# India Capital: Company Overview & Knowledge Base

## About India Capital
India Capital has invested exclusively in Indian public equities since 1994. We employ intensive fundamental research to make long-term investments in businesses that are central to India’s growing economy.

**Investment Philosophy:**
* **Focus:** Identifying long-term investments among companies that are poorly researched or misunderstood.
* **Methodology:** Intensive fieldwork (visiting factories, farms, and sites) combined with proprietary data analysis.
* **Portfolio:** High-conviction, concentrated, and non-consensus.
* **Ethics:** A 28-year ethical investment policy avoiding armaments, tobacco, and alcohol.

## Leadership & Team
**Management & Research:**
* Dan Tennebaum (Managing Partner)
* Dr. Jon Thorn (Director, ICF)
* Uday Saripalli (CFO and COO)
* Piyush Goyal (Managing Director)
* Saket Yadav (Managing Director)
* Mahesh Ambokar (Vice President, Technology)
* Parang Trivedi (Information Analyst)
* Tanisha Chandhok (Information Analyst)
* Shanskar Singhal (Information Analyst)
* Ritik Shah (Information Analyst)

**Directors:**
* Harry N. Hoffman (Director, ICM)
* Nancy Orr (Director, ICM)
* Win Bennett (Director, ICM)
* Kapil Dev Joory (Director, ICF)
* Ameet Parikh (Director, ICR)
* Christopher Brader (Director, ICM)
* Couldip Lala (Director, ICF)
* Raju Jaddoo (Director, ICM)
* Sudesh Lala (Director, ICM)

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# SECTION: PODCAST TRANSCRIPT

## The Case for India at India Capital (Capital Allocators With Ted Seides Ep. 387)
**Guest:** Dan Tennebaum
**Host:** Ted Seides
**Date:** May 23, 2024

