Indian Equity Markets Outperform China Since 2000: Report

Indian equity markets have consistently outperformed their Chinese counterparts since 2000, according to a report by Deutsche Bank. While China has seen significant economic growth, its stock market has delivered more modest returns, with real returns averaging just 4% per annum. In contrast, India has emerged as a global leader, offering one of the highest real equity returns at 6.9% per annum over the same period.

The report highlights that India’s impressive performance positions it among the top emerging and developed markets in terms of returns, emphasizing its strong position in global financial markets. "India has one of the highest real equity returns (+6.9% per annum) of the main EM and DM countries in the 2000-2024 period," the report states.

As of 2024, both India and the U.S. are trading near record-high Cyclically Adjusted Price-to-Earnings (CAPE) ratios, a key metric that accounts for long-term earnings trends while smoothing out short-term market fluctuations. The report notes that while the U.S. market saw its CAPE ratio reach unprecedented levels at the turn of the millennium, it has now climbed back to historic highs, only briefly exceeded in the past century.

The report attributes the U.S.’s elevated valuations to its technological dominance, advancements in artificial intelligence (AI), and shifting earnings expectations. "The bulls would argue that tech dominance and AI hopes offer the U.S. that structural shift, and perhaps India's outlook is so positive that investors are prepared to pay up for the potential growth," it suggests.

India’s strong growth outlook and its potential role as a key player in the global economy help explain why investors are willing to pay a premium for its stocks. Heading into the new quarter-century (2025-2049), both India and the U.S. start on a high note but remain expensive compared to markets with more normalized valuations. As such, these markets will continue to be in the spotlight, with their future growth trajectories closely tied to investor confidence in their structural strengths and long-term prospects.

The report’s findings underscore India’s rising significance in the global equity landscape, offering a compelling case for investors seeking growth opportunities in the coming decades.