InstallatorGruppen (Copenhagen:IG) — Annual General Meeting

0:07 Right. Well, after that technical glitch, Good morning, ladies and gentlemen, and I'm sorry that we're starting a little bit late today. For those of you that haven't met me before, I'm Elizabeth Scott. I'm Chair of the company. And of course, I am absolutely delighted to welcome you all to the twenty twenty six Annual General Meeting of INDIA CAPITAL GROWTH FUND. But after the success of last year, we thought we should post it again in London. And it's now shortly after, well, not quite so shortly after 11:30. And therefore, as a core of this presence, I declare the meeting duly constituted and open. And I'd also like to extend a very warm welcome to those of you who are joining online.

0:57 Hopefully, you can hear everything that's going on. So before we proceed, I'd like to take a moment to introduce you to my fellow board members. Patrick Firth here on my right, he's the chair of audit, Linda Lynn and Nick Template. And we're also joined today by Javeh's box of Neville registrars who will be assisting with the polling process during the meeting.

1:23 And to begin the polling section, Javeh will provide a brief explanation of how the polling process will be conducted. And following that, we'll move on to our portfolio update, which will be presented by Gaurav Naren, our Investment Adviser, who's joined us all the way from Mumbai and whose insights are always popular and fascinating. And then after Gaurav's presentation, we'll proceed to the formal business of the meeting, including the resolutions. We'll then open the floor for questions and answers, after which you will be invited to submit your polling cards and this will mark the end of formal proceedings. And for those joining online, please do submit your questions to the system and Lucy Draper will ask them during the Q and A session.

2:17 So we're also very much hoping that as many of you as possible will be able to join us for lunch afterwards and you'll have the opportunity to engage more informally with us and the investment team. Gervais, can I now ask you to talk us through the polling process?

2:39 Thank you, Madam Chair. Ladies and gentlemen, good morning. My name is Gervais Cox. I am here from Neville Registrar as the company's registrar and I am entrusted today with the task of conducting the poll on all the resolutions proposed and certifying the results of the vote to the Chair of the meeting. Proxy cards were dispatched to all shareholders prior to the meeting. Many of you have already completed and returned them, thereby appointing either the Chair of the meeting or your appointed proxy to cast your vote on your behalf. I have here a summary of the scores from the proxy cards received prior to the meeting, which indicates what the outcome of a poll would be if no additional votes were to be cast and I will use this as a starting point for counting the votes. If you have previously completed and returned your proxy card and do not wish to change your vote, there is no need for you to take any further action on this poll as your vote has already been counted.

3:34 I'm available to answer any questions which any of you may have regarding the completion of poll cards And please raise your hand if you would like a poll card. Thank you. Thanks very much, Gervais. And I can see a few hands raised. I hope that information was clear. And if anybody does need any further assistance or help with the polling process, please do make yourself known to Gervais. And before handing over to the investment team, I'd like to just draw your attention to the recent changes that have been made to the company following the Extraordinary General Meeting held earlier this year.

4:22 Shareholders at that EGM approved a number of amendments to the tender facility, which will now take place every five years should performance fall short of expectations. And I'm also very pleased to remind shareholders that the company intends to pay a dividend for the first time in October following our interim results. Now it's my great pleasure to introduce Gaurav Narain, Principal Adviser to INDIA CAPITAL GROWTH FUND. Gaurav has been part of the team advising INDIA CAPITAL GROWTH FUND since 2011. And in the audience, we also have Shahil, who you've just seen, scurrying around, sorting out the laptop, and also Sohrab Chiod, both of whom are long standing members of the team working alongside Gaurav with River Global.

5:12 Many thanks, Gaurav. Can you hear me?

5:20 Yes. Thank you, Elizabeth. Just a brief background. I have now been looking at Indian Equities for almost thirty years. And I've been running this fund now for almost fifteen years. And two of my colleagues, Aurob and Shaheel are also here. And they've been part of the investment team since 2005 and 2006. So it's a very stable team we have here. What I'll really try and do is, in the next twenty to twenty five minutes, try and take you through what's really happening in India on the economy, the markets and then a bit about how we're investing in this current environment. So to start off, the broader story of India is about growth. It's already a $4,000,000,000,000 economy.