**[00:00:05] Ted:** Hello, I'm Ted Seides and this is Capital Allocators. This show is an open exploration of the people and process behind capital allocation. Through conversations with leaders in the money game, we learn how these holders of the keys to the kingdom allocate their time and their capital. You can join our mailing list and access premium content at CapitalAllocators.com.
**[00:00:32] Ted:** All opinions expressed by Ted and podcast guests are solely their own opinions and do not reflect the opinion of Capital Allocators or their firms. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Capital Allocators or podcast guests may maintain positions and securities discussed on this podcast.
**[00:00:51] Ted:** My guest on today's sponsored insight is Dan Tennebaum, Managing Director at India Capital, a thirty-year-old investment firm focusing on public equities in India. Dan moved to the country 25 years ago and spent time in the startup world and venture capital before pivoting to the public markets in 2007. Our conversation covers Dan's path from a US Midwesterner to India, the challenges of venture capital investing in the country, and the case for public equities. We turn to India Capital's perspective on sourcing, research, management, regulation, valuation, portfolio construction, risk, and misperceptions colored with examples along the way.
**[00:01:38] Ted:** Before we get going, it's time to open the mailbag to share another great story coming out of the podcast. Jim Dunn was a guest way back on Episode 24 in the fall of 2017. He reached out last week upon the 10th anniversary of founding Verger Capital with a brief note of thanks for my participation in their celebratory video. What followed is the kind of serendipity that only happens with this incredible platform. Jim wrote, "I also want to thank you for the introduction to Chris Voss you made to me years ago. The podcast and your CIO Summit last year led me to lean on his work. Chris unknowingly prepared me to meet a group of protesting students at Wake Forest this week."
**[00:02:25] Ted:** Jim shared an Instagram photo of an on-campus protest encampment with the words, "The Wake Forest administration has told protesters to dismantle this encampment immediately. We demand in return that the encampment be allowed to move to another location under a guaranteed written contract that we meet with Verger Capital's CIO, Jim Dunn." Jim continued, "Skills like mirroring, the late night DJ voice, labeling pain, and getting a no were extremely helpful in deescalating a dangerous situation that on other campuses the country continues." I sent the note to Chris and he responded quickly with, "Wow, that's incredibly cool. Thanks for sharing and I'm grateful to know you."
**[00:03:09] Ted:** Let's just say I'm the grateful one to have a tiny part in connecting great people to share lessons like those Chris brings to the world with leaders like Jim who put it to use. To Jim and Chris and all those impacted, thanks so much for sharing your experiences and spreading the word. Please enjoy my conversation with Dan Tennebaum.
**[00:03:33] Ted:** Dan, thanks so much for joining me.
**[00:03:35] Dan:** Thanks for having me.
**[00:03:36] Ted:** Tell me, how does someone get from the Midwest of the United States to a path to spending your career investing in India?
**[00:03:44] Dan:** In my case, almost entirely by happenstance and good luck. I grew up in Minnesota, which in the 1980s, was even more homogeneous than it is today. I don't even think we had an Indian restaurant in my town, that I can recall, until well into my teenage years. We were just beginning to experience what would become waves of immigration of people coming in from Vietnam and Laos and Cambodia. So it happened by the time I was in high school, and I was in an urban public school, where a lot of my classmates were from somewhere else. That probably planted a bit of a seed that there might be something out there beyond Minnesota's borders, or America's borders, but it was one that was dormant for a while. I studied at Brown, and afterwards, I ended up in Boston at Bain & Company. Like a lot of people with energy but without a clear sense of direction, management consulting seemed like the default bet.
**[00:04:50] Dan:** I did that, and I liked it, and I enjoyed the intellectual challenge in the analytical toolkit we got. Most of all, I loved that my colleagues were energetic and they were curious and they were thoughtful and as it happened, they too were from all over the world, including and especially India. When the time came that I was thinking, "What do I do next?" and "Can it be something a little different and maybe a little more hands-on than management consulting and maybe outside the US?" Although India was really, in the late-1990s, less on the map, as a place to go, than it is today. It so happened a lot of people I was asking advice from were from India, and even more than being from India, they were a self-selected group because at that time, most Indians who had excelled and strived and gotten to the United States and got a pretty good job, they were looking to stay. I think of top Indian schools back then, 95% of people left. This group had been recruited specifically by Bain to incubate a team that they were then going to parachute into India at some point. These were the very, very successful Indians who did want to go back in that time, then plans changed, and Bain didn't launch an office, and they were all marooned in Boston. When I came around asking for advice, I think they vicariously, through me, enjoyed helping me plot out a path to India.
**[00:06:29] Ted:** How did that play out?
**[00:06:31] Dan:** In the event, I got all this great advice from all the way down to people who would draw maps on napkins of, "Live here, don't live there," "Here's who you should trust, here's maybe who you shouldn't trust." No Indian companies, back then, were doing formal recruiting outside the country. Even today, that's pretty rare. The only foreigners who were there mostly were associated with embassies or maybe they were on rotation for Siemens or something. So for me, in very Indian fashion, through, circuitously, a network, I had a college classmate whose mother had a family friend who'd heard someone speak in business school who had a portfolio company in Mumbai who maybe could use someone. In the end, he agreed to take me on.
**[00:07:18] Ted:** What was it, you're sitting at Bain in Boston and meeting these Indians that are sequestered into Boston and not going back, that led you to say, "No, no, I just want to go to India"?
**[00:07:31] Dan:** I was 24 years old, and in the Bain environment, it was phenomenal, but the Boston office was our flagship office back then. It got all the really big clients, and teams of six or eight or 10 people would be toiling away for months. It was a really successful project if you could help them gain a point of market share or a point of growth. Not to in any way diminish that kind of work, but then as I started to see in India where everything was new, every sector was nascent, the winners weren't yet defined, the rules weren't yet written. At that age especially, that seemed marvelously exciting, and most of all, at Bain, I loved it, but my cubicle, I had to stand on my tiptoes if I even wanted to go able to see a window. The idea of just getting out there and doing something was really, really appealing.
**[00:08:29] Ted:** What was this opportunity you then dove into at this company in India?
**[00:08:33] Dan:** The company was called India Life, and at this time, when Indian software companies were just beginning to pioneer the concept of getting American companies to outsource technology, this entrepreneur had the idea that he could get Indian companies to outsource payroll, benefits administration, a la Paychex and ADP. He hired me as the 18th employee and first foreigner with this grand title of Vice President of Business Development. Really, it was to see if there were any adjacencies we could find, then trying to sell the company's suite of services to Indian companies.
**[00:09:17] Ted:** What were you doing? You could imagine "selling services" meaning a lot of different things in India at that time.
**[00:09:23] Dan:** I would go call upon these Indian conglomerates, some multinational companies, even, eventually, companies that were majority-owned or controlled by the government and try and get them to outsource their payroll and benefits. I thought that would be a steep ask, but in the end, it went surprisingly smoothly, even though outsourcing was new. Part of that maybe was the novelty of a foreigner showing up in their offices, but part of it is when I actually came to understand the need. These Indian companies, some of them had decades-old wage agreements with their employees, and they would have a salary component, but there'd also be tons of other stuff baked in there. There was a housing allowance, something called a dearness allowance and an allowance for festivals and an allowance for tea, and they were really only too happy to have someone take that headache away from them. That's what we did in the two-ish years I was there. We scaled up to several hundred clients and 300 employees, and I was still the only foreigner, and something like 10 million transactions a month.
**[00:10:31] Ted:** That part of what you were doing was maybe easier than you would've thought, to be able to go and sell to these companies. What were some of the challenging aspects of doing business in India back then?
**[00:10:43] Dan:** Everything, especially coming out of the very comfortable climes of a consulting environment where it's organized so that you have as few distractions as possible. At that stage, my office in Boston... I think we had class A space above Copley Place Mall, and our fellow tenants were Gucci and Louis Vuitton. Then I show up in India, and my office is in a converted supply closet that I shared with my boss's secretary and our server and our fax. There was a chair and a cardboard box, and one of us got the chair and one of us got the cardboard box.
**[00:11:43] Dan:** Day one, jet-lagged out of my mind, the phone is ringing off the hook, and it's all calls from creditors wondering when we're going to pay their bills. It's like, "What have I gotten myself into?" Some of that was just the difference between a very well-resourced organization in the US and a thinly-resourced startup, which you would see anywhere, but some of it was really India-specific. It turned out we had all these creditors not because the company was mismanaged, but because the venture capital investment, that we were expecting any day from overseas, the government body called the Foreign Investment Promotion Board, that was responsible for reviewing and approving this investment, determined that all the paperwork was in order, everything was fine, but they didn't like the name of our company.
**[00:12:35] Dan:** They're called India Life Pension Services, and they said, "We don't much care for India, and we don't like life, and pension doesn't sound right to us. How about you just go with services?" And that took nearly a year to unravel and get past that problem till we got our funding. This turned out to be really common in the environment of India at that time. There were constraints of capital availability. Bank lending wasn't that easy to get, either. There were constraints of income. The average Indian, back then, was earning barely a dollar a day, and even the people who were my colleagues, who'd gone to top-flight universities were earning maybe a hundred dollars a month. These were not people who could afford to go out at night and consume and spend.
**[00:13:33] Dan:** There were constraints of infrastructure. To get to these client meetings, it could take an hour and a half, two hours to get across town in the financial capital, and it was much worse elsewhere such that the options were the local trains, which you've probably seen these photos of people crowded in, hanging onto the sides of compartments, or the other were what they called kali peelis, these black and yellow taxis that were converted 1953 Fiats with 42 horsepower engines. Think of something with the power of a riding lawnmower careening around Mumbai, hopefully getting you to your destination in one piece.
It was very difficult for businesses in that environment, that all of them were swimming against the stream. On the other hand, I could see that some of them were succeeding brilliantly. For me, I saw the few foreigners who were there, it was binary. They either hated it or they loved it, and I loved it. It was everything that Minnesota wasn't. It was loud, it was wild, it was frenetic. Also, I could see that I'd stumbled into a signal economic moment in the emergence of a major nation's economy, or in India's case, really reemergence, that what had, once upon a time, been pushing a third of global economic activity after the depredations of conquest and colonialism and a flirtation with socialism was 3% of the global economy. But you could start to see, as these impediments eased with the entrepreneurial spirit people had, how it could be a whole lot more, and I figured this is something I've got to do for the rest of my career.
