Over the past two decades, India’s equity market has recorded the lowest average dividend yield among major global markets. Bloomberg data show that the 20-year average dividend yield for Nifty 500 constituents stood at just 1.3 per cent year-on-year — well below those of developed markets such as the US (1.9 per cent), the UK (3.84 per cent), and Japan (2 per cent), as well as comparable emerging markets like China (1.9 per cent), South Korea (1.7 per cent), and Indonesia (2.4 per cent).
In top 3 markets
This persistent dividend shortfall, however, coincides with India’s strongest long-term equity growth outcomes. Over the same 20-year period, the Nifty 500’s Price Return Index (PRI) delivered compound annualised returns (CAGR) of a little over 12 per cent. When dividends are reinvested, returns — as captured by the Total Return Index (TRI) — rise to nearly 13.6 per cent CAGR, placing India among the top three performing equity markets globally over the period. All returns are in local currency.
The gap between PRI and TRI — about 1.6 percentage points for India — represents the contribution of reinvested dividends and is the narrowest among major markets. In countries with higher dividend payouts, this divergence is far wider. New Zealand, Australia and Singapore, for instance, show PRI–TRI gaps of nearly 4 percentage points, reflecting average dividend yields of over 4 per cent. In effect, dividends account for only about 25 per cent of India’s total equity returns over 20 years, compared with as much as 56 per cent in several other markets. Dividend yield, PRI, and TRI data are based on Bloomberg calculations.
Why does India pay the least dividends?
Valuation, the key
Several factors may explain this trend, but one key factor is valuation. India has historically commanded a premium valuation relative to many global peers, driven by factors such as strong growth prospects, stability and a more diversified and broad-based index compared to other emerging economies.
Concentrated ownership structures play a major role as many listed companies are controlled by promoter families who prioritise strategic flexibility and balance-sheet strength over regular cash payouts.
Unlike western markets, where dispersed ownership and institutional investors exert pressure for steady dividends, Indian promoters face limited compulsion to distribute surplus cash.
Tax considerations have also played a role given the incentives and disincentives across different countries. For example, when buybacks had preferential tax treatment in India until a year back, many companies chose this route to return capital to shareholders over dividends.
A 20-year dividend yield analysis of NSE 100 companies shows a notable sectoral divide. Mining and metals firms such as Vedanta and Hindustan Zinc, along with oil and gas PSUs like ONGC, BPCL and IOC, deliver 4-6 per cent yields. Utilities such as NTPC and GAIL also feature. At the other end of the spectrum are low-yield sectors such as private banking, capital goods, consumer discretionary, pharma and telecom.
Returns oriented
Finally, investor preferences have reinforced the low-dividend equilibrium. With favourable capital gains taxation and strong price appreciation, Indian investors have remained largely return-oriented rather than income-oriented.
The rise of systematic investing and long-term SIP-led mutual fund flows has further entrenched a growth-first mindset, reducing pressure on companies to reward shareholders through dividends.
Published on January 24, 2026
