Baron India Fund | Q4 2025

Baron India Fund® (the Fund) appreciated 0.42% (Institutional Shares) during the final quarter of 2025, while its relevant benchmark, the MSCI AC Asia ex Japan/India Linked Index (the Linked Benchmark), rose 4.78%. As a reminder to investors, as of market close on August 30, 2024, Baron New Asia Fund was converted into Baron India Fund, necessitating a Linked Benchmark to allow the predecessor track record to attach to the new Fund. In essence, our reported performance represents the return of Baron New Asia Fund from July 30, 2021 (Fund inception date) through August 31, 2024 and that of the reconstituted Baron India Fund beginning thereafter. Similarly, the Linked Benchmark, effective September 1, 2024, will reflect the performance of the MSCI India Index, the primary benchmark of Baron India Fund, while the period from July 30, 2021 through August 31, 2024 will reflect the performance of the MSCI AC Asia ex Japan Index. For the full year 2025, the Fund declined 0.34% compared to a positive return of 2.62% for the Linked Benchmark. Baron India Fund has outperformed the MSCI India Index by 2.10% on an annualized basis since Fund conversion (effective September 1, 2024).

For the fourth quarter, we underperformed our Linked Benchmark. During the period, Indian equities appreciated approximately 5%, performing in line with the broader MSCI Emerging Markets Index, while outperforming the S&P 500 that rose 2.7%. Growing optimism on a U.S.-India trade agreement and the implementation of another round of economic reforms, particularly “GST 2.0⁴,” were key drivers of market performance. That said, the breadth of equity returns was narrow with small and mid-cap (SMID) stocks underperforming large-cap peers by over 360 basis points and value-oriented equities outpacing growth peers by approximately 450 basis points. Consequently, the Fund’s sizable exposure to SMID stocks along with our growth-oriented investment bias were key drags on relative performance. In addition, our lack of ownership of mature Indian IT services companies such as Infosys Limited and HCL Technologies Limited, which partially recouped material losses from earlier in the year, also weighed on relative results. We remain underweight such businesses given that the proliferation of AI is creating deflationary earnings pressure and structural headwinds for global IT services players.

Despite elevated U.S. tariffs that took effect in August, India’s economic momentum surprised positively with real GDP growing 8.2% in the third quarter of 2025. The Reserve Bank of India has since upgraded India’s fiscal year 2026 real GDP growth forecast to 7.3%, up from 6.8% last quarter and 6.5% at the start of the fiscal year. In our view, this resilience reflects India’s predominantly domestic, consumption-driven growth model and its relatively low dependence on global trade. We are encouraged by the Modi Administration’s proactive use of fiscal stimulus and productivity enhancing reforms, which have more than offset tariff-related headwinds. While near-term trade uncertainty persists, we view the current impasse as temporary, with both the U.S. and India actively working toward a bilateral trade agreement. Any meaningful progress on trade is likely to serve as a powerful catalyst for a repricing of Indian equities, particularly as early signs of economic recovery set the stage for an earnings upgrade cycle in 2026.

From a sector or theme perspective, adverse stock selection effect in the Information Technology sector, primarily attributable to select holdings in our Make in India/supply chain diversification (Kaynes Technology India Limited) and National Security (Centum Electronics Limited and Astra Microwave Products Limited) themes, was the largest detractor to relative performance during the quarter. Kaynes, a leading electronics manufacturing services player providing mission critical components to various industries such as aerospace & defense, railways, EVs, medical devices, and smart meters, suffered a material correction owing to recent investor concerns on its ability to generate free cash flow in the foreseeable future. While we acknowledge the current market pushback, we continue to view the company as a key long-term beneficiary of India’s focus to drive import substitution and attract global corporates to set up manufacturing in the country. That said, we are closely monitoring management’s ability to streamline working capital cycles and reduce cash burn, which in our view, would be a key re-rating catalyst. Weak stock selection effect in the Consumer Discretionary sector, driven by a handful of investments across multiple themes (Eternal Limited, Le Travenues Technology Limited, Trent Limited, and Dixon Technologies (India) Limited), was also a notable detractor to relative performance. We retain conviction in Eternal, India’s leading food delivery and quick commerce platform, owing to its dominant market share in both categories and operating leverage, especially in quick commerce, that positions it favorably against sub-scale/high cash burn competitors. The recent stock weakness, in our view, is a retracement of prior period gains driven by near-term market concerns on rising competitive intensity. We view such corrections as an opportunity to further increase position sizing. Lastly, our large overweight together with poor stock selection effect in the Health Care sector, owing to our hospital related positions (Max Healthcare Institute Limited and Aster DM Healthcare Limited) as part of our formalization of the economy theme, also weighed on relative results. Partly offsetting the above was favorable allocation effect and good stock selection in the Communication Services (Bharti Airtel Limited) sector.