**[00:14:36] Ted:** Before we dive into the path that happened, just as an aside, I'd love to hear one of your favorite stories that epitomized what you described as the craziness in India back then.
**[00:14:49] Dan:** Oh, gosh. Many, many. But I was a runner then and now, so I would begin my days trying to find places to run where I would not get run over by a car, a handcart, a bicycle delivering milk, beginning each and every day navigating an obstacle course. Then I'd finish, and as you do, you start to stretch out, and people would think that I was in some sort of distress, as I was sitting there on the ground, and come running to my aid. It epitomized what India was to me, because those same people who, if I was on the street would honk and accelerate and run out over me without a second thought, once they thought I needed aid, they would stop their car, jump out, and try and help me. It was the wildness, but also something really gentle and wonderful that I liked.
**[00:15:45] Ted:** You have these two years where you're seeing this significant growth of the business. How did you decide to proceed from there in your career?
**[00:15:53] Dan:** I ended up applying to business school and was one of three people in that year accepted to Harvard directly from India. I remember giving this interview where there was a two-and-a-half-second lag between every question that was asked and me hearing it and then beginning to answer. That could have been disastrous. I went off to business school, and India Life, the startup I'd been at, was sold a couple of years later. It became Hewitt India. By the time I went back halfway through into business school, there were thousands of people running around, so maybe we sold it early, but it was a happy story, and I was pretty hooked on India by that point. So I did all my independent studies and field work in any side consulting project I could find at Harvard with a cadre of Indian professors, looking at Indian business opportunities and challenges faced by companies.
**[00:16:53] Ted:** What'd you decide to do when you came out of school?
**[00:16:56] Dan:** I ended up going to work for one of the early venture capital firms investing in India. This was a 1994 vintage fund that was investing exclusively in Indian companies, anything from call centers all the way up the value chain to things where there are PhD chemical engineers doing remote monitoring of petroleum refineries in Houston or Saudi Arabia. They built this portfolio of services companies, some of which did quite well. Not everything was quite well positioned yet to thrive at that point.
**[00:17:32] Ted:** What did you see, in that model at the time, as some of the successes and challenges in making venture capital work?
**[00:17:43] Dan:** In terms of successes, there were a lot of sectors and segments in India that were amenable to investment, to growth, to disruption, to more competition. From the standpoint of being able to apply a toolkit of analytical skills and decide where there were conceptually compelling opportunities, it was excellent.
**[00:18:33] Dan:** Where it was difficult was in actually transacting. Anytime we approach an entrepreneur, they'd never seen a lot of the things on a term sheet, and that could be a really lengthy process, getting invested. Sometimes for years, even after the idea had been formed, exits were similarly difficult, and monitoring investments was hard. Some of these things have eased, and some of them have stayed very difficult. There are well-publicized cases, even today, where high-caliber venture firms have had difficulty enforcing arbitration rights or put options or even audit rights. It's one reason, not withstanding the fact that there's all sorts of growth in India, that venture and private markets returns have been underwhelming. Of every dollar invested since 2000, something like 35 cents has come back. I'm sure the industry will come good, but as I was looking over the proverbial wall at other asset classes, it's not exactly apples-to-apples comparison, but for example, in public markets the dollar returns over that same period are seven or eight X. The frictions that were there, in terms of getting invested and staying invested and getting out, were much less, so I ended up looking to make that shift out of venture and into public equities.
**[00:19:34] Ted:** What did you find about the culture and the types of entrepreneurs in India?
**[00:19:41] Dan:** Culture for entrepreneurship was outstanding. There were some enormous challenges that people dealt with. That it was difficult to get office space, it was difficult to take months, historically, even years to get a phone line. So much so that there's a Harvard Business School professor I worked with, named Tarun Khanna, who'd done this seminal research where he said, "Conglomerates are the worst form of business unit and organization and suboptimal everywhere in the world, except India. In India, they actually make a lot of sense because it's so hard to start a company." Notwithstanding that, you saw a real culture of entrepreneurship.
**[00:20:21] Dan:** The reputation is that sometimes entrepreneurs play it a little fast and loose, and that's probably true anywhere in the world. In the time I was there, there were people who tried to hijack bank accounts of companies we were invested in. There was someone who very nearly got an investment on the strength of his outstanding resume as an MIT professor, and it turned out to be he was showing us the resume of a different person with the exact same name. People would try anything, and you had to be a little ready for that. But underneath it all, whether small companies or big, you saw them developing this grit and ability to persevere against any manner of resistance, especially poor availability of capital. What came out of it were these businesses that were really, really lean and efficient.
**[00:21:15] Ted:** You decide public market's probably a better place to play, given the results. How did you make that transition yourself from venture capital to the public markets?
**[00:21:26] Dan:** I got to know someone named John Thorne who had started a public equities investment firm, called India Capital, in the exact same year, 1994, as the venture firm I was working for was established. That was very early days. There weren't that many people in the ecosystem who dated back that far, so everyone knew everyone, and a friendly trade was arranged. My firm wasn't looking to mint new partners. John, who was running a one-person shop, was looking to add, and the two of us found that we were kindred spirits and had a certain affinity for the way one another thought about investing in the Indian context. I joined him there.
**[00:22:08] Ted:** What was John's story in building India Capital?
**[00:22:12] Dan:** John's background as an Indian investor was probably even less obvious than mine. He was born in Khartoum, Sudan, then found his way to graduate studies at the London School of Economics where he, in turn, talked his way onto the Euro bond trading desk at Drexel Burnham Lambert, which in the 1980s was about the headiest trading environment you can imagine. He had a research role that he gave up to finish his graduate degree. Years later, he was a business journalist in Hong Kong in the early 1990s watching this influx of capital into China. He and a friend of his had a very simple insight, but in retrospect, a pretty powerful one, that that capital was, at its core, chasing scale and was chasing growth, and that China offered scale that almost no country could touch, other than India. And that India, too, in the wake of these major economic reforms that have begun to pivot it away from socialists and towards being more welcoming of foreign participation in foreign capital, might be able to deliver growth, also.
**[00:23:29] Dan:** With that observation, he decided to launch a fund and spent a couple years passing the hat until he was able to do so, and launched in 1994 with all of $14 million, at which point, the market promptly crashed. But John was able to endure and persist and actually strengthen his relationship with limited partners. He found his way to a research-heavy approach that was really unusual in what was a trading culture elsewhere in the public equity markets. That helped him build a portfolio that was concentrated and was durable and with companies that actually held up quite well, such that when the market began to recover, he was sitting in exactly the right place and began to attract a few more investors, then a few more after that. He got his first endowment and foundation investors right around the time I showed up.
**[00:24:30] Ted:** It sounds like John had this pattern of the good things that happen happen right before the next crisis.
**[00:24:36] Dan:** Yes. India has a lot of that.
**[00:24:39] Ted:** What happened for you in those early years right into the global financial crisis?
**[00:24:43] Dan:** Really, my objective, as I saw it, was to take this successful ethos John had built and translate that into a higher-scale, more institutional setting. Most of that was in terms of building out the research function, as more Indian companies were becoming investible, having the reliable ability to turn over more rocks. I was in Mumbai, which is where I've spent half my adult life in, was hiring a team. Because India was such a young market for institutional investing, there was no one else from a pure firm to poach, even if we had wanted to. The few other investors there, what we saw them mostly doing was hiring sell-side analysts and building out a team and a desk that looked a lot like a sell-side desk.
**[00:25:32] Dan:** We tried an experiment, that's continued to this day, of hiring different and more eclectic backgrounds. I hired someone whose early career was spent trading textiles at Mangaldas Market in Mumbai and someone who'd been an entrepreneur, and they had a pretty good on the ground sense of how India worked. I hired someone whose background was in audit and knew what to look for in terms of earnings quality or red flags, for lack thereof. Someone who'd been a software developer and someone who'd been a structural engineer, who just loved tearing through quantitative data, and also people whose background, like mine, was in private markets.
**[00:26:11] Ted:** What was your experience building this team right into the financial crisis and having to weather that over the next few years?
**[00:26:20] Dan:** It was difficult, for sure. We talk, as investors, in terms of the intellectual discipline it takes to not capitulate and stick to an investment approach, but it's an almost physical sensation of walking into the office every morning and everything you see is red, everything is down, and nothing feels smart. Nothing feels like it was a good decision. That is a disorienting process as an individual, then people who you've just convinced that they should make the shift from a very stable engineering job and saying, "Trust me, you're going to love investing. It's going to be great." The software programmer I mentioned, he was at Goldman before this. He was one of 15,000. He had a safe job. Suddenly, we're all very, very exposed. There was an element of motivating and understanding and encouraging people. That has repeated itself, in some ways, in every turn of the market. In the Indian context, it's a curious thing that market performance has been pretty strong, but manager attrition is really high and duration is not so hot. We've gotten pretty good at navigating the bottom part of the cycle, and hopefully, we've gotten pretty good at navigating the other aspects.
**[00:27:41] Ted:** Before we dive into how you do that, I'd love to talk about today, the case for India, say for public market investing. What is that high-level case when people think about where they're allocating capital?
**[00:27:56] Dan:** In terms of the public markets, it is a really broad canvas to invest in and that makes it particularly attractive. There are more than 5,000 publicly-traded companies, of which, depending on how you cut it, anywhere from 700 to upwards of 1500 are investible at institutional scale. It's unusual for an emerging market, in that it's not dominated by any one commodity or sector. It's among the most fragmented markets in the world, in terms of all the different themes and industries that are represented, and it is among the most liquid, for an emerging market.
**[00:28:34] Dan:** It's also one that is not particularly well-covered by research, so you have this situation where there are all these different avenues in which to invest, and two thirds or three quarters of companies have one or zero sell-side analysts covering them. There's all sorts of dispersion, in terms of the kind of earnings and fundamental performance companies produce, across industries, like you'd expect, but even within sectors. Share price performance, same situation. Partly as a consequence of that, there is an unusually wide divergence between what consensus thinks is going to happen to a company and what they actually deliver.
**[00:29:17] Ted:** That story of the potential ability for active management to add value because of the differential opinions and lack of research goes alongside a beta case. If you go back, not too long, there were bricks. At one point in time, people talked about Chindia, the importance of China and India. What is the case for India for its long-term, call it beta opportunity, particularly compared to China?
**[00:29:45] Dan:** Yeah, that is the comparison people are making now and maybe making in a slightly different way than they were five or 10 or 15 years ago, where I think it was universally understood that China was the emerging market star, and maybe India had a role to play somewhere in its orbit. Coming from India, China demands and deserves a degree of admiration for what they've achieved. They have delivered wealth in industrial build-out at a scale that India has not yet begun to touch. Having said that, there does seem to be this distinction where, notwithstanding superior growth over the last couple of decades, India, it's translated far better into investor and shareholder returns. Since 1999, when I started my career, China's GDP growth has been 16X, versus 8X for India, but China's index performance on that 16X GDP growth has been 2.5X. India's index performance on that 8X GDP growth has also been 8X.
**[00:30:58] Dan:** Without knowing China really well, I don't know all the reasons to explain that, but when I think about these stories of these lean capital-efficient Indian companies, that may go some way to providing an explanation. Where Indian households are less leverage, Indian companies are a lot less leverage. Private sector debt to GDP in India is like 53%. I think in China it's 195%. That free flow of discounted, maybe non-discerning, capital in China has never really been the case in India. What's come out of it is businesses with really good capital allocation. Return on equity is higher. Maybe one corollary of that is almost everything you find in the Indian public markets is fully private sector. About 5% of the companies are majority government owned. I think in China it's 30 or 40 or more percent.
**[00:31:57] Dan:** So there's a structural difference between them. If China, the labor force is pretty built out and GDP per capita imply a sort of middle-income type country, India is, in most regards, 15, 20, 25 years behind in overall economic output and in terms of where these industries are at. Now that India's at $2,500 GDP per capita, this is if you track China's progression, where a lot of these sectors really began to explode. It's a difference in having those tailwinds at India's back in a way that other East Asian countries have enjoyed and benefited from, and now it's India where there are a million people joining the labor force each month and a million more moving from the hinterlands to the cities. The basics of the case for India are low penetration, high growth, simplistically speaking, coupled with the fact that that growth seems to translate quite efficiently to investment performance.
**[00:33:05] Ted:** With that backdrop of growth and really strong potential for growth in the country, the translation of stock performance and then the opportunity to add value. You mentioned that John and you had kindred spirits in how you thought about investing. What is that philosophy of how to go about approaching the market?
**[00:33:26] Dan:** In a nutshell is that research matters. I have a journalist friend who's fond of saying that India is a vast orchard of low-hanging fruit. In a sense, that's true, that you can identify easily a dozen sectors where you say, "It's small, it's going to grow, this is all going to go to the moon." But on the other hand, this observation that in many cases it's not the largest, the highest profile, the indexed constituent representative of a particular theme that's actually going to do best, from a shareholder or return on equity standpoint. It's that appetite to roll up our sleeves and try and understand if there's a different or more interesting way to participate in it.
**[00:34:13] Dan:** That has been key to John's success in building the firm. John, early on, distinguished himself in saying, "I'm going to actually do the work. I'm going to read the constitutive documents of these companies. I'm going to read shareholder letters from 10 years ago and try and understand what the business model of these stocks actually are." Then I came to this with some consulting experience and with a venture toolkit that was really heavy on that kind of fundamental analysis as well, and that's turned out to be persistently a differentiator in the Indian context.
