As volatility continues to shake global markets, India’s high-quality businesses, rebalanced valuations, and relatively insulated economic model make it an attractive opportunity for equity investors.
High quality advantage
Within the emerging market universe, India stands out for the quality of its corporate sector. Compared with peers, Indian companies generally boast higher returns on capital, stronger governance, and more disciplined capital allocation. Even amid global uncertainty, corporate balance sheets remain healthy with strong earnings visibility.
A prime example is Hexaware Technologies, a global IT services and consulting firm, specialising in digital transformation, automation, and cloud services that help businesses improve efficiency.
Hexaware has undergone a remarkable transformation. Over the past decade, it has evolved from a relatively undifferentiated mid-cap player into a client-centric business with clear competitive advantages, delivering consistent growth through disciplined capital allocation and a distinctive suite of proprietary platforms such as RapidX (automation), Tensai (AI), and Amaze (cloud modernisation).
Another example is ICICI Lombard, India’s second-largest general insurer and the largest in the private sector, a title it has held for over 20 years. Its highly experienced leadership team continues to prioritise profitability over aggressive expansion.
Valuation reset offers long-term opportunity
Indian equities have enjoyed a bullish run in recent years, driven by strong economic and earnings growth. However, since September last year, a broad correction has unfolded due to weaker corporate earnings, a slowdown in government capital expenditure post-elections and softer mass consumption.
Investing in smaller and younger but rapidly growing companies can be a lengthy process. Experience shows it can take multiple rounds of meetings, including facility visits and discussions with management, customers and suppliers.
As such, the correction we have seen, while challenging in the short term, represents a healthy valuation reset and a buying opportunity for long-term, fundamentally driven investors.
India’s insulated economy
Although the new US administration’s approach to trade policy continues to drive volatility across global equity markets, India is entering this period from a position of relative macro strength.
The economy’s low export dependency – just 11% of GDP, with the US accounting for only around 2% – makes it less vulnerable to external shocks. This will help to shield the economy more than many emerging and developed economies.
Moreover, domestic consumption, which makes up roughly 60% of India’s GDP, continues to serve as a key growth anchor.
Of course, some Indian companies will feel an impact from tariffs, even if indirectly, given their correlation to US economic growth – large information technology firms spring to mind. However, we are already seeing these companies respond to minimise the impact, for example freezing discretionary spending and budgets.
Short-term challenges, long-term potential
The long-term outlook for India is positive, though we are mindful of near-term headwinds. For example, government infrastructure spending is pausing after a strong pre-election run, and the recovery in blue-collar jobs has been slower than many had anticipated.
These factors have contributed to a modest earnings slowdown, particularly for companies exposed to the mass market.
However, we see this as a reversion to the underlying trend, rather than a cause for concern. Growth had been artificially boosted in the years following the pandemic, and the current slowdown is more cyclical than structural.
Importantly, signs of resilience remain in place. Higher income households remain discerning, and we expect this to continue driving demand in several sectors, notably travel (to the benefit of companies such MakeMyTrip), premium vehicles such as SUVs (M&M), and quick commerce (Zomato), as well as real estate and related household goods.
In addition to this, the government has become a lot more focused on boosting consumption for the middle-income segment. This can be seen in tax cuts in the last budget, with the aim a of more balanced approach between consumption and capex.
Looking at the bigger picture
In a world facing decelerating growth, India stands out. Over the past decade, a wave of structural reforms has transformed the Indian economy, establishing more durable and resilient foundations for investors, who have seen a shift towards more structured operations, progressive deregulation, and broader financial inclusion initiatives.
Together, these measures have enhanced economic efficiency and strengthened corporate balance sheets, resulting in a more resilient macro environment and healthier corporate fundamentals.
As a result, investors who take a long-term view and remain focused on high-quality businesses with sustainable earnings and attractive valuations are well positioned to benefit from India’s evolving growth story.
Amit Mehta is co-manager of JPMorgan Indian Investment Trust. The views expressed above should not be taken as investment advice.