For calendar year 2025, the Fund underperformed the Linked Benchmark by roughly 300 basis points, primarily attributable to our fourth quarter performance as discussed above. While full year relative performance ended below par, we take comfort in retaining the lion’s share of our significant outperformance in 2024, wherein we delivered over 1,600 basis points of relative gains, while also generating solid double-digit absolute returns (+17.75%). We are also encouraged by our performance since converting to an India dedicated strategy (effective September 1, 2024), beating the MSCI India Index by 210 basis points on an annualized basis.

Bharti Airtel Limited is a leading telecommunications company with operations across Asia and Africa. The company’s offerings include wireless services, mobile commerce, and fixed-line broadband. Shares contributed to performance during the quarter, driven by robust quarterly results and visibility into strong future free cash flow generation. As India’s dominant mobile operator, Bharti Airtel is benefiting from ongoing industry consolidation. In particular, competitor Vodafone Idea appears to be on the verge of bankruptcy amid severe pricing pressure and an unsustainable balance sheet. We retain conviction in Bharti Airtel’s outlook as it transforms into a digital services company and capitalizes on rising mobile tariffs.

Precision Wires India Limited is the largest manufacturer of enameled copper winding wire in India, with over 25% market share. Its products—critical inputs for power transformers, generators, and electric motors—are supplied across automotive, aerospace and defense, power, electronics, home appliances, and infrastructure end markets. Shares rose during the quarter, driven by strong sales growth and profitability. We believe Precision Wires is well positioned to capitalize on India’s power-sector upcycle, with accelerated power generation capacity additions expected to drive sustained demand for winding wire. Growth in India’s electric vehicle (EV) market should also support increasing demand for EV-grade winding wire, reinforcing our expectation that the company can deliver 15% to 20% compounded revenue growth over the next three to five years. Long term, we think Precision Wires will continue to benefit from its OEM relationships, scale of operations, and strong innovation capabilities.

Reliance Industries Limited is India’s leading conglomerate, with businesses spanning across petrochemicals, refining, and oil- and gas-related operations as well as retail, telecommunications, and media. Shares rose on strong quarterly results that beat consensus. We retain conviction in Reliance, as we believe the company is well positioned to leverage its telecommunications network to transform into a digital services leader, with offerings such as video streaming, broadband, and e-commerce services. Reliance is also laying the foundation to create an online marketplace that will connect roughly 13 million mom-and-pop retailers to over 480 million mobile and internet subscribers. We expect earnings to sustain mid-teens growth over the next three to five years.

Kaynes Technology India Limited is a leading electronics manufacturing service player in India, offering solutions across the automotive, industrial, railway, medical, and aerospace and defense industries. Shares declined during the quarter amid concerns around working capital management and the company’s ability to generate cash flow, as well as questions regarding certain financial reporting practices, which management subsequently clarified. We retain conviction in Kaynes, as we believe the company is well positioned to benefit from the Government of India’s “Make in India” initiative, which promotes domestic electronics manufacturing through attractive tax incentives and investments in manufacturing infrastructure. We expect Kaynes to deliver compounded EBITDA growth of more than 30% over the next three to five years.

Eternal Limited is India's leading food delivery and quick commerce platform, with roughly 55% and 40% market share in these respective categories. Shares declined during the quarter amid intensifying competition in the quick commerce industry, which raised concerns about the company’s near-term profitability. We retain conviction, as we believe Eternal is well positioned for long-term growth in quick commerce, given its first-mover advantage, scale, and superior execution. We think Eternal will continue to benefit from structural growth in online food delivery in India, potentially doubling its revenue, while also improving profitability and growing earnings over the next three to five years.

InterGlobe Aviation Limited (IndiGo) is India’s largest airline, commanding over 60% market share in the country’s quasi-duopolistic domestic air travel market. Shares declined during the quarter following the introduction of new aviation regulations on pilot flying hours, which led to pilot shortages and flight cancellations. We retain conviction in IndiGo as a key beneficiary of ongoing industry consolidation, with domestic air travel demand expected to grow at a low-teens rate, driven by rising discretionary incomes and improving airport infrastructure. In our view, IndiGo is competitively advantaged given it has one of the lowest cost structures in the global airline industry and relies on Airbus for aircraft sourcing, which has avoided the operational disruptions faced by Boeing. By contrast, IndiGo’s primary competitor, Air India, is more dependent on Boeing and has been constrained in adding capacity, further strengthening IndiGo’s competitive position in a rapidly growing market. We are also encouraged by the company’s expansion into international travel and expect IndiGo to deliver mid-teens EBITDA growth over the next three to five years.

