India, Dec. 2 -- India's Gross Domestic Product (GDP) print for the second quarter of the financial year 2025-26, at 8.2%, points to a full-year GDP growth rate of around 7.5% - making India the fastest-growing large economy in the world. While GDP is hot, Indian stock markets have been cool for a year, with the Nifty50 one-year return at less than 8% - masking a concentration of return in a few large-cap stocks while the rest have fallen or stayed flat. While GDP growth eventually translates into stock-market returns, what we see right now is a mix of factors that has left secondary markets unimpressed by the growth numbers. Economists look at two numbers when it comes to GDP growth - nominal and real. The nominal growth, or the value in rupee terms of all goods and services produced in the country, is deflated by an inflation deflator to remove the impact of price rise from the real economic activity to arrive at the real GDP growth print. It is important to remove price inflation so that the real GDP rise is visible, not just the rise in GDP due to a rise in prices. Is the rise in GDP due to a real rise in output or just price escalation? This question is answered when we look at real versus nominal GDP. The GDP deflator for the second quarter is just 0.5% making the nominal GDP 8.7%. The average GDP deflator over the past 10 years is around 5%. The nominal value of GDP is important because that is the number that translates into firm revenues, prices, profits, wages and tax collections. It indicates the total market value of a country's output at current prices, which shows current economic activity and its size. This is why inflation falling to 0.25% in October 2025, and into negative territory when the impact of gold prices is removed, is causing creased foreheads among policy wonks. The stock market, amongst many other things, looks at nominal GDP growth to make future predictions. The usual formula to predict a long-term average large cap index return is to add inflation to real GDP to get an approximate trend-line growth for stock markets. A lower-than-expected nominal GDP number reflects in the markets. The second reason markets are subdued is because of retail savings getting pulled out to invest in Initial Public Offers (IPOs) and metals. One news report says that retail investors pulled out Rs.4,729 crore in this financial year from direct stocks, while investing Rs.30,000 crore in IPOs. A reshuffling of portfolios could be behind a tepid flow of retail money into direct stocks in the secondary market. Another dampener for the secondary market was that the diversion of household savings into gold and silver for investment has also increased. Data from the Association of Mutual Funds in India (Amfi) shows more than Rs.17,000 crore flowing into gold exchange-traded funds (ETFs) for the first six months of this financial year. Silver, digital gold, and bars and coins will inflate this number even further, but we do not have estimates at the moment. A third reason is the flight of foreign institutional investor (FII) money from Indian stocks. CDSL data shows that they have withdrawn more than a net Rs.27,000 crore (buying minus selling) in the current financial year. This comes after a net negative Rs.1.23 trillion last year. A mix of stretched valuations in pockets of the market, a flight to safety, a ripping US economy and the fear of a negative year due to Trump tariffs have spooked the FIIs. The markets would have tanked had it not been for the Indian mutual fund investor who has poured in almost Rs.2 trillion through the systematic investment plan (SIP) route into the market. Many of these conditions will reverse over the next few months. The full-year target for inflation is 2.6%, with the target for next year at 4%. The nominal-real corridor will get re-established, leading to topline growth. An India-US trade deal, which seems imminent, will set to rest the trade anxieties, giving comfort to foreign investors. The expectation of corporate profitability moving from a few sectors to a broader set of industries will also solve the stretched valuation issue. While some of these will play out and others won't, recent export data is already showing the limited impact of US tariff hits on certain exports. Marine exports, for example, have shaved US exposure from almost 35% to just over 21% (2025 over 2024). They have done this by finding markets in China, Japan, Thailand, Belgium, and Canada. Gems-and-jewellery shows a similar trend. US exports were down by 76%, but the overall export dip was just 1.5% as exporters diversified to the UAE, Hong Kong, and Belgium. What does this mean for us as retail investors? The all-in and all-out strategy is a definite route to losing money. A full portfolio move to metals or cash will have implications for the taxes you have to pay, with a very high probability of not being able to correctly time re-entry to the market. A diversified asset allocation approach is the best route for retail investors to follow. Trim your portfolio on the basis of your chosen allocations, but don't pull out....