**[00:34:51] Ted:** When you have that analytical capability, you still need to narrow the filter and decide what you're looking for to go dedicate the time to dive in. What are the types of names that you look to buy?
**[00:35:02] Dan:** Simplistically, what we're looking for is strong earnings at an appropriate valuation, and earnings is really just an output. There are a lot of other things, from balance sheet to cash flows to brand and management quality, that go into it. But as an outcome in India that's tracked really, really well over the long term with share price performance and in our own portfolio, as well. Mechanically, that's what we're trying to find our long-term earnings. Less generically in the Indian context, we're looking for areas that are sunrise opportunities that are amenable to research, where it's possible to identify companies that can do even better than the underlying business. Over time, we've come to feel that all the elements of that sentence are important. There are companies in industries where penetration is eight decades behind the US, but capacity is due to come, in the next five years, that will outstrip US, Europe, Japan, Russia combined. That's more our playing field.
**[00:36:08] Dan:** Within that, not everything is equally amenable to research. For instance, India has a cadre of generic pharmaceutical manufacturers, some of them very high quality, many of them with their success and their trajectory highly dependent on things like patent litigation with IP holders in New Jersey that were just not well positioned to diligence. By contrast, you have cement companies, three dozen publicly traded in India, many of them specific to one region or even one micro-market, where if you can roll up your sleeves, you can understand supply and demand dynamics pretty well. Lastly, gold standard is if that will allow us to come to a view of a business that may do a little better than the rest. That can look like a bunch of different things, but for instance, you'll tend to see, historically, very fragmented industries in India, where there are 300 publicly-traded bank and non-bank lenders. They're beginning to give way to concentration, where the top three or five or six are accounting for an outsize share of top line and especially earnings. That's ultimately what we're looking for.
**[00:37:21] Ted:** You have this underlying growth story, even if you're talking about a cement company maybe that's tied to real estate that's growing. How do you think about the different high-level lenses of growth versus value, quality versus a cheap asset, and what your sweet spot has become?
**[00:37:38] Dan:** Your point is well taken that there are growth businesses, like cement, like power, like real estate, that, from a US context, we say, "Those are pretty mature sectors." In India, they're not mature at all. That's one thing that you have to take into account in India, that where growth is may not be entirely where you expect it to be. In terms of thinking about growth versus valuation, we are now, and this is typically the case, a few turns cheaper than the index. We do have a valuation filter in what we're looking for. Having said that, if you are creative about where you look for it, sometimes it's not as much of a trade-off as you might expect. By way of example, one of the fastest-growing and, by some distance, the highest return-on-equity participant in the power sector is trading at eight times earnings.
**[00:38:44] Dan:** You can pay a whole lot more because if you say, "India's got all this power investment company, and now the whole country's connected to the grid..." Which it wasn't before. "People can afford to pay electricity. What I need is power generation." And you can buy it. There are any number of companies that have IPO'd, and those road shows have been standing room only, and the listings are a dozen or a hundred times oversubscribed, but if you have the time and appetite, you can look all sorts of other places in that ecosystem. There are distribution utilities, there are equipment manufacturers, there are specialized engineering companies, and as it turns out, there is a specialized lender to power transmission companies that earns a 22% ROE. That's fantastic. There are trade-offs, and you do have to have a filter, but creativity and research will get you a long ways, too.
**[00:39:38] Ted:** How do you go about narrowing the filter from this universe of 5,000 companies?
**[00:39:44] Dan:** Typically, we meet anywhere from 50 to 100 companies a year, and that's one source of ideas and hypotheses. Another is that we have built our own proprietary database that you would never do in a more mature market, but in India where data disclosure is really good but data aggregation isn't so good, that's allowed us to do some pretty classic filters for earnings, consistency, quality, things of that nature. From that, it's pretty hypothesis-driven, where we have an idea that we think might be interesting, we do on the order of 25 research projects a year, anything from six to 12 weeks testing out those hypotheses. Something considerably short of KKR sending six McKinsey teams to crawl over a deal for a year, but an unusually intensive piece of research for Indian public markets. Out of that, the bar is pretty high. A busy year might be two or three names in what is today a 16-position portfolio.
**[00:40:52] Ted:** What is an example of what that deep-dive research looks like?
**[00:40:56] Dan:** Sometimes, it can be research on a discrete issue. For example, there can be a company with a piece of land on the balance sheet, where it's only been required to record at cost, and it could have been acquired 80 years ago, and they don't have to tell you where it is. It's a matter of sifting through land records, figuring out where the contiguous parcels are, peering over the fence wall, seeing what's there, valuing... That type of thing, which is hard for other types of investors to do. Usually, it's something more integral to the earnings trajectory of a company. For instance, we decided that there was something interesting about a natural gas pipeline that had monopoly position distributing gas to a rapidly industrializing region, and it was being priced like a stranded asset because the cost of natural gas had come up. In the world of valuing a pipeline, you know the capital investment, you know the operating costs, the pricing's fixed, it's all about how much volume you can get through there.
**[00:41:59] Dan:** The notion was really interesting area, but maybe there won't be anyone buying this natural gas because it's too expensive vis-a-vis power in the grid. That was a reasonable rough-and-ready assumption to make for the sell-side analysts covering this company, which was a billion dollars in market cap. The same analyst was also covering 29 other companies in its industry, some of them with a hundred billion dollars in market cap. He was very bright, very thoughtful, but there had to be drag-and-drop assumptions. If you have sufficient research bandwidth, what we were able to do is actually speak to the customer base that would represent at 85% of the customers for this pipeline and construct the demand curve. Then you find surprising things. You find that if you're a fertilizer company, the substitute isn't power from the grid, they're using it as feedstock, so it's NAFTA and that's the relevant price in comparison.
**[00:42:58] Dan:** If you are a tile manufacturer, what you're using this gas for is actually to fire a kiln, so your substitute is coal, and you construct a totally different demand curve that says even pretty expensive gas, people may want this. That's typically what we're looking to do, is develop that differentiated view on the earnings trajectory of a company. It's not always right, for sure, but in the Indian context, whereas when I think about my US experience, and it doesn't matter how small the company, how novel the research approach, there are a lot of other people pouring over the same idea, and the differentiated edge is going to be small and short-lived. In India, sometimes you are the only person doing that kind of work, particularly in the context of other investors that have to cover every other emerging market or every other Asia X Japan market.
**[00:43:54] Ted:** Your experience in venture capital, you had some great entrepreneurs and some swindlers. I'm curious how you layer in your assessment of management teams onto your investment decisions.
**[00:44:04] Dan:** It's absolutely critical, but not always the way in the way people looking at India from the outside might think. There is a view of India that's probably been advanced, in some cases by fund managers, that 90% of entrepreneurs are crooks and you have to know all the right people who will tell you who the small proportion of honest ones are. That hasn't been my experience. There are great stewards of capital and there are less good stewards of capital, just like everywhere else, and the telltale signs aren't that much different than they are elsewhere. People will tell you what they're going to do, then you compare that to what they've actually done over a period of time, and it says a lot. Have they enriched themselves with warrants, with deals with affiliated companies that they own? It's right there in the financial statements.
**[00:44:58] Dan:** Their lenders will talk to you and say, "This person has been a great, reliable person to do business with" or "They're not." Their distributors sometimes have decades of experience working with them, and "It's been a pleasure," or "It hasn't been a pleasure." What is this absolutely critical consideration, but the way you access and answer those questions in India is not so different than the way you would anywhere else. It's deeply important because there are still landmines. Just in the time I've been investing, there have been permanent losses of capital in one of the largest banks in more than one of the leading telecom companies and the largest brick and mortar retail company.
**[00:45:41] Dan:** One of the big software companies. And these were not obscure micro-cap companies, they were big, they had articulate CEOs and sophisticated IR functions, and they had nearly unanimous buy ratings from bulge-bracket companies, and they look a lot, on the face of them, like the companies that have done great in those businesses. But what distinguishes them, at least in my experience, wasn't that you had to know someone on the inside, it was just that you could see something in the publicly available data that was probably going to tell you. Very seldom have these things gone bust and afterwards people said, "It was absolutely nothing that would've suggested this." Usually there's something in how they've allocated capital, how they've done business with associated companies, margins they earn that are not consistent with their peers for the same work. Something's there that's going to give you a red flag.
**[00:46:35] Ted:** How do you include their government or regulatory environment in your assessment of companies?
**[00:46:43] Dan:** It is important in the Indian context as it is anywhere. There are some sectors where, because of policymaking, it's very, very hard for a long-term investor, which is not that the policy is bad, but it's unpredictable. For instance, for oil marketing companies, the government has historically changed policy quickly and without notice about how they get compensated and when and in what form. In other areas, the regulator is a positive boon. In the Indian banking sector, which is small and fast-growing, there have been relatively few asset-quality collapses, in part because the regulator has been fairly strict in what they allow banks to pursue and what they don't. A typical Indian bank, although it's growing quickly, its business model is pretty similar to a typical American bank in the 1950s or '60s. They gather deposits, they lend, and not a whole lot else. Accumulate a few fees along the way.
**[00:47:48] Dan:** The other thing that can be a little surprising is occasionally, a large government role is actually a good thing, that there are... I mentioned that only 5% of the companies are government-owned, and that works out to be about a couple hundred of them. A lot of the time, I don't want to touch it. It's going to skew incentives, it's going to diminish returns. Every so often, the role of the government is perfectly fine. They're a great shareholder because they like to keep their companies focused on doing one thing, and they're always happy to have dividends.
**[00:48:22] Ted:** What are some of the other important risks you think about?
**[00:48:25] Dan:** For us, as long-term investors, it's entirely about permanent loss of capital. That can be hard to keep an eye on because in the shorter term, there's this massive share price volatility. It can be a headwind and a challenge, or it can be opportunity and being able to buy things that are a little bit beaten down. But it can obscure the fact that, over time, there are very few companies that have gone under because of oscillating market sentiment. Really, it's about the underlying quality of the business, and that's what we are most attentive to. One that gets less attention than it deserves is compliance and back office risk, which in India, is not immaterial, that just executing an investment business takes a lot of care and attention. At the time that we were first investing, and for many years thereafter, most shares were held in physical form, in share certificates of a hundred shares.
**[00:49:31] Dan:** If you were buying and transacting at anything like institutional scale, you'd have sheafs of share certificates. There were times that we had to buy an airplane ticket, one for a custodian and a second airplane ticket in the seat next to them for a box full of share certificates, so they could be physically delivered to the buyer so the trade would close smoothly. Now today, these shares are held notionally, settlement is T+0, but there is an enduring issue that, boy, you better be attentive to some of the unique compliance requirements because they lie dormant, they lie dormant, then they come and bite you if you haven't been following them closely. When we built out India Capital, the big, more visible effort was we're going to build this fantastic research function, hire bright, thoughtful people with all these skills. But the less visible, but equally important part if you want to sustain as a firm for three decades as you can, is that we're going to make sure that we are always executing efficiently and that the compliance is sound.
**[00:50:38] Ted:** What are some of the hidden potential snags today that are the equivalent of losing your physical certificates back in the day?
