Indian Equity Market: Know about Performance, Market Cap, FIIs, Mutual Funds and Prospects before investing

India was the only bright spot in the gloomy global scenario last year (in 2022). While the global indices dropped by as much as -32% (NASDAQ Composite), Indian indices (Nifty 50 and Sensex) increased by over +4% in 2022.

In 2023, the Indian equity market is underperforming its global peers. Sensex, the benchmark index of the Indian equity market, has tanked from around 2,000 points in 2023 till now. While BSE Sensex is down by around -3% on a year-to-date (YTD) basis, global stock markets indices such as NASDAQ and S&P 500 are up by +8.87% and +3.40%. 

Is the underperformance of the Indian markets vis-à-vis global markets in 2023 a temporary or long-term phenomenon? If you're planning to invest in the Indian share market, should you go ahead? Let’s check historical returns, market caps, and prospects to make an informed decision. 

Indian Equity Market & Global Markets: A Comparative Analysis of Historical Performance

Among G-20 countries, the Indian equity market is one of the top-performing ones in both the short and long term.

Short Term Performance

In the last 3 and 5 years, the CAGR (Compound Annual Growth Rate) of the Indian equity market were 11.5% and 11.4%, respectively. It is the best performance among the G-20 countries. 

The global markets that gave over 10% annualised return in US dollars in the last 3-years are:

• Russia: +10.9%
• Indonesia: +10.5%
• China: +10.5%

For the last 5 years, the only equity market other than India that provided over 10% return is Indonesia (10.5%).

In the last 1-year, China's equity market has been the top performer. It increased at a 14.3% CAGR. The other top-performing global markets are:

• Russia (11.9%)
• India (11.5%)
• Indonesia (10.9%)

Long Term Performance

In the longer term also, Indian markets are the best-performing among the G-20 nations. Indian equity market's performance in:

• The last 10 years is 9.2% CAGR
• The last 15 years is 9.6% CAGR
• The last 20 years is 10.7% CAGR

Also Read: Is it a Bull Rally or a Dead Cat Bounce Case for the Indian Stock Markets?

Market Capitalisation of the Indian Equity Market

Indian stock market returns are among the highest in the world. Regarding market capitalisation (m-cap), it is the third largest globally. The market cap of the Indian equity market is US$ 3.3 trillion. In the last 10 years, it has grown threefold.

There are only two countries that have a higher m-cap than that of the Indian markets. They are:

• China: US$ 12.5 trillion
• Japan: US$ 5.6 trillion

Besides Japan, Saudi Arabia, and China, the Indian equity market is one of the fastest growing in terms of market capitalisation growth.

FII Inflow and Mutual Fund Investment in Indian Equity Market

Regarding US Dollars, the Indian equity portfolio increased by almost two-fold in the last 10 years from US$ 312 billion in 2014 to US$ 562 billion. During the same period, the FDI portfolio value in Indian stocks has jumped by 4.1-fold from US$ 63 billion to US$258 billion. 

The mutual fund industry's investment in the Indian equity market has witnessed a 5.8-fold jump. It increased from US$ 48 billion in 2014 to US$276 billion.

• Mutual fund inflows through SIPs in the Indian equity market were just US$ 7 billion in 2016.
• In 2022, around US$19.8 billion were invested in Indian equities through SIPs. 
• This is a jump of around 2.8-fold during 2016-2022.

The continued growth of the mutual fund industry through SIPs in Indian equities neutralised the heavy sell-off of Indian equities by the FIIs in 2022. While FII sold US$ 15.4 billion of Indian equities, the mutual fund purchase of Indian equities was worth US$ 23.6 billion.

Also Read: Best Equity Mutual Funds to Invest in India

Should you Invest in the Indian Equity Market?

India is currently the fifth-largest economy in the world. Its estimated nominal GDP was $3.469 trillion in 2022. Experts believe that the Indian economy will emerge as the third-largest economy in the world.

Here are some forecasts:

• According to the forecasts of S&P, the Indian economy will grow at an average annualised growth rate of 6.3% during 2023-2030.
• By 2031, Morgan Stanley expects the GDP of India to increase twofold.

With the Indian economy expected to grow robustly in the future, there is immense potential for the Indian stock market to boom. So, in the long run, you can expect your investment the Indian equity market to increase by leaps and bounds in the next 10 years. But the real challenge is choosing the right stocks to help you multiply your money.

According to Motilal Oswal’s forecasts, the sectors that are expected to dominate the Indian economy by 2035 are energy, pharmaceuticals, and IT. Some online retail companies, including Paytm, Ola, and Flipkart, may also make up to the benchmark Nifty 50 by 2035.

If you are a long-term investor with an investment horizon of 5-10 years, you should start investing in select Indian stocks now.