Indian stock market gives 18% returns in 5 years, beats China, other global market peers; small-cap stocks outperform
Indian stock market has emerged as the top-performing globally, significantly outpacing both developed and emerging market peers over short and long-term horizons, according to the June 2025 Monthly Market Outlook by Bandhan Mutual Fund.
For the three-month period ending May 2025, Indian equities delivered an impressive 16% return, sharply outperforming the 5% gain in emerging markets and the modest 2% rise in world and developed markets. The data highlights India's resilience and continued investor interest despite global uncertainties.
Over a five-year horizon, Indian stock market has been the best-performing market in US dollar terms, delivering 18% annualised returns. This surpasses the 12% returns of world and developed markets and is over four times higher than returns from emerging markets, the fund house noted.
In contrast, China saw a 2% decline in May 2025, standing out negatively among major global markets, most of which ended the month in green.
Index/Returns in USD 3 Months 5-Year India 16% 18% World 2% 12% Developed Markets 2% 12% Emerging Markets 5% 4%
From a market capitalisation lens, small-cap stocks have been the top performers over the last three months, five years, and since the pandemic lows of March 2020. Mid-caps came in second, followed by large-caps, highlighting the strong risk appetite and domestic participation in broader segments of the market.
Time Period/ Returns 3 Months 5 Years Large-caps 13% 22% Mid-caps 17% 32% Small-caps 21% 36%
Sector-wise, industrials, capital goods, and telecom led the rally in May with double-digit returns, driven by strong earnings and policy tailwinds. In contrast, FMCG, healthcare and IT, traditionally seen as defensive sectors, posted the lowest positive returns, while utilities were flat and metals saw marginal declines.
India's Services PMI rose in May, pointing to a recovery in the services sector. However, the Manufacturing PMI slipped, reflecting some slowdown in industrial output. The fund house noted that a weakening US dollar, falling domestic interest rates, and earnings largely in line with expectations contributed to the robust market performance.
'The domestic economy seems to be turning around and is much better placed than the global economy,' said Manish Gunwani, Head Equities, Bandhan AMC. He also cautioned about near-term volatility due to global trade developments. 'As the US continues to sign trade deals, the front-loading of global trade has supported activity, but the introduction of tariffs could disrupt flows.'
On the macroeconomic front, India's FY25 fiscal deficit met the revised target of 4.8% of GDP, with FY26 budgeted at 4.4%, indicating continued fiscal discipline. Inflation momentum appears benign, with food CPI showing negative growth for the sixth consecutive month, while core inflation edged higher.
The India Meteorological Department's forecast of an above-normal monsoon is expected to support food supply and keep inflationary pressures in check.
Meanwhile, the RBI's surprise 50 basis point rate cut and a 100 basis point CRR reduction signal a strong pro-growth bias, aimed at ensuring swift monetary transmission. 'This proactive stance is intended to support economic recovery and fuel credit growth,' said Suyash Choudhary, Head – Fixed Income, Bandhan AMC.
As of May 16, 2025, bank credit grew 9.8% YoY, while deposits increased 10%, underscoring improving liquidity and confidence in the financial system.
While India appears well-placed relative to global peers, Gunwani expects market volatility to persist in the coming quarters, driven by external uncertainties such as global trade realignments and geopolitical developments. However, strong domestic macro fundamentals, a benign inflation outlook, and supportive fiscal and monetary policy provide a solid cushion for Indian equities.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisio
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