power.

In summary, Indian stock investors benefit from the stability and growth potential of dominant firms but need to manage risks related to concentration, regulatory dependence and systemic vulnerabilities by maintaining portfolio diversification.

 

Concluding Remarks and Solutions

The IndiGo disruption and the broader pattern of monopolies, duopolies and oligopolies in India show how concentrated market power can affect everyday life, policy and the economy. While large firms offer stability and scale, their dominance often stifles competition, innovation and fair pricing. Equity investors benefit from predictable earnings but face hidden concentration and regulatory risks. 

Indian mobile users today are paying three to four times more for their mobile plans than they did just five years ago.

To restore balance, the government must enforce stricter competition laws and reduce regulatory favoritism toward dominant players. Encouraging smaller firms through easier access to capital, fair licensing and infrastructure support can help diversify markets. Transparency in auctions, public procurement and sectoral policy is essential to prevent implicit “match-fixing” between regulators and conglomerates. 

Consumers, too, must be aware of the limited choices and push for accountability through public discourse and advocacy. Ultimately, India’s long-term growth depends on creating an ecosystem where competition thrives alongside responsible corporate governance, not just where a few giants dictate terms.

If Viral Acharya was early to ring the alarm bell, today the bell is screaming corporate power.

 

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References:

Tweet 23Mar2025 High cost of capital, regulatory capture, monopolies and duopolies

Tweet 09Jul2024 Market power and market concentration;  Herfindahl Hirschman Index

Rahul Gandhi on match-fixing monopoly and fairplay business

Viral Acharya Mar2023 paper on Big 5 Conglomerates with market power

Tweet 20Nov2025 doubling of QCOs or quality control orders helping Reliance Industries and Grasim Industries  

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Disclosure:  I've got a vested interest in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.

 

Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets.

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