**[00:50:46] Dan:** They have to do with expectations, especially of foreign portfolio investors, of which there are now a few more, that are sometimes interpreted as letter of the law that isn't actually going to be enforced in spirit. That these requirements that you can't actually raise capital from India, if you're a foreign portfolio investor. The expectation that you can't actually sit in India and make your investment decisions. The regulators will sit quiet on these things for a long time, then every few years, they'll take an interest. You have these situations where good investors suddenly have to have an asterisk in their NAV because they say, "We have an unquantifiable contingent liability because of this issue." Most of those get resolved in a reasonable way, that they wind their way through appeals, and eventually, at a senior level, there is an enlightened policymaker that says, "This is fine," but that can take years.
**[00:51:48] Ted:** When you roll all this up, if you took a static look at your portfolio today, I'd love to hear some of the metrics, basic valuation metrics, basic business characteristic metrics of growth, in that portfolio as a whole.
**[00:52:02] Dan:** Valuation metrics, we traded about 17 times forward earnings versus an index that today trades at about 21 times forward earnings. That really runs the gamut. There are things that are small and fast-growing and optically expensive, and you've got the eight times earnings company, you have a large position that is trading in its first-percentile valuation band that's traded more expensively, 99% of the time. It's a 16-position portfolio, so we are pretty concentrated. We don't churn it much. There are five-year positions and eight-year positions, and there's a twenty-two-year position in the portfolio, and we're happy to hang on to stuff as long as it's delivering the underlying business performance that we want. It's pretty distributed by sector, but the overlap with the index is not high.
**[00:52:59] Dan:** In terms of earnings growth, we have managed to deliver, over the past five years, about 60 percentage points of excess earnings growth versus the index. You don't always get paid for that immediately. Sometimes you don't get paid for it at all, for a while, but over time we find that the catch-up happens in lumpy and unpredictable ways, and it tracks share prices pretty well.
**[00:53:24] Ted:** With that concentrated low turnover portfolio, curious how you make investment decisions when you're making changes.
**[00:53:33] Dan:** The bar is pretty high. We have to be pretty excited about something on the way in. Equally so, we're generally not exiting because the share price didn't do what we thought it would over a period of time. Every so often, they're really pleasant surprises. We have a share price target for everything, not as a binding matter, but to trigger a conversation. Every so often, things hit their five-year or three-year share price target in six months, and they're in and out of the portfolio a lot sooner than we thought. But usually, a position is exited because something changes in the approach. We had a fifteen-year position in the auto component sector that had done really, really well. It had been a fantastic entrepreneur who had found ways to increase the scale and the breadth of his business.
**[00:54:26] Dan:** He was doing something called a wiring harness, which is a very low-end good, then he expanded it to rear-end mirrors and dashboards. It had been wonderful to participate in his journey, then at a certain point, they let it be known that they were thinking of getting into defense components, and that this was going to be a strategy that would be spearheaded by the relatively young child of the entrepreneur who had, until then, been running a music-streaming business. I think they'll do fine, but it's a really different business with a different entrepreneur, and it was a good moment to reevaluate where we could deploy capital.
**[00:55:07] Ted:** In a situation like that, with a long-term hold that's been very successful, how do you think about when to give them the benefit of the doubt to say, "We know this kid's young, and he hasn't done it before, but father's still there. This is an adjacency, maybe it's a bigger market," that decision point of "Let's see what happens," compared to "We're going to move on"?
**[00:55:30] Dan:** It's incredibly hard, and we don't always get it right. That same company, we already owned during the global financial crisis, and they'd been entirely India up until then, then this entrepreneur said, "I've got great news. I've bought this company in Europe. It was nearly free. You're going to love it." And we, and the few other very long-term investors we knew and respect were in the company, were all scratching our heads. This is not a moment to extend your balance sheet to take on debt to make this acquisition in a market you've never been in. It was a flip of a coin. We could have ended up selling it. There was no real insight. We happened to stick around, and the patience was rewarded. He had bought this thing out of a private equity investor that was eager to get out of it, and he ended up, within a few quarters, earning as much in EBITDA as he paid for it.
**[00:56:21] Dan:** You just don't know, and at the margin, we try and be more patient than not. Not everyone takes that view, but in the Indian context, what we found is anything that starts to approach tactical trading in and out of a position, for any reason, has a pretty limited success rate that I think since 1990, I want to say the index is up 17-fold in dollar terms. If you take out the top 25 trading days, it's up 0.3X in dollar terms, which may be true in other markets, as well, but it's a important reminder for us not to try and be too clever about second guessing those situations.
**[00:57:05] Ted:** Alongside of that absence of technical trading comes tremendous volatility. How do you think about risk management of your portfolio or just weathering the volatility that's going to come?
**[00:57:19] Dan:** Share price volatility absolutely is a feature of an India and an enduring one. Mostly, we're thinking about, "Are the businesses holding up okay?" When Russia had invaded Ukraine and the cost of oil was going up for everyone and India's a net energy importer, inflation was high and rates were rising, the share prices went all over the place. But what we were mostly thinking about is how our company is going to do operationally. Which are the ones who have any direct exposure to these things? Not many of them did. Our portfolio is 90% domestic facing by design, but in an inflationary environment, where all of their inputs costs were going up, which are the ones that have strong pricing power and can raise prices accordingly. We spent a lot of time thinking about it, and some of it we got mostly right, some of them there were some negative surprises.
**[00:58:14] Dan:** We owned a car company, we thought, "They've got three times the market share of anyone else in the country." It took them a minute to raise prices. They did, but there were two or three quarters of margin compression by comparison. We own real estate developers, and suddenly, all their steel and cement was more expensive, but in the end they were able to raise prices by more than increase input costs. They're smart, so they didn't announce it, but if you track closely like to like, you saw they were doing absolutely fine. Those are mostly the kind of questions we're asking ourselves.
**[00:58:47] Dan:** The other side of that is making sure our investor base understands what it is they own, understands that there's going to be some volatility along the way. In periods of extreme volatility, we try and communicate even more. The outcome of that was I was already at India Capital during the global financial crisis, and I can recall getting these questionnaires from investors checking up, "Are you okay?" One of the endowment investors sent us a spreadsheet and the field was "Please let us know your capital outflows," and it could only be a positive number. It turned out remarkably. We had net inflows in those years. Not much, very minimal, but no outflows. Ton of luck, but also because we were able to communicate people well. They knew we were in liquid companies, so their capital would be there if they wanted it. That alignment has served us pretty well.
**[00:59:43] Ted:** Typically, when you go through those periods, it sounds like you're doing everything you can with communication and more communication, you're still closer to the assets than your investors. You can see what's happening and the businesses and get some confidence that it's just a price move in the markets if the businesses continue to be strong. What have you seen in other periods of the impact of volatility in your performance at times on fund flows in your business?
**[01:00:10] Dan:** What one always hopes for is when things are beat down the most, that's when people will be most eager to invest. That's unfortunately very difficult to actualize. That process of saying, "Market's down, NAV is down, companies are doing great," we've had some success and some not of getting follow-on commitments. What has worked well is it's resulted in pretty sticky capital, so we haven't seen the outflows where people are having a knee-jerk reaction to distress. In terms of what leads people to invest, it's changed a little over time. India, for so long, was a really boutique, specialized market where it was one or 2% of all country world index. When I first joined, I had exactly the wrong idea. I thought, "It's a small specialized market, we'll get small investors." And it turned out to be exactly the opposite. It was only the really big ones with a lot of team strength and bandwidth and appetite and the ability to stick their necks out there who were really looking at that esoteric a process.
**[01:01:22] Dan:** When the fund was first launched, going back all the way in our history, it was launched with all $14 million because after passing around the hat for two years, that's all the money we could find. Half of that was from Soros. It's in the public domain, and it was really only people like that that were willing to take on what was that perceived level of risk. In recent times, we've seen the addressable market has probably expanded, where there's a realization not only is India just mechanically a larger part of the world in emerging markets index, but there's an awareness that it's a difficult market to invest in for a manager alongside six other things. It's hard to unearth the really special opportunities. It's hard to avoid the bad ones, and I think that's led to more people who didn't always have contrarian, specialist interest in India, considering a single country allocation.
**[01:02:24] Ted:** When you have conversations with prospective investors who aren't investing, what do you hear as some of the most common misperceptions of people's perspectives on the market?
**[01:02:35] Dan:** There are two I hear a lot right now. One of them is that everyone else has already done it, so I'm late to the party, so why should I bother? That feels like it should be true. There are a bunch of articles now, in mainstream publications, about India. It seems like there must have already been a lot of foreign portfolio flows. The reality is, over the last few years, there's been money in, there's money back out, there's been money in. Net flows from foreign allocators are functionally zero to India. What's been fueling the market is domestic investment, which over that same period, is something like $55 billion, and there are 75 million new mutual fund investors, which even the Indian context, is a big number. Pension exposure to India has gone from zero to a few billion, but that's out of $300 billion of pension assets that historically weren't in equities at all, and now they're in a little.
**[01:03:35] Dan:** That's one misperception is that you've missed the bus.
**[01:04:16] Dan:** The other is that valuations must be expensive. Because India has had a relatively decent run, that too feels like it should be the case. But when you decompose it, yes, returns have been okay, but because earnings growth has been pretty strong for the large cap index at 75 or 80% EPS driven and about 20 or 25% multiple expansion driven. Whereas for the United States, it's exactly the opposite and free M index, it's 100% multiple expansion driven. India is more expensive on a price-to-earnings basis than the EM index. Some of that is a function of India, and a large part of that is a function of China dragging things down and what's going on in both countries. It's been more expensive, pretty much the entirety of my investment career. That may be a persistent, enduring feature that when you have companies in the Indian Index and we don't own them, but they 100% return on equity, they're always going to trade at a higher multiple than a nickel mine. In Indian companies, in aggregate, equally are less leveraged, higher return on equity, faster growing. There's probably always going to be a gap, but because the earnings performance has been strong, India's premium to the world index has actually come down. It may not be exactly what people perceive.
**[01:05:21] Dan:** You look at the US, the S&P 500s dominated by the MAG seven, which has certain implications of what that means for the valuation of the S&P 500. What is the composition of the most popular indexes in India relative to the types of companies that dominate it in the concentration?
**[01:05:04] Dan:** Fortunately, it's pretty representative. You don't have a situation where one company has an absolutely outlier share of it or one index. You have, within the index, consumer staples and automotive and banks and technology. It's pretty eclectic. Having said that, with 5,000 stocks, there's going to be something that's not captured, and the performance may be very different from the rest of the market. Sometimes that's meant that, much like the US, there have been periods, usually where the tide is going out in terms of enthusiasm for India, where there will be a handful of companies that account for all of the index performance. That can make life difficult as an active fundamental investor, much like it has in the US.
**[01:06:09] Dan:** Sometimes it runs the other way. Right now in India, most of the market is valued very much in line with historical averages, certainly for the large cap index. Very small companies are actually unusually expensive right now, where there are small cap indexes trading at a three or four or five turn premium to the larger cap index. Even as the market has grown and there are more participants, there are, as I see it, enduring pockets of really striking pricing inefficiency in both directions.
**[01:06:45] Ted:** If you have a landscape today where, in the broad index, it's safe to start leverage, some of the small cap index might be expensive, how are you feeling on your portfolio?
**[01:06:56] Dan:** Pretty good. In our portfolio, the top two positions, one of them I mentioned is at eight times earnings. One of them is in its first band valuation multiple. We trade three or four turns cheaper than the index. In aggregate, we are finding opportunities that are appropriately valued, sometimes that even feel cheap, but it's an interesting thing, seeing smaller companies being so much more expensive. In a different context, you could construct a case why that should be, that the best of them are growing really well off a small base. They're the scrappy insurgents. They'll grow into their valuations, and there's an element of truth in that. But in India, sometimes it's the larger companies that are growing faster. It is the top banks that are growing assets in earnings faster than the rest of them. It is one or two car companies that are generating all the earnings in the industry. It's not always the largest, but the best-run couple who are usually not the micro caps are growing particularly fast. You can see, in some cases, why that would play out.
