Liontrust India Fund

Key highlights

• India’s domestic focus leaves it out of the limelight as investors remain focused on the AI/technology theme.
• Good stock selection within a strong performing consumer discretionary sector and an underweight to weaker IT sector made positive contributions to Fund performance in the quarter.
• With sentiment and valuations at depressed levels, India is well-placed benefit from any wider market rotations.

Performance

Over the quarter, the Liontrust India Fund returned -5.2%* in sterling terms, compared with the MSCI India Index return of -6.0% and the -4.3% average return in the IA India sector (both of which are comparator benchmarks).

Commentary

India continued to see lacklustre performance over the third quarter. Whilst domestic growth continues to be relatively strong, India is currently out of the limelight for a number of global macro reasons. Most importantly, one of India's key qualities as a market is its domestic focus and relatively low exposure to trade dynamics. Whilst this has proven a significant asset at various points – not least during the Liberation Day market volatility in April – it is currently working against global portfolio flows, as investors remain singularly focused on the AI/technology thematic, which has primarily boosted the North Asian tech supply chain in Taiwan and South Korea.

Moreover, during the third quarter, President Trump turned his sights on India, applying a hefty 25% minimum tariff as well as a 25% penalty tariff relating to purchases of Russian oil. Considering the low exposure India's economy has to US exports, this is less of a material economic impact and more of a sentiment knock, where India has generally been considered as optimally non-aligned between competing geo-political forces. We remain optimistic about the chances of a trade reconciliation between the US and India, but until this bears fruit, concerns continue to weigh on Indian assets.

On a domestic front the quarter saw an ongoing economic pivot towards consumption. In an immediate sense, this can be seen as a response to external trade threats, but also represents an attempt to boost consumption in order to raise animal spirits at a corporate level in order to stimulate private-sector investment, which has been a relatively weak spot for the economy in recent years. The latest boost to consumption was the announcement of further reforms to the Goods & Services Tax (GST), whereby consumption tax will be reduced significantly for several key items including large-ticket items such as cars, as well as everyday food and healthcare items.

Over the quarter, sector returns reflected these shifts, with consumer discretionary being the key outperforming sector. Meanwhile, externally facing IT services continued to underperform given ongoing weak demand across the sector, compounded by concerns over treatment of H-1B visas by the Trump administration, which has the capacity to negatively impact companies in this sector, which rely on such visas to service US-based clients.

For the Fund, relative positioning and stock selection within consumer discretionary and IT sectors contributed positively to performance. In the consumer sectors, two-wheeler plays Eicher Motors (+23% in sterling terms) and TVS Motor (+16%) were stand-out performers, supported by ongoing market share gains and given a further boost by the GST announcements. In addition, quick commerce player Eternal (+21%) continued its recent improved performance, reporting impressive market share gains against peers

Within IT, the Fund benefited from a general underweight position in the sector, as well as good stock selection – notably from KaynesTechnology (+14%), a leader in the electronics manufacturing services (EMS) space.

The Fund made a number of changes to the portfolio over the quarter to reflect the ongoing, considered policy pivot towards supporting consumption. New positions initiated over the quarter were predominantly in the consumer discretionary sector, including mid-market auto producer Maruti Suzuki, and two-wheeler player Bajaj Auto. Whilst the Fund has long maintained exposure to the long-term premiumisation story in India, the recent policy announcement have the most significant marginal impact on mid-level consumption. Therefore, small-ticket discretionary spend is expected to improve, supporting the outlook for further new stock additions in online and offline beauty retailer Nykaa as well as domestic travel platform Ixigo.

To fund these new positions, profits were taken in Bharti Hexacom, where the premium to parent company Bharti Airtel had reached elevated levels, and also in mid-cap IT services players Persistent and Coforge. Whilst we like the long-term outlook for these companies, we will revisit when the sector-wide headwinds have diminished.

Whilst India's relative performance has remained weak over the past 12 months, we remain optimistic over the medium- and long-term. Although foreign investors have shunned the markets in preference for all-things-AI, domestic flows into equities have remained strong, underscoring the improved resilience of Indian markets relative to history. While domestic flows remain consistent, foreigners have sold to extreme levels, leaving sentiment at record lows. Were a trade deal to be inked or a reversal seen in technology-related stocks, then India would stand as a clear beneficiary given the low starting point. Valuations – long the sticking point for foreign investors – have now corrected to below average levels relative to emerging markets, suggesting India is well-placed to benefit from any wider market rotations in the first quarter and into 2026.