Foreign Investors: Foreign investors may come back to India in H2 of 2025: Charlie Dutton

India is likely to be a winner amid the uncertainty over the trade war, said Charlie Dutton, chief investment officer, global emerging market equities, Manulife Investment Management. In an interview with Prashant Mahesh, UK-based Dutton spoke about his views on trade war, India and foreign selling among other topics. Edited excerpts:

What will the impact of tariff wars be on the global economy and markets?
We believe Trump 2.0 in tariffs will be very different from Trump 1.0. In his earlier tenure, he came hard on tariffs, got as much onshoring as possible, and it was quite effective in terms of how it changed supply chains. In Trump 2.0, we see tariff rhetoric as a bargaining tool, and it’s more about negotiating. From an economic standpoint, if eventually there is a heavy round of tariffs and other countries respond to that as well, it is going to be inflationary.

We believe one of Trump’s key performance indicators (KPI) is how well the US stock markets will do during his tenure. We understand that US president (Donald) Trump is very involved with the stock market and sees it as a reflection on himself and the US. So, if tariff wars lead to high inflation across the world, eventually it could be bad for stock markets.

Where does India stand in the tariff war and globe trade?

We have already seen a very significant shift in supply chains globally over the last decade. One, it is no longer as cheap as it was to produce in China, and secondly, companies need to de-risk their supply chain and make sure they have alternative supplies around the world. That means increasing the amount of production out of India.India is in a strong position on the geopolitical side. Indian politicians have been very clever in treading the middle ground. We feel India will still end up as a winner as they are seen as a friend around the world.

In recent times, there has been heavy selling by foreign investors in the Indian markets. Do you see them coming back soon?
The Indian market has seen a strong rally in the last three years, leading to stretched valuations. A slowdown in credit growth and earnings expectations have triggered a natural correction in stocks. As valuations normalise, FIIs could come back to India in the second half of the year.Some believe investors are reallocating from India to China. Is that what is happening?
There has not been much foreign flows into China. From an international investor’s perspective, besides tech, the rest of the market is subdued. Consumption pickup in China is slow. The problem there is that the savings rate is incredibly high and people just put money in the bank as they are scared of losing it. Until you can get out of the cycle of high savings rate, it is hard to accelerate consumption. Earlier, investors put money in the property market, which was a good store of wealth and capital appreciation, but that’s no longer the case. As foreign investors, we need more evidence of the direction of change in China, before allocating money.

Which investment themes would you look at in India?
The recent correction could offer attractive entry points for investors eyeing high growth sectors. We have a high growth bias. We like internet platform companies in fintech and food delivery where there is high growth. Companies in IT outsourcing and the AI space in India will be beneficiaries as the US and European companies rush to integrate AI.