What's worrying from the stock market's perspective is that the Reserve Bank of India (RBI) is taking more direct steps to rein in debt-fueled consumption, HDFC Securities said in a report.

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Lending to subprime borrowers has become incredibly efficient in India because of the new digital technologies employed to attract and screen borrowers, pool their loans and find a deposit-taking institution to take the credit risk.

“However, retail loans, growing at twice the pace of total advances, could spiral out of control. And that could become a recipe for future trouble amid high unemployment and stagnant real wages. However, to equity markets, the central bank's prudential measure against personal loans is problematic," the report said.

India is the world's most-loved emerging market this year. Foreigners have poured in billions of dollars so far in 2023 even as they have pulled money from most other developing economies, as per Bloomberg data.

Where India has stood apart from most other emerging markets is in delivering high economic growth -- 6 per cent-plus expected in 2023 and 2024, according to the International Monetary Fund (IMF).

It did so amid the turmoil caused by a strong dollar and a 525 basis-point increase in US interest rates. The central bank's tight lid on domestic liquidity has helped keep the rupee stable, HDFC Securities said.

Also, from June next year, India will be included in JPMorgan Chase & Co.'s global bond indexes, a move that's expected to draw in about $24 billion over a short period of time.

"The moderation in the PMI indices is consistent with our expectation of a moderation in domestic economic growth in the second half of the year," said Suman Chowdhury, Chief Economist and Head of Research, Acuité Ratings & Research.

Acuité Research expects GDP growth to moderate to 5.5 per cent in H2FY24 on account of lower agricultural output induced by the continuing El Nino phenomenon and its impact on rural demand.

Further, the transmission of increased interest rates and a tightening on consumer loans may also slow down urban demand which has remained robust so far, he said.

Nevertheless, higher government expenditure and higher capital investments, both by the public and private sector, will drive growth and Acuité has revised its forecast to 6.5 per cent for the whole year.

Jaykrishna Gandhi, Head of Business Development and Institutional Equities at Emkay Global Financial Services, said that markets surged to new highs on heightened risk appetite as BJP's victories in three Assembly elections -- Rajasthan, Madhya Pradesh and Chhattisgarh -- gave a boost to investor confidence.

FPIs, initially cautious due to political uncertainty, re-entered with significant buying activity.

India's near-term outlook appears favourable, supported by robust macroeconomic indicators and sustained earnings momentum. The recent drop in crude oil prices alleviates concerns about inflation resurgence. Anticipation of a US interest rate cut early next year can further fuel foreign inflows, reinforcing market momentum, Gandhi said.

High-frequency indicators for November suggest a slowdown in momentum with six out of 10 high-frequency indicators reflecting a decline in economic activity, Motilal Oswal Financial Services said in a report.

Meanwhile, rail freight traffic and rail passenger traffic witnessed contraction for the first time in four months.

CV/PV sales growth and power generation growth decelerated sharply in November. Additionally, water reservoir level continued to contract for the ninth consecutive month. On the other hand, manufacturing PMI increased, vehicle registrations witnessed a double-digit growth, while toll collections and air cargo traffic remained robust.

"India's real GDP growth came in at a much higher rate of 7.6 per cent in 2QFY24, beating all estimates. Our calculations suggest that EAI-GVA growth remained strong at 9.2 per cent in October.

"High frequency indicators for November, however, suggest a deceleration in growth. Therefore, we expect growth to ease to 5.8 per cent YoY in 3QFY24. We do expect some slowdown in growth in 2HFY24," the report said.

Expectations of policy stability and coordinated development policy in key large states with the Centre is set to keep India attractive among emerging market (EM) peers, Elara Securities said in a report.

"In the short to medium term, higher expenses on free handouts will come at the expense of capital expenditure, thereby limiting growth prospects. We see capital outlay falling to 2.0-2.2 per cent of GSDP in the upcoming year for 20 states under our review from 2.8 per cent of GSDP in FY24BE.

"India's Q2FY24 GDP came in at 7.6 per cent YoY, ahead of our estimates of 7.0 per cent YoY vs Consensus' 6.8 per cent and slightly lower than 7.8 per cent YoY in Q1FY24. Post the Q2 print, we see upside to FY24E growth in the range of 6.9- 7.0 per cent from 6.7 per cent," the report said.

"In H2FY24, most support to growth is likely to come from public capex. In our view, private capex will remain selective as well as tentative amid election-related uncertainty. Urban consumption growth, especially services, would be supported, although we expect momentum to normalise further as seen in Q2FY24 print.

"Tightening of credit standards by the RBI through risk-weight increases and the lagged impact of monetary tightening also incrementally may keep a check on demand momentum," the report said.