The Indian stock market has demonstrated remarkable performance over the past five years, delivering an impressive 18% annualized return in US dollar terms. This performance positions India as a global leader, surpassing the returns of world and developed markets (12%) and significantly outperforming emerging markets (4%). This stellar performance highlights India's resilience and the strong investor confidence it has garnered, despite prevailing global uncertainties.
In stark contrast, China's stock market experienced a 2% decline in May 2025, setting it apart negatively from most major global markets that ended the month with gains. This divergence underscores the increasing attractiveness of the Indian market relative to its emerging market peers.
From a market capitalization perspective, small-cap stocks have emerged as the frontrunners, delivering superior returns over the last three months, five years, and since the pandemic lows of March 2020. Mid-cap stocks followed closely, with large-cap stocks also contributing positively to the overall market performance. This trend indicates a healthy risk appetite among investors and strong domestic participation across various market segments. Specifically, small-cap stocks have given annualized returns of 36%, mid-caps 32% and large-caps 22% in the last 5 years.
Several factors have contributed to the Indian stock market's outstanding performance. Strong earnings growth, driven by robust economic activity and favorable government policies, has played a crucial role. Moreover, increasing domestic institutional and retail investor participation has provided a steady flow of funds into the market. The government's focus on infrastructure development, manufacturing, and digitalization has further boosted investor sentiment.
However, it is important to acknowledge potential risks and challenges. Global economic uncertainties, such as rising inflation, interest rate hikes, and geopolitical tensions, could impact market sentiment and performance. Furthermore, domestic factors such as regulatory changes and political developments could also influence market dynamics. Investors should remain vigilant and adopt a diversified investment approach to mitigate potential risks.
Despite these challenges, the Indian stock market's long-term outlook remains promising. India's strong economic fundamentals, favorable demographics, and ongoing reforms are expected to drive sustained growth in the coming years. As the Indian economy continues to expand and mature, its stock market is likely to remain an attractive destination for both domestic and international investors.
SEBI Whole-time Member Ananth Narayan G noted in October 2024 that Indian equities have consistently delivered around 15% returns over the last five years, a stark contrast to Chinese markets, which have yielded near-zero or even negative returns in some cases like Hong Kong. He cautioned investors against complacency, advising them to be mindful of risks and to choose reliable intermediaries over unverified sources.
While foreign investors have, at times, shown a preference for Chinese markets due to stimulus measures, the Indian stock market has generally provided better returns over the past few years. Nabanita Dutta from Anand Rathi Wealth highlighted India's strong GDP growth potential, estimating a 6.6% growth rate for FY25, surpassing China's 4.8% for CY24. She also noted that Indian market valuations appear reasonable, anticipating a CAGR of 11-13% for the Nifty 50 over the medium term, supported by robust macroeconomic and earnings growth.
