Indian Market Outperforms: 5-Year Returns Beat China and Global Peers

India’s stock market has established itself as a global outperformer over the past 5 years, driven by strong fundamentals, sectoral leadership, and policy support. The country has delivered consistent returns far exceeding those of other developed and emerging markets.

Indian Equities Outshine China and Global Peers

According to Bandhan Mutual Fund’s June 2025 Monthly Market Outlook, Indian equities posted stellar returns. As of the month ending May 2025, during the 3-months period, Indian stock markets advanced 16%, clearly outperforming emerging markets with a 5% rise and developed markets at 2%. Over a 5-year period, Indian stocks yielded an average annualised return of 18%, compared to 12% from global and developed markets, and significantly outperformed emerging markets, which trailed far behind.

This sharp contrast was especially evident in May 2025 when China’s markets recorded a 2% decline, underscoring India’s financial resilience.

Small Caps Lead the Surge

Across market capitalisation segments, small-cap stocks have emerged as the strongest performers. Over the 5-year horizon, small caps generated a return of 36%, followed closely by mid-cap stocks posting 32% and large-cap stocks returning 22%. This upward trend was visible across short and long durations.

Fiscal Discipline Supports Market Trajectory

India’s fiscal position has bolstered investor confidence. For FY25, the fiscal deficit matched the revised target of 4.8% of GDP, while FY26 is projected at 4.4%, indicating the government’s prudent fiscal management. This stable macroeconomic foundation has enhanced India’s attractiveness to investors globally.

Additionally, a good monsoon forecast contributed to cooling food price inflation. The food CPI has declined consistently for six months, offering relief to household budgets and policy authorities alike.

Monetary Policy: RBI’s Pro-Growth Signals

In a surprise move, the Reserve Bank of India cut its repo rate by 50 basis points and reduced the CRR by 100 basis points. These measures indicate a clear pro-growth stance aimed at boosting consumption and liquidity. As of mid-May 2025, bank credit grew by 9.8% YoY, while deposits rose by 10%, a sign of increasing financial system activity.

Despite global uncertainties and occasional volatility, India's robust domestic fundamentals, including government spending, structural reforms, and supportive monetary policy, have underpinned market strength.

Read More: Stock in Focus: Bharat Rasayan Share Price Rallies 11% Despite Recent Weak Earnings! 

Conclusion

India's equity markets have consistently delivered compelling returns, outperforming both emerging and developed peers across timeframes. The performance, led by small and mid-cap stocks and supported by industrial sectors, underscores the country’s economic resilience. Fiscal discipline, inflation control, and monetary policy measures have collectively strengthened market dynamics. Despite external challenges, the Indian stock market remains a standout globally.

Disclaimer: This blog has been written exclusively for educational purposes. The securities or companies mentioned are only examples and not recommendations. This does not constitute a personal recommendation or investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.

Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.