**[01:08:11] Dan:** We're longtime investors in banks, and it used to be absolutely that small could be beautiful. Just like in the US, if you ran a really well-managed, regional bank, you could do great. Then you flash forward to today, where three quarters of transactions don't even has to come into a branch, and it's your investment in technology that matters. In your national brand, in the trust you have among depositors, in its very different companies that are poised to thrive in that environment. You can see it beginning to play out. There are reasonably large banks that are growing faster than system and fairly small banks that are struggling to find their footing, but it is remarkably early in that evolution. The system itself is small. India's largest bank is smaller than China's 11th largest bank. Its largest six private sector banks put together are one-seventh the size of ICBC.
**[01:09:12] Ted:** I'd love to hear an example of something that's emblematic of this approach of finding that research differentiation from what the market thought that you're excited about.
**[01:09:23] Dan:** We ended up looking at the power sector to pick up that thread again. We found our way to power transmission finance. Optically, if you did the work we did, you would say, "This is the company you should love and definitely be invested in." But there were a couple reasons why, even though it was already a $3 billion market cap company and should have been reasonably visible, there was almost no one there in it. None of our peer foreign institutional investors. Very little domestic institutional investment. Very little research coverage. Some of it was how the company was managed. They had never attended an analyst conference. They were pretty sporadic, in terms of quarterly earnings calls. If you got their investor presentations, they would just be scanned copies of their financial statements appended with these comments and a baffling array of colors and fonts. It was designed to repel market participants and investors.
**[01:10:31] Dan:** But there were two things about the company that were in need of diligencing if you wanted to invest. The first of them is, not withstanding this high growth, this high return on equity, they'd seen a surge in bad assets. If you were going to put money in, you had to have some degree of comfort that this was going to get resolved and it wasn't going to continue to grow. But from a research standpoint, what's great about project finance is you're not lending to a million small borrowers, you're lending to a few dozen large ones. In the event what we found is there were 15 borrowers that accounted for 70% of the bad assets. These were power projects that you could actually go and see. Not easily. It might be a 12-hour drive from Mumbai, but they're there. What we found, oftentimes, with the time and the appetite to do that work, is in a lot of instances, they were almost completely finished. Even if there was an equity wipe out and the project sponsor was displaced, that there was going to be a lot of salvage value to these projects that were treated as if there were going to be complete write-offs.
**[01:11:40] Dan:** In some situations, the situation's even better than that, that these were borrowers who had never missed a payment, but because of the peculiarities of Indian project accounting, if commissioning was delayed by more than a certain amount, that they were deemed non-performing irrespective. You could see we've got two units of this power plant and one of them's already been turned on and the other's finished, and there's a long-term purchasing agreement, but we're not going to commission it for another two months. All of that, in its entirety, was a non-performing loan. By doing that granular level of work, it was possible to ascertain with a pretty high level of confidence that the asset quality was actually okay and the resolutions would happen. That was one aspect of this company.
**[01:12:27] Dan:** The other one, that was majority owned by the Indian government, which for a lot of folks is a non-starter. You can see why, but in this instance, the more we got to know the company, its borrowers, its prospective competitors, what we came to understand was this time around, it was actually a positive benefit. Typically, the issue with power project finance is these are long-duration loans, and if you have short-tenor liabilities, as a lender, you can't necessarily make them. But with government backing, this company could go to the global capital markets and borrow at the correct duration with an implicit sovereign guarantee, so it was cheap. Then in turn, they could lend into this uncrowded market where they could get a premium. Who are the borrowers? In a lot of instances they were affiliated with the government, too, as these quasi-governmental entities.
**[01:13:21] Dan:** If you're a private sector bank it's, "How do I ever get my money back?" But if you are effectively an arm of the central government, you always get your money back. With a thirty-year track record, they'd always gotten their money back, and they'd always prioritized earnings and returns and dividends over public policy objectives. That is not atypical, where something on the surface looks exciting but problematic. If you are outside the country or if you have limited research capacity, you have to leave those things untouched. But if you've got a lot of time and interest, those are things you can plumb over. Eight times out of 10, there's a reason not to own them. But every so often, there's something pretty exciting.
**[01:14:10] Ted:** In a situation like that, how do you think about the path from having done that research and understanding where there may be a varying perception of the information to the market or other buyers understanding that these problem assets really probably aren't as troubled as it seems?
**[01:14:28] Dan:** In the past, one of the hard things about India is you could be absolutely right about the operating performance trajectory, and the transmission to share prices could be incredibly slow. You would see a company deliver exactly the numbers you had hoped for, and it was just crickets. In the case of this investment, that was absolutely the case for three years. Five times earnings, when we first invested, went to less than three times earnings for a while. In the end, that process has become probably a little bit faster and more reliable in India because there are more domestic participants, whereas a typical foreign investor, at least historically, is a government-owned company, "No, thank you. I don't even want to know about the earnings or how the asset quality is resolving itself." In this company, it probably took two or three years of them consistently delivering high and accelerating return-on-equity, non-performing loans that went from 7% to six to five, to now they're at less than 2%. It took at least half that time before anyone really noticed.
**[01:15:39] Dan:** In some of it, you have to wait In some of it, occasionally, we can play a constructive role. We are very passive investors. We don't think we know anything management doesn't about running a company, but in a case where the market-facing activities are so suboptimal, as they were here, building a good relationship and saying, "How about you attend a conference?" And "Maybe instead of holding an earnings call that you don't always invite your investors to..." There were times where the only people on the call. "What if, once a year, you do it in person, and you bring a video that explains what you do." That increase in visibility has been helpful.
**[01:16:23] Dan:** Then sometimes you just get lucky. This company, a lot of the loans they're making now are to renewable energy projects. Surprisingly, most people's perception of India is they are being dragged kicking and screaming to fulfilling their Paris climate commitments. In reality, 80% of new generating capacity in India is renewable. Suddenly, it's hitting people's screens for, let's say as a sovereign fund or one with an ESG bent, that it's got a huge renewable component, and its business quality is great, and it's cheap. In some way, they're finding themselves much more central, but that, we did not underwrite, it just happened.
**[01:17:04] Ted:** What are you most excited about over the next couple of years?
**[01:17:07] Dan:** In India, it's almost entirely the domestic economy, and that's where most of our positions are focused. The growth is just so good there. There are a lot of areas we are looking at closely and interested in, but they fall within two buckets. Some of it's in the consumption basket. With income per capita now at $2,500, you are going from a place where two-thirds of that was consumed by food and shelter and housing to a place where people really have disposable income. 300 million Indians are entering what, in the Indian context, is the lower middle class, and they're looking at buying their first car. They're spending a little bit of money on cosmetics because they can, their first home, and we're in all of those spaces. In terms of their savings, they now have some, and they're buying their first life insurance policy. There's no equivalent of social security, so that's important. They're investing in the equity markets, they're building bank deposits, and we're in all those areas, as well. Somewhat higher-ticket consumption of the kind that grew manifold in China, when incomes reached that level.
**[01:18:23] Dan:** The other side of it is the build out of credit in business investment, where credit penetration, which historically had been so low and then through the Covid years had seized up, is now growing again. On the opposite side of the ledger, there are borrowers now with Indian companies have their lightest debt to equity in a decade and a half. They have the capacity to borrow, and they're seeing end demand, so they have the incentive, and capacity utilization are pretty high. Participants in that ecosystem are really interesting, as well. It's selective. The best cement company is not necessarily the one with the deepest pockets or that's affiliated with a global major. It's the cement company that's figured out how to sell it as a branded good and earns the higher price. The best bank isn't necessarily the biggest or the one that's growing fastest this year. It's the one with the best credit quality that, through cycle, can be really capital efficient. It's not always who you think, but things that address those themes, there's a lot that's really interesting to choose from.
**[01:19:31] Ted:** As you look at the business and the niche that you've occupied talking to investors, where are you hoping to take it, over the next few years?
**[01:19:41] Dan:** In large measure, continuing to do what we've done. It's a hard business, but it is a pleasure that we are able to focus on being participants in good companies for long period of time. That is a little bit because of the process we've built and a lot because of the type of investors we've been lucky to have. I wouldn't want to radically change either of those things, but it's also really neat to be able to ride along with India's growth. By continuing to do what we always have, that is a scaling opportunity. When I think about what is what you have to believe about India, it's growing today at 6, 7, 7.5%. It's a larger economy now than Japan, but GDP per capita is still on par with Congo and Ivory Coast. For that level of growth to continue, the ask, in some ways, is not to go to the moon and we all have the GDP of per capita of Lichtenstein. It's over two and a half decades to hit the level of Peru and Ecuador and Botswana.
**[01:20:52] Dan:** That's something a lot of countries have done over the last half century, and I think probably India can do, too. Fortunately, in the Indian context, businesses have managed to translate that pretty efficiently to earnings and share prices. 90% of the time we're just trying to earn an economic return for our investors, but every so often it's fun to think of that process of being along for the ride in India's emergence.
**[01:21:18] Ted:** Dan, I want to ask you a couple closing questions. What is your favorite hobby or activity outside of work and family?
**[01:21:25] Dan:** I'm a longtime runner. In India, because that's exploded in popularity, it allows me to run alongside people from all walks of life, from industrialists to people who work with their hands for a living, and that's pretty neat.
**[01:21:40] Ted:** Is it a little less dangerous than it was a while back?
**[01:21:43] Dan:** A little.
**[01:21:45] Ted:** What's one fact that most people don't know about you?
**[01:21:49] Dan:** I was, in 1997, credentialed on the Anti-Doping Commission of the Copa América soccer tournament in Bolivia, where my responsibilities included transporting a sealed bag of urine samples from competing players from Santa Cruz de la Sierra to Chile.
**[01:22:07] Ted:** How did that come about?
**[01:22:08] Dan:** That may need to be a story for my next visit. It will drag us on to two hours, I'm afraid.
**[01:22:13] Ted:** What's your biggest pet peeve?
**[01:22:15] Dan:** In investing, selective memory in myself and others. Perfect recall for success is inability to remember failures. I think it's inimical to learning.
**[01:22:27] Ted:** Which two people have had the biggest impact on your professional life?
**[01:22:31] Dan:** Manish Sabharwal was the founder of India Life, spent money he barely had on a plane ticket for me to come to India when he had no reason to think I had anything to offer. I'm incredibly grateful for that, because it started me on a path that I've loved and found really rewarded.
**[01:22:49] Dan:** John Thorne, who founded India Capital, also welcomed me in, without any obvious reason to do so, and treated me like a partner before I really was. At some point, in part, handed over the keys to me, and that's a favor I can't really repay, but hope to pass forward. Hopefully the next generation of leadership is already toiling away somewhere, honing their craft at India Capital.
**[01:23:16] Ted:** What's the best advice you've ever received?
**[01:23:19] Dan:** For my life, as I look back, it was to move to India. It's been hard, it's been confounding, but it's been infinitely rewarding.
**[01:23:28] Ted:** Dan, last one. What life lesson have you learned that you wish you knew a lot earlier in life?
**[01:23:33] Dan:** That it is okay to have unusual goals and take an atypical path to get there, and that it's worth having some confidence that that's going to work out.
**[01:23:43] Ted:** Dan, thanks so much for sharing your insights and this really interesting story about opportunities in India.
**[01:23:49] Dan:** Thank you.
**[01:23:51] Ted:** Thanks for listening to this Sponsored Insight. Sponsored episodes are paid opportunities for another 12 managers a year to appear on the podcast. If you're interested in telling your story in front of the largest audience of investors in the industry, please email us at Team@CapitalAllocators.com to apply for one of the slots.

