Baron India Fund: Latest Insights and Commentary

Indian equities rebounded during the second quarter as concerns surrounding the U.S.-Iran conflict eased and diplomatic efforts to de-escalate tensions moved forward. The MSCI India Index gained 10.1% after declining 18.1% in the first quarter but remained down 9.% year to date. India continued to lag broader emerging markets, where performance was driven largely by AI-related technology companies in Korea and Taiwan. 

Lower oil prices provided meaningful relief for India, which imports more than 85% of its oil requirements. Brent crude, which approached $120 per barrel during the conflict, later fell below $90. India’s limited exposure to the global AI infrastructure buildout remained a relative headwind as investors favored semiconductor-heavy markets. However, any moderation in AI spending or investor enthusiasm could support a rotation toward markets, such as India, that have not participated as fully in the AI-driven rally. 

Despite recent underperformance, India’s long-term domestic growth drivers remain intact. Government reforms and investment continue to support manufacturing, power generation and transmission, defense, and supply chain diversification. Consumer finance, economic formalization, the financialization of household savings, and digitization also remain important structural themes. Valuations have become more attractive following the recent correction, with the MSCI India Index trading below 20 times one-year forward earnings at quarter end, approximately one standard deviation below its five-year average. 

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

• Kirloskar Oil Engines Limited is a leading power generation engine manufacturer in India, holding approximately 20% market share in the low- to medium-horsepower segment and serving industries such as telecom, retail, residential real estate, and agriculture. The stock contributed to performance during the quarter, driven by better-than-expected revenue and profit, as well as continued share gains in the high-horsepower segment, where Kirloskar is winning competitively in mission-critical applications such as data centers — a trend we believe will be a meaningful driver of margin expansion. We retain long-term conviction in Kirloskar, as we believe the company is well positioned to benefit from rising demand for backup power in India, underpinned by higher capital expenditure from both the government and private sector in areas such as infrastructure and manufacturing. We expect Kirloskar to deliver 15% to 20% compounded revenue growth and over 20% earnings growth over the next three to five years.
• Precision Wires India Limited is the largest manufacturer of enameled copper winding wire in India, with approximately 30% market share. The company’s 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 scale of operations, strong innovation capabilities, and relationships with original equipment manufacturers.
• Centum Electronics Limited is a leading electronics manufacturing services provider in India, providing design and manufacturing solutions for mission-critical applications across defense, aerospace, industrial, and automotive industries. Shares rose during the quarter, driven by robust quarterly results and the divestiture of the company’s loss-making Canadian and French subsidiaries. We remain investors. We believe Centum is well positioned to benefit from the Indian government’s “Make in India” initiative, which encourages domestic manufacturing of electronic products and components through attractive tax subsidies and infrastructure support. Amid escalating global geopolitical tensions, we see additional upside from India’s push to indigenize defense equipment design and production, a trend that should benefit electronic system providers like Centum. We expect Centum to deliver approximately 25% compounded revenue and EBITDA growth over the next three to five years.

DETRACTORS

• Power Grid Corporation of India Limited is a leading energy distribution company in India, controlling approximately 85% of the country’s interstate power transmission capacity. Shares declined due to lower-than-expected revenue and profit, driven by tariff reductions on projects that reached 12 years of operation, even as the company exceeded its capitalization guidance and reported a healthy order pipeline. Given India’s robust economic growth and accelerating industrial capacity expansion, we believe significant investment in power generation and transmission infrastructure will be required, creating a multi-year growth opportunity for Power Grid. As India aims to double electricity generation capacity from non-fossil fuel sources by 2030, we believe Power Grid will be a key enabler of the country’s power. In addition, being majority owned by the Government of India, the company is deemed a sovereign entity, which serves as a competitive moat from a cost and access to capital perspective. We retain conviction in Power Grid and expect the company to deliver total shareholder returns in the low- to mid-teens over the next three to five years alongside an attractive dividend yield.
• 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 declined during the quarter as petrochemical and oil and gas reported weaker-than-expected profitability, reflecting crude price volatility associated with the West Asia crisis. We exited our position in Reliance and reallocated capital to higher conviction ideas.
• 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 due to lower-than-expected quarterly sales and profit, as well as concerns around working-capital management. While Kaynes stands to benefit from the Government of India’s “Make in India” initiative, which encourages domestic manufacturing of electronic components through attractive tax subsidies and infrastructure support, the company’s prolonged timeline for improving cash flow generation prompted us to exit our position. We reallocated capital to other Indian EMS players in which we have higher conviction.

The Quarterly Attribution Analysis for period ending June 30, 2026, is not yet available.