CNBC's Inside India newsletter: A disconnected stock market

This report is from this week's CNBC's "Inside India" newsletter which brings you timely, insightful news and market commentary on the emerging powerhouse and the big businesses behind its meteoric rise. Like what you see? You can subscribe  here.

Warren Buffett once bet that an investment in an S&P 500 tracker would outperform most hedge funds. 

Yet, that wager by the "Oracle of Omaha," who held Berkshire Hathaway's annual shareholder meeting over the weekend, would have also outperformed many other indexes too, including the BSE India Sensex and the Nifty 50. 

For local investors, Indian stocks would have underperformed the U.S. benchmark by more than 45 percentage points since Buffett's 2008 bet. For foreign investors, returns would have been worse in U.S. dollar terms with a 280 percentage point gap between the two indexes.

It is also a story that's playing out today. The S&P 500 is up 9% this year, whereas the Indian benchmark is struggling to stay in the black. It appears that India's near 8% GDP growth isn't transforming into stock market returns.

So, what's missing? 

"If you were a top-down investor, India looks amazing because it's got everything going for it," said Jonathan Pines, a contrarian investor and portfolio manager at Federated Hermes, who believes Indian stocks have a "completely crazy valuation." 

Pines believes the Indian economy's rapid expansion has been tied together with the birth of new businesses and opportunities. But that has also meant significant competition for the incumbents, many of which are listed on the stock market. 

"Even if India is going to get rapid GDP per capita growth, it doesn't mean that the entire stock market is going to grow its earnings at the same rate because you're going