China has been the growth engine of the world for more than two decades now. India to a much lesser extent has contributed to the global growth rate as well during this period. India and China have been the two most populous countries in the world, and their GDP was also comparable until the 1980s. Therefore, it is not unusual in the media to compare India and China when it comes to their economy. However, presently, it is an unfair comparison as China is much larger than India (China’s GDP is roughly five times that of India) and has beaten India hands down in almost all the economic metrics.
However, there seems to be one metric where India has done better than China, and that is the stock market performance. If we compare the stock market returns, a 100 USD invested in the Indian stock index Nifty in January 2000, would be worth 387 USD in November 2018, Whereas the same amount invested in the SSE composite would be worth only 219 USD now. This translates to a CAGR of 7.38% for Nifty and 4.24% for SSE composite in USD terms.
Source : NightHawk Research, Investing
During the same period, the average GDP growth rates for India and China were 7.06% and 9.28% respectively. This indicates that faster GDP growth doesn’t necessarily mean better stock market returns. The reason for this phenomenon could be that a significant constituent of SSE composite is state-owned companies. State-owned companies generally are not expected to have profit as their sole motive. They might also have certain welfare needs to fulfill mandated by the government.