EM strategist Adrian Mowat warned that Indian equities are staring at more headwinds than tailwinds in 2025, even as China and other emerging markets benefit from stronger flows and sectoral momentum.
“The US government has gone after India with punitive tariffs, even though both India and China are buying Russian oil. That’s unfair,” Mowat said in an exclusive interview with Moneycontrol. He added that fresh policy headwinds, including the H-1B visa clampdown and random steel tariffs, are compounding the pressure on sectors that have long powered Indian markets. “These companies are well managed and will find ways around the problems, but in the near term I don’t think you’re going to make good money owning them.”
China to Outperform India
Mowat, who has tracked India for over three decades, said that the relative delta has turned adverse for India while improving elsewhere. “China will outperform India for the balance of 2025,” he said, pointing to dividend hikes, rising buybacks, and strong performance of large-cap Chinese tech names such as Alibaba. Brazil and Korea are also seeing tailwinds, with monetary flexibility and defense-linked heavy industry growth driving earnings.
In contrast, India started the year at premium valuations and has since faced a policy shock from Washington, leaving it without clear sectors poised for earnings upgrades.
Emerging Market Flows Still Strong
Despite skepticism around EM as an asset class, flows have been healthy. “The MSCI emerging market index is up 28% year to date—that’s a very, very healthy return,” Mowat noted. He argued it was more useful to think in terms of non-dollar markets rather than the narrow EM construct.
“There’s a willingness to switch out of US capital markets, and where the fundamentals are strong—in Taiwan, Korea, China—capital is flowing in large amounts.” Taiwan Semiconductor and Korean defense suppliers are among the beneficiaries, while European equities have also surprised with strength in banks and defense, even as pharma and luxury faced US policy and demand headwinds.
India’s Headwinds
For India, Mowat flagged multiple challenges:
- IT companies: Hit by the H-1B visa squeeze, making on-site delivery tougher despite offshoring strength.
- Petrochemicals: Margins could suffer if access to discounted Russian oil diminishes.
- Steel: Random US tariffs weigh on exporters.
- Policy overhang: “Even though you can offshore a lot, you still need those people on site with your key customers. That’s why I’m concerned about Indian IT companies.”
Mowat said India’s economy remains largely consumption and services-driven, with manufacturing still modest. But near-term, job and wage growth face more headwinds than tailwinds, and services exports are clouded by outsourcing risks.
Trump’s Unpredictability
Looking ahead, Mowat said the uncertainty around US policy makes investment calls tricky. “There doesn’t seem to be a consistency in the strategy and the policy,” he said, pointing to rapid shifts in rhetoric on Ukraine and sanctions. “It’s very difficult to make investment decisions when you don’t have a clear view of what the US administration is going to do.”
India Can Survive, But Near-Term Looks Tough
Mowat stressed that Indian firms are seasoned survivors. “These are well-managed, mature companies. They will manage around these problems. But until there is policy stabilisation, India will struggle to attract the kind of tactical flows that are benefiting other emerging markets.”
Watch the full interview with N Mahalakshmi here:
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