Baron India Fund: Latest Insights and Commentary

Emerging market (EM) equities delivered another quarter of relative outperformance, extending strong momentum from 2025. The first two months of 2026 saw EM markets post solid double-digit gains, driven largely by AI-related technology companies and broad-based strength in industrials. However, markets faced a late-quarter inflection after the U.S. and Israel attacked Iran, triggering a sharp rise in oil price and increased global uncertainty. While this shift introduced near-term volatility, EM equities remained supported by durable fundamentals and continued to outperform developed markets on a relative basis. 

Indian equities experienced a material drawdown during the period but staged a notable recovery, rebounding from late-quarter lows as market conditions stabilized. While geopolitical outcomes remain uncertain, there is cautious optimism that tensions will ease or that energy prices will normalize from elevated levels over time. History suggests that markets tend to recover and ultimately strengthen following major global disruptions, and we believe the current environment will prove no different. 

Periods of volatility created opportunities to selectively add high-quality businesses at more attractive valuations, while disciplined risk management frameworks helped provide downside risk management during market turbulence. Despite recent drawdowns, domestic investor participation has remained constructive, supported by the continued financialization of household savings and steady inflows into equity investment vehicles. With foreign investor ownership near multi-year lows and valuation multiples trading below long-term averages, current conditions suggest the market may be approaching a cyclical bottom. 

Looking ahead, we remain encouraged by India’s structural growth trajectory and believe the market is entering a potential earnings upgrade cycle. A rebound in government infrastructure spending, targeted policy support for consumers, and improving economic indicators are expected to support stronger corporate earnings. Assuming energy prices moderate over the near term, the current environment presents an attractive opportunity to build positions ahead of improving earnings momentum. 

CONTRIBUTORS

• This Fund does not have contributors to performance for period ending March 31, 2026

DETRACTORS

• HDFC Bank Limited is one of India’s largest and most recognized private sector banks, offering a broad range of financial services to retail and commercial clients. Shares fell during the quarter due to both company-specific and macroeconomic concerns. The unexpected resignation of HDFC Bank’s chairman created a governance overhang as investors sought clarity on his departure. Subsequent communication from the board and management helped restore confidence by emphasizing that there were no underlying wrongdoing issues and that governance standards remain strong. On the macro side, given India’s heavy reliance on imported energy, higher crude prices have raised inflation expectations, widened the current account deficit, and increased the likelihood of tighter monetary policy, all of which have dampened loan growth and credit outlooks across the banking system. Despite these near-term headwinds, HDFC Bank remains a compelling long-term investment, supported by its best-in-class underwriting, strong liability franchise, and long runway for growth in an underpenetrated banking market, positioning it well to compound earnings as liquidity conditions normalize and macro pressures ease.
• 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. While Bharti Airtel reported strong quarterly earnings and provided visibility into robust future free cash flow generation, shares declined during the quarter due to concerns around capital allocation to the company’s new non-banking financial company venture. In our view, 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.
• Bajaj Finance Limited is a leading non-bank financial company in India. Shares declined during the quarter as geopolitical tensions over the past month raised expectations of higher inflation and disrupted India’s easing interest rate environment, which could negatively impact consumption-led credit growth. We retain conviction in the company due to its best-in-class management team, robust long-term growth outlook, and conservative risk management frameworks. We believe Bajaj is well positioned to benefit from growing demand for consumer financial services in India, including mortgages, personal loans, credit cards, and other related products.

The Quarterly Attribution Analysis for period ending March 31, 2026, is not yet available.