Indian equity market delivered stronger returns than China's equity market since 2000

Indian equity markets have delivered stronger returns compared to China's equity markets since 2000, highlighted a report by Deutsche Bank

The report noted that while China has experienced robust economic growth, its equity market performance has been relatively modest, with real returns averaging +4.0 per cent per annum since 2000. In contrast, India has emerged as a leader among both emerging and developed markets, offering one of the highest real equity returns of +6.9 per cent per annum over the same period.

It said "India has one of the highest real equity returns (+6.9% p.a.) of the main EM and DM countries in the 2000- 2024 QC"

The report also highlighted that, as of 2024, India and the U.S. are among the few markets trading close to record-high CAPE (Cyclically Adjusted Price-to-Earnings) ratios. This metric, which measures earnings over a 10-year period, smooths out cyclical variations but may not fully account for structural changes in market dynamics.

It stated that at the turn of the millennium, the U.S. S&P 500's CAPE ratio reached unprecedented levels before dipping in the early years of the 21st century now it has climbed back to heights only exceeded briefly in the last century.

The report also argues that tech dominance, artificial intelligence (AI) advancements, and structural shifts in earnings expectations justify these elevated valuations for the U.S.

It said "The bulls would argue that tech dominance and AI hopes offer the US that structural shift, and perhaps India's outlook is so positive that investors are prepared to pay up for the potential growth".

It suggested that India's positive growth outlook and its potential as a key player in global markets also explain why investors are willing to pay a premium.

Heading into the new quarter-century (2025-2049), the report added that India and the U.S. begin on a high note but remain expensive compared to markets with more normalized valuations. This positions them as markets to watch, with their growth trajectories closely tied to investor confidence in their structural strengths and future prospects.