Buying the dip: India, US and the UK

Canny investors will be looking at the current rout in markets and wondering whether there are some bargains to be had. Areas that had looked very expensive, such as India and US technology, have seen share prices drop, while areas that already looked cheap have become even cheaper. While there is still plenty of uncertainty, are there areas that investors should be buying on the dips?

It is worth saying that although markets have come back some way, they do not yet look ‘cheap’ by conventional metrics. The MSCI World index is approximately where it was in September of last year. Stock markets have only given up their (misplaced) post-election excitement over a second Trump term. With the MSCI World up 24% in 2023 and 19% in 2024*, this looks like a blip rather than a serious meltdown – for the time being at least.

However, world markets have moved closer to long-term norms. The price to earnings ratio of the MSCI World is currently 24x**. That is in line with its levels over the past five years. The trade war has dented the outlook for company earnings, so there is a rational reason for the shift in markets, but there is no doubt that valuations are now more realistic. 

India: Back to attractive levels?

There are areas that stand out as having been previously expensive that have come down to more attractive levels. India, for example, stands out as a previously popular sector that has fallen back. The average fund in the sector has declined 9% for the year to date***. While the BSE SENSEX index is up around 2.6% over the same period****, it is significantly behind other markets.  

There were other reasons for the weakness in the Indian market. There were some wobbles in the economic data, with consumer and government spending weaker in the final months of 2024. Corporate earnings were revised lower as a result. Even though India was not one of the countries hard hit by reciprocal tariffs, this also weighed on markets. 

However, India is undoubtedly a long-term growth story, and it is worth capitalising on any opportunity to get in at a lower level. Ajay Tyagi, manager of the UTI India Dynamic Equity fund, says: “After remaining under pressure over the past five months, the Indian equity market witnessed a healthy revival during March. There has been a moderation in earnings growth over the past couple of quarters impacted by GDP growth being disrupted by one-off factors, muted consumption demand and low liquidity in the system. Consequently, earnings estimates have been revised downwards which, along with high valuations, led to a correction in the market from its peak in September. Some of these factors appear to have bottomed out and there are indications of the environment turning incrementally positive leading to a revival in stock prices.” The BSE SENSEX has already started to show signs of recovery, with a jump of 3.7% over the past month****.

He points out that tax cuts implemented by the government should be positive for revival in consumption demand. He adds: “Valuations have corrected from the peak and are in the fair value zone, especially in the large-cap segment.” He also believes the impact of tariffs for India will be lower than key ‘competitor’ countries such as China, Taiwan, Indonesia, Vietnam and Bangladesh.

North America: Can it bounce back?

Analysis by the Financial Times shows that US stocks have underperformed the rest of the world this year by the widest margin since 1993. It shows that the MSCI USA index lost 11% in the first 16 weeks of the year, while the MSCI All World ex-US benchmark climbed 4% in dollar terms over the same period^. Nevertheless, the US always exhibits a certain bounce-back ability.

As Maneesh Bajaj, manager of the Brown Advisory US Flexible Equity fund, points out: “The American system, although far from perfect with glaring lapses over time, has demonstrated remarkable resilience. The repercussions of altering the global trade order or the extent of these changes, along with their impact on equity markets, remain unpredictable. One cannot dismiss the possibility that the consequences could be dire.

“Free elections, free speech, a free press, the rights of assembly and petition, the rule of law, due process, free enterprise, and a culture of innovation have collectively fostered a self-correcting mechanism that continually strives to improve what we think of as the American way. This resilient framework has produced economic progress that has consistently pushed equity values higher over longer-term horizons.”

With that in mind, it can be worth buying the US equity market when it is cheaper. That comes with the caveat that most investors will already have a lot in the US technology sector and probably don’t need any more. It may be a good moment to look at other parts of the US market, which have been hit just as hard. This might include US smaller companies, through a fund such as the T. Rowe Price US Smaller Companies Equity fund, or a ‘core’ option such as the Brown Advisory US Flexible Equity fund.

UK: Cheap and getting cheaper

The FTSE 100 is having a moment. It has been on its longest winning streak in eight years as global investors have warmed to its defensive qualities at a time of market turmoil^^. However, the small and mid-cap companies have been caught up in the broader ‘risk off’ trade. They were cheap, but are now even cheaper.

This seems unfair. UK Smaller companies should be more insulated against global tariff wars and their valuations alone offer a cushion against weaker conditions. Guido Dacie-Lombardo, manager on the WS Montanaro UK Income fund, says: “Only c. 20% of the fund’s revenue exposure is to the US, the majority of which is either services or products supplied by local manufacturing. Sharply positive share price reactions to recent satisfactory (but not stellar) updates from our holdings reinforce our conviction in the significant latent value that remains in our portfolio.

“Indeed, it is evident that extreme negativity is already priced into UK small and mid-caps. As such, any further share price declines in UK domestic equities caused by Trump’s actions will create even more compelling buying opportunities, in our view.”

Volatile markets always create opportunities to make good investments at lower valuations. That said, it warrants some caution – many parts of the market are cheap for a reason.

*Source: index factsheet, 31 March 2025

**Source: World PE Ratio, at 28 April 2025

***Source: FE fundinfo, at 28 April 2025

****Source: Yahoo Finance, at 28 April 2025

^Source: Financial Times, 26 April 2025

^^Source: Reuters, 25 April 2025