A stark performance analysis spanning over 14 years reveals that Indian equities have consistently delivered inferior returns compared to major US benchmarks when measured in USD terms, raising concerns about India's ability to attract global capital without significant policy reforms.

Performance Comparison Reveals Significant Gaps

The comprehensive analysis covering August 2012 to January 2026 shows Indian markets lagging substantially behind US counterparts across multiple metrics. The data presents a concerning picture for global investors evaluating risk-adjusted returns.

The analysis reveals that Indian equities not only delivered lower returns but also exhibited higher risk profiles. The NIFTY's Sharpe ratio of 0.14 significantly trails the S&P 500's 0.44 and Nasdaq's 0.65, indicating poor risk-adjusted performance.

Foreign Capital Exodus and Domestic Dependency

Foreign players in the Indian market have remained home-bound for an extended period, with their exit being cross-subsidised by Indian retail investors' money flowing into equities through the Systematic Investment Plan (SIP) route. This shift in investor composition highlights India's growing dependence on domestic capital.

The analysis warns that if domestic inflows also get affected due to low returns or dismal performance by Indian institutional investors, the government may face a difficult situation requiring delicate handling of both domestic and foreign capital issues.

The Capital Allocation Reality

Global capital operates on a ruthlessly comparative basis, focusing on USD returns per unit of risk rather than compelling narratives about demographics and GDP growth. For institutional allocators including pension funds, sovereign wealth funds, and CIOs, the data suggests no portfolio-level compulsion to allocate incremental capital to India.

US markets currently offer several advantages that make them more attractive:

• Higher USD returns across timeframes
• Better Sharpe ratios indicating superior risk-adjusted performance
• Lower drawdowns providing capital preservation
• Deeper liquidity and currency safety

Policy Recommendations for Competitiveness

To remain relevant in the global capital allocation landscape, the analysis suggests India must offer explicit incentives rather than relying on narrative-driven approaches. Key areas for improvement include:

• Lower tax and transaction friction to improve net returns for investors
• Greater currency stability to reduce forex risk for foreign investors
• Regulatory predictability to enhance investor confidence
• Market structure improvements that enhance risk-adjusted returns

The analysis emphasises that the real risk for India is not capital outflows but capital indifference, where global investors simply ignore Indian markets in favour of better-performing alternatives.

Conclusion

The performance data spanning over 14 years presents a clear challenge for Indian policymakers. With the NIFTY's 8.25% CAGR significantly trailing the S&P 500's 12.62% and Nasdaq's 18.10%, coupled with inferior risk metrics, India faces an uphill battle in attracting global capital. The upcoming budget presents an opportunity to address these structural issues through policy reforms that can make Indian markets more competitive on a risk-adjusted basis.