---

# SECTION: RESEARCH REPORTS (FULL TEXT)

## 1. The Coming Surge: AI's Impact On Indian Power Infrastructure
**Date:** January 2026

Globally, AI investment is triggering a paradigm shift in electricity demand. Power has become the new constraint for digital growth. With rapidly rising computation needs, AI data centers are already outbidding factories for grid access, and electricity is becoming the proxy metric for AI capacity. Global data center power use could exceed 1,500 TWh by 2030—greater than Japan's total electricity consumption—making data centers the fourth-largest "country" by power use and triggering a massive capex cycle in grid and generation.

In India, the story starts from a low base but a steep trajectory. With near-universal household electrification achieved, rising incomes and appliance ownership are already lifting demand—even before AI related impact. As a result, India's incremental power demand over the coming years excluding data centers comfortably exceeds even optimistic projections of new power demand in the US including the spike in AI-led consumption.

But India also accounts for one fifth of the world's mobile data traffic; as AI adoption deepens and data centers proliferate, that digital load will add a new layer of electricity demand. Meeting that surge will require enormous investment across the power value chain.

Who finances it? In India, specialized power financiers dominate long-tenor project funding—an area where banks struggle. Their loan books are expanding along with the grid and generation ecosystem, making them a primary catalyst, and beneficiary, of the coming electricity super-cycle.

**The AI-Power Link:**
AI systems like ChatGPT have scaled faster than any technology—now handling ~2B queries per day. Each query activates large neural networks, a task far more computationally intensive than traditional retrieval search. With every generation (GPT-3 → GPT-4 → Gemini), the compute required to train and operate models has jumped dramatically.

All that computation runs on hardware—and hardware runs on electricity. AI models rely on thousands of GPUs working in parallel. Also, more GPUs are being packed into ultra-dense racks, which is driving up not only compute density but also power density to new extremes. By 2027, a state-of-the-art rack will house 500+ GPUs and draw ~600 kW power—enough for >500 US homes—roughly 50x a typical server rack of today.

**India's Context:**
India consumes barely a tenth of the electricity used by developed economies. Power is a high growth sector in India, with enhanced access to rural households now propelling demand. In just two decades, India has added nearly 600 million people to the electricity grid. As these newly connected households see incomes rise, their electricity use will increase.

Large parts of India experience prolonged heat waves each summer. Yet, fewer than one in ten Indian homes have an air conditioner. Air conditioner sales are growing 15-20% annually and penetration could triple by 2035, adding hundreds of gigawatts of new power demand.

**Conclusion:**
A combination of structural drivers points to a decade of exceptional power demand growth for India. The scale of expansion is striking, even against the backdrop of strong demand growth in the U.S. and Europe. Specialized power financiers dominate India's power project funding. The long duration of most power projects makes them difficult for banks to finance. Power financiers, with longer-dated capital market borrowings, are better able to match the duration of assets and liabilities.

---

## 2. Citizen Leader: The Enduring Legacy Of Dr. Manmohan Singh
**Date:** December 2024

Manmohan Singh, who died on December 26th, was never supposed to be Prime Minister. Born in Gah, now part of Pakistan, he fled the violence of partition as a teenager and reached Indian Uttar Pradesh with his life but little else beyond extraordinary talent. That took him to Cambridge and Oxford, the United Nations and senior roles in India’s central bank and civil service.

When the Congress party won a surprise victory in the 2004 national election, the foreign heritage of its leader Sonia Gandhi made the prospect of her as Prime Minister divisive, and Mr. Singh was hastily put forward as a compromise choice. He ascended to the office with little political constituency of his own, nor any other elements of a politician's usual toolkit. Wholly devoid of charisma, he delivered speeches quietly without appearing to move any part of his body, even his mouth.

**The Legacy:**
As a safe, apolitical choice for Finance Minister in 1991, he faced a crisis almost immediately when the country came precariously close to running out of foreign currency reserves. Eschewing a temporary fix, he persuaded the government to instead address the deeper roots of the problem. In a matter of months, India shed decades of socialist orthodoxy and pushed through a raft of measures to ease the way for domestic competition, foreign investment and private enterprise.

Later, as Prime Minister, he navigated daunting coalition politics to further open the economy to foreign participation in a range of industries, established a national health insurance program and initiated the Aadhaar biometric ID. All of these have been greatly expanded under Narendra Modi's subsequent leadership, but Mr. Singh's government bequeathed him something to start with.

He defied Indian public opinion to reach a civil nuclear deal with the United States, a measure with little short-term political payoff, but far-reaching strategic importance. It shifted India’s longstanding posture of geopolitical non-alignment to one of much closer collaboration with the United States.

---

## 3. Everything Is Different Now: 30 Years Of Investing In India
**Date:** September 2024

This September marks thirty years since the launch of the India Capital Fund in the autumn of 1994.

In the pages that follow, we review a few of the many ways that India has changed over these past three decades. Over a very short time by development standards, its people have become markedly healthier, better educated and, not coincidentally, much more optimistic about their future and that of their nation. The country's infrastructure and quality of life have improved, and incomes have risen dramatically. Intertwined with that has been the exceptional growth of India's corporate sector, its equity market and the value of its best businesses.

The magnitude of these achievements is surprising, even to us. That's all the more so because, while we simplify most comparisons to the status quo of 1994 and today, many of the most striking gains have truly taken hold just in recent years. For example, India added about $180 in GDP/capita over the Fund's first decade; over the last decade it has grown income per person by nearly eight times that amount and is now touching levels at which other growth economies have seen consumption and industrial output surge.

India Capital is to the best of our knowledge the longest standing single country foreign investor in India. As such, we have had the unique privilege of witnessing one of the extraordinary economic transformations of the last century and to have played a small but real part in it by deploying our investors’ capital into the companies that are building the country. We are grateful for that opportunity, and excited for what the next thirty years will bring.

**Visual Comparisons (1994 vs Now):**
* **GDP Per Capita:** $374 → $2,730 (7x increase)
* **Life Expectancy:** 60 Years → 72 Years
* **Poverty Rate:** ~50% → <5%
* **Stock Market (Sensex):** 4,000 → 82,000+
* **Total Listed Market Cap:** $90 Billion → $5.5 Trillion (>60x increase)
* **Mutual Fund Flows (Monthly):** <$0.2 Billion → $4.8 Billion (24x increase)
* **Forex Reserves:** $15 Billion → $675 Billion (45x increase)
* **National Highways:** 34,000 km → 146,000 km (4x increase)
* **Airports:** 50 → 157 (3x increase)
* **Number of Medical Colleges:** 150 → 700+
* **Households with Electricity:** 50% → 100%

---

## 4. India's Investment Revolution
**Date:** April 2024

In this note we examine the surge of domestic investment in the Indian equity market. Indian households are on pace to put more money in local stocks this year than foreign institutions have in the past decade, a structural shift with far reaching implications for all investors.

In April 2024, monthly inflows to the Indian stock market from Systematic Investment Plans (SIPs) crossed Rs 200 billion, or about $2.4 billion. The plans, in which retail investors automatically add a fixed amount of money each month to a mutual fund, have grown 20-fold in the last decade and April’s contributions alone exceed total foreign investment in India's equity markets over the past three years.

**That Was Then:**
It wasn’t always so. As recently as 2020, equities accounted for less than 3% of Indians’ household savings, among the lowest proportions of any major economy, while physical assets like land, cash and gold amounted to more than two thirds of their wealth. In absence of significant domestic equity participation, foreign investors represented an outsized share of incremental capital flows.

**Things Change:**
One observer seemingly unmoved by the narrative of Indians’ immutable reverence for gold was Prime Minister Narendra Modi. His campaign promise to build a nation of Indians’ dreams was premised on tangible commitments. Achieving that would be immeasurably easier if less of the country’s $13 trillion in household savings were trapped in stagnant physical assets and more could be mobilized in productive financial investments.

Demonetization, in which large denomination currency was temporarily removed from the economy, sharply decreased cash transactions. A national goods and services tax simplified the tax code while making evasion much more difficult. Equity investments were fully taxed; about half of real estate investments, and as much as 100% of gold purchases, were typically made in untaxed cash. To drive home the point, real estate and jewellery purchases became subject to the same KYC requirements as bank accounts and equity investments.

**Today's Investor:**
Nearly 80 million new mutual fund accounts have been opened in the last four years. Today, almost half of mutual fund assets are held by families outside of India's top metro areas. Net domestic equity inflows in the last three years are nearly forty times as great as those from foreign investors ($91B vs $2B). This emerging domestic base reduces volatility and correlation with global markets.

---

## 5. India's Decade: Why Growth Matters To Investors
**Date:** October 2023

India is the world's fastest growing major economy. 2023 GDP Growth Projections place India at 6.3%, well ahead of China (5.0%) and the US (2.1%). India is currently the 5th largest economy, prospectively on its way to 3rd by 2027.

**The Inflection Point:**
Today India is where China stood in 2007 in terms of GDP per capita ($2,400). This is the stage at which China took off.
* **Electricity Consumption:** India (1,255 kwh/capita) vs China 2007 level.
* **Apparel Spend:** India ($38/capita) vs China 2007 level.
* **Cement Consumption:** India (250 kg/capita) vs China 2007 level.

Within this decade, ~375M Indians are expected to move from Low-Middle Income to Upper-Middle and High Income. To maintain that growth in the longer term, India only needs to become a Middle-Income Country over the next quarter century, on par with today's per capita earning in parts of Emerging LATAM (Peru, Ecuador).

**Consumption Boom:**
Rising incomes will trigger more than $4.5 Trillion in new consumption by 2032. Consumption will move from sustenance to discretionary. Big ticket discretionary spends will be the key beneficiaries: Cars, Life Insurance, Mortgages, Going Out, Healthcare.

