India released its budget this week, but global markets remained unimpressed by its reforms — despite the document appearing to deliver on all fronts.
The annual budget from the world's second-most populous country detailed a combination of reforms related to spending, bank recapitalization and fiscal consolidation. But the Bombay Sensex stock index dropped 152 points Monday. On a year-to-date basis, India is down 12 percent, though that's better than a still-turbulent China, which is down 24 percent.
Sonal Varma of Nomura, a banking company, wrote to clients that "the budget is a positive surprise, relative to our expectations. The commitment to adhere to the stated fiscal deficit targets suggests that the government has chosen to (prioritize) macro stability over growth."
Experts say Finance Minister Arun Jaitley's promise of fiscal consolidation was important, as it increases the chance of another rate cut in the coming months. Nomura expects a 25 basis-point rate reduction to come in April.
The central bank of India, led by Raghuram Rajan, has embarked on a series of rate cuts over the past year as a drop in global oil prices has brought down inflation with it. India is a net oil importer — it currently ships in 80 percent of its oil.
"Raghuram Rajan got what he wanted," Edwin Gutierrez of Aberdeen Asset Management told CNBC.
But after the fireworks that Narendra Modi promised when he became prime minister in 2014, some India watchers weren't satisfied with the details of the budget.
"I think that the budget simply met expectations. Nothing particularly bold, more like steady as she goes," Win Thin, global head of emerging markets at Brown Brothers Harriman, told CNBC.
While India has widely been seen by investors as the standout among the big emerging market economies, Citi analysts wrote Monday morning that "the budget is unlikely to fire the market or the mood," calling it "cautious in its approach."
Citi though remains positive on India overall, however, with a 27,200 target on the Bombay Sensex. The index closed at 23,002 on Monday.
Aside from an upcoming batch of earnings in March and a central bank meeting in April, global investors will also be keeping an eye on Indian politics.
Growing political opposition inside India has made it difficult for Modi's Bharatiya Janata Party to pass reforms in New Delhi. While the BJP controls the lower house, it is a minority in the upper house. Since becoming prime minister, Modi has lost two important elections — one in the country's capital in 2015 followed be a state election in Bihar.
Two upcoming state elections this spring in Kerala and West Bengal could prove telling. If Modi loses, investors may start to question India's role as the standout among the emerging market nations.