Baron India Fund: Latest Insights and Commentary

During the fourth quarter, Indian equities advanced approximately 5%, performing broadly in line with the MSCI Emerging Markets Index while outperforming U.S. equities. Growing optimism around a potential U.S.-India trade agreement and the implementation of another round of economic reforms supported market performance. Despite elevated U.S. tariffs that took effect in August, India’s underlying economic momentum remained resilient, with real GDP expanding 8.2% in the third quarter of 2025. In response, the Reserve Bank of India upgraded its fiscal year 2026 growth forecast to 7.3%, underscoring the strength of India’s predominantly domestic, consumption-driven growth model and its relatively limited reliance on global trade.

Following a period of consolidation in 2025, we believe Indian equities are now approaching an inflection point. The recent slowdown in earnings appears cyclical rather than structural, and we are increasingly confident that the worst is now behind us. Multiple tailwinds are emerging, including a recovery in government infrastructure spending, targeted tax relief for the middle class, benign inflation trends, a normal monsoon supporting rural demand, and the continued rollout of pro-growth fiscal and tax reforms. In our view, these factors position India to enter an earnings upgrade cycle in 2026 and potentially “catch up” with emerging markets (EM) peers that benefited disproportionately from the global AI infrastructure build-out in 2025—a historically unusual divergence given India’s long-term track record of relative outperformance.

While India has had limited exposure to the capital-intensive phase of the AI cycle, we believe investors are underappreciating the country’s longer-term opportunity as value creation shifts toward enterprise and consumer applications. India’s deep technology talent pool, supportive policy framework, expanding digital infrastructure, and ability to monetize large proprietary data sets position it well for sustained productivity gains. This view is reinforced by substantial investment commitments from global hyperscalers, including Microsoft, Amazon, and Google, focused on expanding AI-related infrastructure and systems in India. More broadly, we remain optimistic about India’s multi-decadal growth outlook, supported by ongoing structural reforms, accelerating digitization, favorable demographics, and a strengthening domestic capital markets base. In our view, these dynamics continue to make India one of the most compelling investment opportunities within EM.

CONTRIBUTORS

• 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 approximately 56% 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 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.

DETRACTORS

• Kaynes Technology India Limited is a leading electronics manufacturing service (EMS) 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.