Asian stocks impact Indian markets in a number of ways. India’s trade is quite large with China but with rest of Asia, the trade is quite small. However, despite these factors, Asia has a major impact on Indian markets. Here is why.
Most of the Asian emerging markets like Korea, Taiwan, and Indonesia are treated as an emerging market basket by global investors and these are part of the EM Asia index. Since allocations are based on the MSCI index basis, there is a macro view that tends to impact all these Asian nations.

Foreign investors look at these Asian economies as competitors in terms of capital flows. When valuations in Indian markets become expensive, there is a shift to other markets in Asia where the valuations are considered to be more reasonable. That also creates an Asia effect on markets.

There is a dependence on China with most of Asia depending on China as a key trading partner. Any currency decision on the Yuan tends to impact all the Asian markets in unison. When Yuan drops, all the other Asian currencies including India are required to weaken their currencies to stay competitive. It is the combination of all these factors that makes Indian markets closely linked to Asian markets.