India investments 'could be insulated' from US-China trade war

India may be rocked by incoming US president Donald Trump's proposed tariffs on China but the economy should be able to maintain a rate of growth to become the world's third-largest consumer market in 2026 and third-largest economy by 2027.

This forecast by UBS hints that the India-focused funds and investment trusts that have been popular purchases for UK investors in the past two years – including Jupiter India, India Capital Growth Fund Ltd (LSE:IGC), Ashoka India Equity Investment Trust PLC (LSE:AIE) – might continue to benefit. 

Goldman Sachs also expressed confidence, seeing India as "relatively more insulated" against potential US tariff risks than other emerging markets, as well as to dollar/rates headwinds.

Economic outlook

India's economic growth is seen growing 6.5% next year and 6.3% in 2026, according to UBS, down from its previous forecast of 6.8%, due to global trade uncertainties, including additional tariffs on Chinese imports.

The Swiss bank highlights risks to India’s economy from slower global growth, delayed recovery in corporate capital expenditure, and potential depreciation of China’s yuan, which could pressure India’s trade balance.

Despite these challenges, UBS expects growth to recover to 6.6% in 2027, supported by structural reforms and increased supply chain diversification into India under the 'China + 1' strategy adopted by many multinationals around the globe.

India is expected to remain one of the fastest-growing emerging markets, with potential real GDP growth of 6.5% between 2026 and 2028, meaning India could become the world's third-largest consumer market by 2026 and the third-largest economy by 2027, benefiting from a push in manufacturing, digitalisation, and export growth.

“Even though we believe India is among those less at risk from tariffs relative to Asia's more open economies, it is not immune,” UBS stated. The report added that structural reforms and productivity gains could help stabilize medium-term growth despite external challenges.

Market valuations

However, while some other economists predict that India could be among those countries that could even benefit from a possible new trade war, the popularity of Mumbai's stock exchange in the past few years could mean the benefits are not exceptional.    

"Prospects are brighter in our view for a few stock markets, although not as bright as in the US," said Hubert de Barochez, senior markets economist at Capital Economics. 

He said he suspects that a trade war "could prove positive for some economies, including India, Taiwan and Vietnam, as exporters in those countries could gain market share – although that might not be enough for Indian equities to outperform given their high valuations".

Goldman Sachs equity strategists also acknowledged India's stretched valuations compared to history and said the market is navigating a soft patch. 

"While the longer-term structural appeal of Indian equities remains intact, domestic economic growth is cyclically slowing down across many pockets and has been weighing on corporate profits," they said, which led to a downgraded view on Indian equities to 'neutral' last month.

With high starting valuations, a less favourable external environment and softer domestic fundamentals expected for the next couple of quarters, the Goldman team think the market could remain "range-bound" for several months and expect the NIFTY index to reach a 2025 year-end target of 27,000, implying 13% upside from current levels.

India investment trusts and ETFs

There are four UK-based public limited companies that invest in Indian equities:

• JPMorgan Indian Investment Trust PLC - the largest with £873m of assets, discount 19.3%, 1yr record +15.2%, 5yr +36.0%)
• abrdn New India Investment Trust PLC - £764m of assets, discount 20.15%, 1yr record +28.2%, 5yr +60.2%)
• Ashoka India Equity Investment Trust PLC (LSE:AIE) - £288m of assets, premium of 1.97%, 1yr record +23.1%, 5yr +159.5%)
• India Capital Growth Fund Ltd (LSE:IGC) - £177m of assets, discount 11.9%, one-year record +8.0%, 5yr +149%)

Each offers a managed portfolio focused on specific themes within the Indian market.

ETFs that specifically target Indian stocks or indices generally directly track the performance of an index or basket of stocks.

India ETFs available for UK investors include:

• iShares MSCI India ETF
• Xtrackers MSCI India Swap UCITS ETF 
• Franklin FTSE India ETF 
• WisdomTree India Earnings Fund 
• iShares MSCI India Small-Cap ETF
• First Trust India NIFTY 50 Equal Weight ETF 
• Invesco India ETF 
• VanEck India Growth Leaders ETF 

Most of these ETFs track widely available indices, including the Nifty or MSCI India, and most include the largest companies such as Reliance, ICICI, Infosys, Tata and Bharti, while the iShares Small Cap unsurprisingly targets smaller stocks.

The Franklin fund tracks the performance of the FTSE India 30/18 Capped Index, a market cap-weighted index that limits over-concentration in any single security, while the Invesco fund tracks the FTSE India Quality And Yield Select Index, which excludes the bottom 10% on yield and quality scores.