Image: "Decorated Indian elephant" by Faraz Usmani-Flickr. Licensed under CC BY 2.0 via Wikimedia Commons.

Asia had a tough third quarter, and even the once high-flying Indian stock market didn't prove invulnerable to the downward trend. Overall, the BSE Sensex (NYSEINDEX: ^BSESN) finished the quarter down more than 1,600 points, but on Thursday, investors celebrated a coming three-day weekend by bidding up the stock market by 66 points to 26,221. Yet even though the Sensex managed to post a positive performance to begin October, there are still some reasons that investors are showing concern for India's future.

Sticking with solid names
As you see in the U.S., certain sectors of the Indian stock market are seen as having lower risk than others. Today, you could see the tug of war between these defensive sectors and other, more aggressive portions of the Indian economy in the way that the stock market behaved. In general, India has a strong presence in the information technology and healthcare fields, with several well-known consulting firms offering their IT services around the world and many drug manufacturers taking advantage of lower production costs on the subcontinent to sell into the global pharmaceutical market. These stocks were among the better performers Thursday, with Wipro and Infosys both posting gains in the IT arena while Sun Pharma and Lupin helped lift the pharmaceutical sector with their rises.

By contrast, other sectors didn't fare as well. Automakers have considerable exposure to the ability of local consumers to provide demand for their vehicles, and so news that industrial manufacturing activity fell to their lowest levels since early this year weighed on some of the major players in the auto sector. Meanwhile, financial stocks rely on healthy markets and optimistic business conditions, and the growing uncertainty about whether India can sustain its impressive growth led some investors to sell off their bank holdings.

Currency considerations could play a big role in determining the future course of the Indian stock market. The rupee has steadily climbed to its highest level since late 2013, helping exporters to the U.S. get better performance in local currency terms. Yet even though weakness has arguably boosted profits at many Indian companies, some emerging-market investors are growing nervous about the extent of the collapse in currencies compared to the U.S. dollar and other developed-nation currencies. Recent interest rate cuts in India could lead to further weakness for the rupee, but it's uncertain how much bigger a stimulative push dollar strength can provide for the Indian economy.

Overall, India has done a much better job of holding its own than most of its emerging-market peers lately. Whether it can continue depends on whether India remains true to its increasingly business-friendly strategies. For now, investors are cautiously optimistic about the prospects for Indian stocks.