* Individual weights may not sum to the displayed total due to rounding.

We combine a bottom-up investment approach with a thematic overlay to construct and manage a portfolio of high-quality, competitively advantaged companies located in India. Consistent with the “Baron Approach,” we invest behind value-creating, private sector entrepreneurs with significant ownership stakes, whose businesses are either gaining market share, disrupting, or consolidating their respective industries. We leverage our deep relationships in India to discover and invest in growth-oriented businesses for the long term.

The Fund is a diversified, all-cap strategy with the flexibility to invest across market caps, especially in small- and mid-cap stocks where we see significant mispricing due to limited sell-side coverage and/or those that remain “under the radar.” We typically invest across 30 to 50 stocks and concentrate capital toward our highest conviction ideas. As of December 31, 2025, we held 38 positions with our 10 largest investments comprising 49.8% of net assets.

Our principal investment themes with respective weightings (as of December 31, 2025) are as follows:

• Consumer Finance (25.0% of net assets): Low penetration levels; industry poised to grow mid-to high teens over the next several years; well managed private sector players to gain market share
• Digitization (22.5%): India’s rising middle class and smartphone penetration (over 700 million and growing) is creating significant opportunities across e-commerce, food tech, digital streaming, and fintech
• Formalization of the Economy (18.4%): Economic reforms are accelerating formalization leading to market share gains for organized, branded players across various industries
• Power Reforms (9.4%): Market friendly reforms along with growing demand for electricity in India (real estate, manufacturing, data centers, AC penetration) is necessitating a multi-year investment cycle in power generation and transmission
• Make in India/Supply Chain Diversification (7.8%): Tectonic shifts in geopolitics are accelerating supply chain diversification (ex-China); significant opportunity for Indian players to gain market share in global supply chains
• National Security (6.6%): Rising global conflicts and recent military skirmishes with neighboring countries is leading India to accelerate defense spending with increased focus on domestic manufacturing
• Financialization of Savings (5.5%): Structural shift in household savings from gold/real estate into financial products such as equities/mutual funds/life insurance savings policies; capital market proxies along with asset managers/life insurers to benefit

We also segment the portfolio based on a S-curve analysis to serve as a form of risk management framework with respective weightings (as of December 31, 2025) as follows:

• Phase 1 (16.2% of net assets): “Under the Radar” or in “Investment Mode” – a phase of market mispricing/time arbitrage and an opportunity for significant alpha generation as these businesses enter Phase 2
• Phase 2 (14.2%): “Disruptors” or “Scale Builders” – this is a period when our holdings should generate non-linear growth and continued alpha capture on price discovery, earnings upgrades, and/or market disruption
• Phase 3 (41.3%): “Compounders” – post scale up, our companies have gained durable competitive moats and are well positioned to compound capital and earnings over the next several years
• Phase 4 (23.5%): “Market Performers/Mature Businesses” – period of stable growth with good earnings visibility; allocation to this segment will be viewed from a risk management / portfolio beta perspective

During the fourth quarter, we added one new investment to an existing theme while also rebalancing weights of a few holdings based on company specific fundamentals. We strive to concentrate capital toward our highest conviction ideas.

We increased exposure to our digitization theme by initiating a position in Le Travenues Technology Limited (Ixigo), India’s second largest online travel agency, with about 10% to 15% share of total gross transaction value (GTV). Technology-driven at its core, Ixigo is the market leader in online train bookings, with over 60% market share, which has helped the company establish a strong presence in lower-tier cities. Leveraging its deep connection with mass-market consumers, the company has also expanded into the fast-growing air travel and inter-city bus booking segments. In 2025, Netherlands-based technology investor Prosus invested over $200 million in Ixigo, acquiring an approximately 15% stake. The investment adds credibility and provides financial dry powder to support Ixigo’s AI-led product development and business expansion. We are also excited about the company’s entry into hotel bookings, where a successful ramp-up could drive long-term margin accretion. We expect Ixigo to deliver 20% to 25% compounded GTV growth and over 25% compounded EBITDA growth over the next three to five years.

Finally, we added to several of our existing positions during the quarter, most notably HDFC Bank Limited, Reliance Industries Limited, GMR Power and Urban Infra Limited, Precision Wires India Limited, Bajaj Finserv Limited, Kirloskar Oil Engines Limited, and Eternal Limited. During the quarter, we also exited positions in Godrej Consumer Products Limited, SRF Limited, Jio Financial Services Limited, and Tips Music Limited due to uncertainties over durability of earnings growth and/or competitive positioning going forward.