These sectors thrived as China transitioned to middle income (2006-2011), with banks, autos, and materials returning 3.6x on average. Market returns in India have closely tracked GDP growth over the last 28 years (14% nominal GDP growth vs 14% Sensex return).

---

## 6. Pulling Away: The Rewards Of Leadership
**Subtitle:** Growing Consolidation Of Corporate India And Why It Matters
**Date:** November 2022

Corporate India has historically been characterized by extreme fragmentation across sectors. But increasingly, some companies are pulling away from the rest in market share and especially in earnings. This change will have profound implications for investors.

**The Shift:**
Many sectors in India include an unusually large number of credible participants by any global standard. There are more than three dozen banks, forty cement companies and one hundred ninety auto components manufacturers in the publicly traded universe alone. Most other economies, even major ones like Germany and Japan, don’t come close to those numbers.

The historical reasons for such widely distributed market share are mainly due to inadequate logistics and high transportation costs that placed a premium on proximity to local markets. Every state had its own tangle of regulations and its own tax code that frequently differed from those of its neighbors.

That has begun to change: now large companies are increasingly gaining market share. In many sectors, the top few participants now account for the majority of the total industry growth, and in some cases all of it.

**Why is this happening?**
1.  **GST (2017):** Before GST, moving goods across state borders involved checkpoints and duties. The new national tax code created a common market, allowing large companies to streamline logistics and compete nationally.
2.  **Technology:** Upwards of two thirds of banking transactions are now wholly digital. Banks that invested earliest in digital channels have built a substantial lead.
3.  **Branding:** National brands can command premium pricing. For example, UltraTech Cement commands a ~3% price premium over competitors, translating to a ~15% advantage in profitability.

**Conclusion:**
Superior growth and earnings can drive vastly superior shareholder returns. The top five banks, cement companies and telecom carriers have dramatically outperformed their competitors in share price terms. However, choosing the *right* leading company is essential, as there are extreme differences even among leaders.

---

## 7. India - A Stock Picker's Market
**Date:** April 2024

India offers a vast, liquid, and diverse investible universe that is surprisingly thinly researched compared to other major markets.

**Key Characteristics:**
* **Large Universe:** 2,516 listed companies.
* **Thin Coverage:** 26% analyst coverage vs 69% in the US. More than 600 Indian companies with market cap > $100M have **zero** analyst coverage.
* **High Dispersion:** Returns within the same sector vary wildly (e.g., in 2023, Top 3 IT stocks returned 209% vs Bottom 3 returning -15%).
* **Active Outperformance:** India is the only major market where active managers consistently outperform passive benchmarks over 5 and 10-year periods (Source: WSJ).

**Conclusion:**
Passive investing in India leaves alpha on the table. The inefficiencies in information mean that rigorous, on-the-ground research can uncover mispriced opportunities that index funds will miss.

---

## 8. India At 75: The Way Forward
**Date:** March 2023

On August 15th, India marked 75 years of independence. As Indians fought for independence, Winston Churchill insisted they would never have a real country. "India is a geographical term," he snarled. But India has remained a unified, vibrant democracy.

**The Transformation:**
* **Then (1947):** Village Electrification 1%, Life Expectancy 32, GDP 6th largest.
* **Now:** Village Electrification 100%, Life Expectancy 70, GDP 5th largest (159x larger).

While India has made significant absolute progress, relative progress was slow until 1991. The government's goal for 2047 (the 100th anniversary) is a $20 Trillion economy (developed nation status).

**Why it is achievable:**
Projections that Japan or Korea would overtake the US failed because they assumed high growth rates could continue after they were already wealthy. India is nowhere near that saturation point. Its per capita income of ~$2,400 leaves massive headroom for catch-up growth.

---

## 9. India's Path: Navigating A Divided World
**Date:** January 2023

What is India's place in the world today? Now it must navigate a world ever more delineated by competition between the United States and China. Most nations will gravitate primarily toward either Chinese-centric or US + friends ecosystem of trade, production and investment. India has already decisively made a choice: **Not China.**

**The China Split:**
Unlike most of its South Asian neighbors, India has declined to participate in the Belt and Road Initiative. It has no Chinese ports, naval bases or mining projects, and no sovereign borrowing from China. Indian FDI from China has fallen by more than four fifths since 2015 and now represents just 0.1% of inbound investment.

**Permanent Interests:**
80% of Indians have a favorable view of the US. India and the United States are linked by public sentiment, economic interests and a shared adversary. The United States is India's largest trading partner and a leading source of foreign direct investment.

**Implications for Investors:**
India is positioning itself as a trusted partner for manufacturing and technology ("Friendshoring"). In 2014, 92% of cell phones sold in India were imported. Today, 97% of supply is produced domestically (e.g., Apple, Samsung). This manufacturing renaissance is driving demand for industrial land, logistics, and skilled labor.

---

## 10. Indian Real Estate: Finally Investible
**Date:** July 2022

Indian real estate has historically been a hard place to make money. The demand for housing has always been real, but investors' returns seldom matched the opportunity due to fragmentation, poor governance, and stalled projects. We believe housing is now **finally investible**.

**What Changed?**
* **RERA (2017):** Real Estate Regulation Act added teeth to commitments. Developers can no longer use customer advances for anything but the specific project.
* **Consolidation:** The number of developers in Top 7 cities dropped from ~3,000 (2011) to far fewer active, compliant players. In Chennai, the top 10 developers now account for 78% of the market (up from 12%).
* **Affordability:** Best affordability in 25 years.
* **Clean Balance Sheets:** Listed developers have deleveraged significantly (Debt/Equity ~0.3x for our portfolio vs 1.2x for peers).

**What to Look For:**
* High and growing local market share.
* Low leverage.
* Use of land as raw material, not a speculative asset.
* Focus on residential developments (avoiding speculative land hoarding).

---

## 11. Agricultural Reforms: A Lost Opportunity
**Date:** February 2021

The report analyzes the government's attempt to modernize India's agricultural sector through three landmark farm laws, and the subsequent repeal of those laws following massive protests.

**The Status Quo:**
India's procurement system (MSP) benefits a small number of farmers (mostly in Punjab/Haryana growing wheat/rice) while leaving the vast majority of small farmers impoverished. 75% of profits in the ag-value chain are captured by intermediaries.

**The Entrepreneurial Farmer:**
Despite the repeal, entrepreneurial farmers are finding ways to grow high-value crops (lemons, roses, grapes) outside the government mandi system. Companies like Maruti Suzuki and HDFC Bank are growing faster in rural India than urban centers, signaling a rising rural economy independent of the farm laws.

**Conclusion:**
While the repeal was a setback for economic reform, the episode demonstrated the resilience of India's democratic institutions. The government, despite its parliamentary majority, bowed to public pressure.

---

# SECTION: INVESTOR CALL CLIPS

## 1. Diwali Sales & Consumption
**Speaker:** Dr. Jon Thorn

**Jon:** A bright picture of the recent festival of lights. Also a key consumption period. This Diwali sales were up 24% year-over-year versus a 13% growth last year.
Page 4–Some more very robust data. But here for the whole month of October, for the holiday period itself, Maruti's sales, India's largest car company, were up 90% year-over-year.
Page 5–Two words very strong.

## 2. Economic Growth Drivers
**Speaker:** Dr. Jon Thorn

**Jon:** Here's part of why we believe this strong economic growth will at least be maintained or accelerate. Rising final demand is building on a complete trifecta of interest rate, personal and sales tax cuts along with government pay raises. Maruti's GST or sales tax rate fell in September just before Diwali in October from 29% to 18% on smaller cars. That's a major step affordability change. Hence that 90% growth in sales. We calculate that these four econ changes alone will add around 2.1% to GDP.
Page 7–And this is the base, the wealth effect. If final demand is looking strong, a major contributor to that confidence must be that household wealth is rising and in India as we can see here it's been rising fast in the three main wealth channels for the past 3 years. Gold is now up around 60% year to date and India has the largest hoard of gold in the world by far. And as a multiple of these central banks, Indian household gold holdings are now worth around 9/10 of Indian GDP, making India a major outlier among EM or DMs, and this is not even counting the temple gold holdings.
Page 8–As a background to this slide, Indian government capex has risen from 1.6% of GDP around 10 years ago to 3.2% in 2024. And now the private sector which has deleveraged by some 40% over the past five years in terms of capex is getting started.
Page 9–That Indian government capex has risen so strongly and also alongside a fall in the fiscal deficit is a pretty amazing thing in today's increasingly indebted sovereign world.
Page 10–Can the reserve bank cut rates some more? Yes, India is eventually entering a benign disinflationary cycle.

## 3. PMI & Market Performance
**Speaker:** Dr. Jon Thorn

**Jon:** The PMI is strong and employment has risen for 20 straight months. The PMI maps roughly to corporate revenue. So clearly revenue looks solid.
Page 12–For the past 12 months, as already noted, India has not performed and we would like to add the word yet. A lot of the performance on this page is of course tech capex related.
Page 13–Looking at the past 30 years, roughly for as long as we have invested in India, it's clear that only two markets have delivered strong long-term 30-year performance.
Page 14–Are foreign investors perhaps not looking at the same data that we just ran through? The past three years, they are around flat, but domestic investors have invested $166 billion into their own market for that period. That's about as bifurcated as it can get.
Page 15–A pretty clear chart and trend. These domestic investors are also clearly not stepping back.

## 4. Power Infrastructure Investment
**Speaker:** Dan Tennebaum

**Dan:** There is a wall of power infrastructure investment headed towards India. The middle bar here is the United States which has seen power capex go from frankly investment backwater to front and center as a high growth proxy for AI-led demand. Even if all of that comes to fruition, what you see there in the orange, it will still be substantially less growth than is going to take place here in India. That's true in absolute terms which you see on the page. And if you think in percentage terms, India's growth will be something like three times as great as that of the United States. In the US, it's already led to something like 100% rerating of power stocks.