James Thom

James Thom said India could also offer investors diversification from markets more heavily exposed to AI-related stocks, while opportunities were emerging in sectors including defence, aerospace and healthcare.

Speaking at the Association of Investment Companies’ (AIC) investment company showcase, Thom said trade remained important to India but was not the main driver of its economy.

“India is very much a domestic consumption story. Trade is important, but it is not the main driver of economic growth, which is being driven by domestic demand.”

Thom said more Indian retail investors were moving into capital markets, as households increasingly looked beyond gold as a store of value. We are seeing more and more retail investors coming into the capital markets, and retail ownership is increasing. Gold has traditionally been the store of value for Indian households, but that is changing, with more people investing in capital markets.

“Part of that is down to the reform agenda and the growth of systematic investment plans, which allow people to invest in domestic mutual funds every month. The domestic mutual fund industry is growing, and I see this as a structural story.”

Despite recent market underperformance, Thom said India’s economic growth had remained resilient and he was constructive on the near-term outlook.

“India has underperformed over the past 12 to 15 months, but the growth story remains resilient. GDP growth has held up over the past couple of quarters, and we are reasonably constructive about the near-term outlook.”

He also suggested foreign investors could return to the market as some of the headwinds facing India ease, adding: “Foreign investors have been heavily exposed to US equities and relatively underweight China and India. India was among the better-performing markets last year, as investors looked at the growth opportunities and relative valuations.

“India is not necessarily expensive when you compare it with the S&P 500 on a price-to-earnings basis. We expect foreign ownership to return as some of the headwinds clear. In the meantime, the market has a structural source of support from domestic flows.”

Thom also highlighted opportunities in India’s defence, aerospace and healthcare sectors as multinational companies looked to diversify their operations beyond China.

“There are opportunities in defence and aerospace, as well as healthcare. Many multinational companies have historically depended on China for their operations. In healthcare, particularly contract development and manufacturing, the China-plus-one strategy is creating opportunities for India to benefit as companies diversify their supply chains.”

He added that free trade agreements were creating opportunities for Indian exporters.

“India has historically been seen as a protectionist economy, but a flurry of free trade agreements is creating real opportunities for exporters. We are seeing particularly strong order flows.”

Thom said India’s lower exposure to semiconductor hardware could also provide diversification for investors concerned about the concentration of AI-related stocks in other markets.

“India does not have the same semiconductor hardware exposure as Taiwan. From a broader portfolio perspective, that can make it a useful source of diversification.”

He said the long-term investment case was supported by a growing middle class and sustained earnings growth.

“The long-term story is about a rising middle class and structural growth in consumption. India has a number of long-term drivers supporting relatively consistent growth.

“Earnings have compounded at around 13% a year over the past 25 years, which illustrates the strength of the long-term opportunity.”

Thom also said the trust was exploring ways to participate in private, pre-IPO investments, although a suitable structure would need to be put in place first.

He said the manager had considered establishing a presence in India but had decided against it for tax and regulatory reasons.

“Our funds are managed as a team, and the way they are structured makes it complicated to have people based in India while maintaining the existing fund domiciles. Singapore has become an increasingly important base for India-focused fund management, giving us access to companies and allowing us to conduct regular roadshows.”