As we enter 2026, we are constructive on the risk-adjusted return potential of Indian equities. In our view, India is on the cusp of an earnings upgrade cycle, supported by a recovery in government infrastructure spending, targeted tax relief for the middle class, benign inflation trends, a normal monsoon that should lift rural demand, and the rollout of "GST 2.0⁴”, which is expected to further stimulate consumption and economic activity. After delivering stellar performance over the 2020-2024 period, Indian equities experienced a phase of consolidation in 2025. We believe this was driven by a temporary deceleration in economic growth that translated into a cyclical earnings downturn. Importantly, we are confident that the worst of the earnings downgrade cycle is now behind us, setting the stage for India to play “catch up” with EM peers that enjoyed a breakout year in 2025. EM equities rallied more than 33% over the past year, outpacing the MSCI India Index by over 30% - a historically unusual divergence given India’s long-term track record of outperformance.

A key contributor to this performance divergence has been India’s limited exposure to the “picks and shovels” of AI infrastructure build-out, which has been a dominant driver of global equity returns over the past year. Companies such as Taiwan Semiconductor Manufacturing Company, Samsung Electronics, and SK Hynix – large constituents of the MSCI EM Index - have delivered exceptional returns as primary beneficiaries of the AI capex super-cycle. This dynamic also fueled an unprecedented rotation by foreign institutional investors (FIIs), who sold a record $18 billion plus of Indian equities during the year. Any slowdown in AI related capex, as markets begin to question the return on investment of such activity, is likely to reverse FII outflows and serve as another driver of relative returns for Indian equities.

In our view, however, investors are underappreciating India’s longer-term AI opportunity, which should become increasingly visible as value creation shifts from infrastructure build-out to enterprise and consumer applications. Analogous to “Internet 1.0,” India did not materially participate in global fiber rollouts but benefited enormously from the proliferation of the internet, smartphones, and application-driven ecosystems. As fiber connectivity commoditized over time, we expect a similar trajectory to unfold with capital-intensive large language models. India’s deep technology talent pool, supportive government policies, and ability to develop and monetize large proprietary data sets uniquely position the country to drive productivity gains over the long run. This is reflected in the significant commitments announced by global hyperscalers, with Microsoft, Amazon, and Google collectively planning to invest more than $67 billion in AI infrastructure and related systems in India. We also believe Reliance Industries Limited, a top five holding in the Fund, is well positioned to emerge as a key AI beneficiary through partnerships with U.S. hyperscalers to deliver customized enterprise and consumer solutions.

Despite the recent underperformance, India remains one of the world’s best performing markets over the past two plus decades. The MSCI India Index has generated a 10.7% annualized return (in U.S. dollars) over the past 25 years as compared to the S&P 500 Index at 8.8% and the MSCI Emerging Markets Index at 8.5%. Put another way, $10,000 hypothetically invested in India at the end of calendar year 2000 would now be worth over $128,000 versus the S&P 500 Index at approximately $83,000 and the MSCI Emerging Markets Index at around $77,000. 

From a U.S.-India trade perspective, after initial setbacks, we are encouraged by recent progress made toward a bilateral trade agreement, which could serve as a meaningful catalyst for a repricing of Indian equities. Despite elevated U.S. tariffs, India’s economic outlook remains robust, with real GDP expected to grow more than 7% in fiscal year 2026. With a nominal GDP of roughly $4.1 trillion, India remains the world’s fastest growing large economy⁵, having recently surpassed Japan to become the fourth largest globally and expected to leap ahead of Germany within the next three to four years. 

In conclusion, our message remains consistent: we are optimistic about India’s multi-decadal growth opportunity. Productivity enhancing economy reforms, combined with accelerating digitization, are kickstarting a virtuous investment cycle and creating compelling bottom-up opportunities for long-term investors. At the same time, geopolitical realignment – particularly rising U.S.-China tensions – are prompting global corporations to diversify supply chains and manufacturing footprints, a shift that we believe positions India to evolve into a global manufacturing and export hub over time. Finally, a structural reallocation of household savings away from gold, real estate, and fixed deposits toward equities, mutual funds, and life insurance products is reshaping India’s financial landscape. This evolution has strengthened domestic capital markets and provides a stabilizing force during periods of foreign capital outflows and global market volatility.

Thank you for investing in the Baron India Fund. We truly appreciate your partnership.