6:07 And by all forecasts, it should be somewhere between 6,000,000,000,000 to $7,000,000,000,000 by 2030, making it among the third or fourth largest economy at that point of time. But the government vision is much, much bigger. They're already looking at India being a $30,000,000,000,000 economy by 2047, and the 2047 target is because that's where India is, that's the one hundredth year of independence. Now it's just not big wishful thinking. What the government's really done is to achieve these targets, every ministry has been tasked with the responsibility of trying to figure out what is the infrastructure, what is the policy environment required for their ministries to reach their respective targets. And they're working backwards to try and see what needs to be done to achieve that growth. Now this growth is ambitious, means you're really talking about a real GDP growth of over 8%.

7:00 But even if you take all economists, really believing that India should grow at a 6% to 7% sustainable growth, implying a 10 to 11% nominal growth for several years to come. But having said that, I would say there's when you speak, go down and speak with managements and corporates, there is a lot of confidence that India is on the right path. And one of the reasons behind this is that India has seen political stability. And because of that, you've seen policy continuity. Now I would say there are three big legs to this growth story. And the first, of course, is on the investment side. And here, a lot has already changed. I would say the government spending in the budget itself over the last five years has doubled or rather it's gone multiple fold.

7:49 And the ten years, the infrastructure bottlenecks which India existed had actually disappeared. In fact, almost every asset, be it roads, be it airports, ports, the infrastructure really doubled in these ten years. So no one can really say today India is has infrastructure issues, and the process just continues. Even a city like Mumbai has almost 50,000,000,000 to $60,000,000,000 of projects happening at any point of time. And the policy environment to encourage the private sector to also invest is very much in place. I think the second leg to this is the consumption side of it. India is not just the largest populated country, but a very young and aspirational population. And here, what you're already seeing is that the per capita income is still very low.

8:39 But despite that, the volumes are large. And to just give a perspective, you'd be surprised to know that India is the third largest car market in the world, selling over 4,000,000

8:48 cars a year. But if you see the penetration, it's just 3%. In other categories, like, say, smartphones, which are almost 90% penetrated, you're selling about 150,000,000 phones a year. But the story there is moving towards higher value added phones. In fact, for someone like an Apple or iPhones, India is one of the fastest growing markets in a market which you'd say is fully penetrated. But I would say the third factor is technology. And India today is possibly built one of the best digital infrastructures in the world. And that's really helped enable the bridge the gap between rural and India and urban India. And this cycle which you're seeing of investment and consumption is really what's giving the confidence that India will continue to sustain a higher growth.

9:36 Coming to besides just the story, I think what's also happened is a lot of buffers which have been created in India in terms of the macros. It's really never looked better. Your fiscal has been steadily coming down post COVID. If you see the current account deficit, today, it's trending at less than 1%, and India really imports almost 90% of its oil. What's really happened is that the intensity of oil in India's GDP has actually come down. Today, at $100 per oil at a barrel, oil imports are less than 4% of GDP. In 2008, this was close to 14% of GDP. So structurally, your current account balances are much better And your IT service exports today are actually more than your oil imports.

10:26 Even on inflation, when I was in the '90s when I had started working, in India, the inflation used to be anywhere between 10% to 12%. Interest rates were 14%. Today, you know, the central bank's target has been to be between 2% to 6%, and they've really achieved this. And today, you're again at a very low base. So even what you're seeing in the Middle East crisis, worst case, you'll still go to 5% or 6% inflation over time. And finally, the corporate sector, the debt to

10:56 EBITDA, the debt to equity is at record lows. Companies are sitting on cash and ready to invest. So really, that's been the story. And what we saw in India post COVID, your GDP was growing at almost 8% per annum. Your earnings were growing at almost 20% per annum for the four years after that. But somewhere towards end of twenty twenty four and 2025, you saw these growth rates come off. There were three, four reasons behind it. I think the first was we had general elections. So when elections happen, typically, all the entire government machinery comes to a halt. So infrastructure execution slowed down. Then you had some self inflicted goals where the central bank felt that the growth was just too strong. On the credit side, they felt the 16%, 18% growth is unsustainable.

11:48 So they really tightened liquidity and a lot of policy measures to bring down growth. And then to top it all, we had a mini war with Pakistan, and then we got caught on the wrong side of Trump tariffs. So all that really led to growth coming down to single digits, which was kind of unheard of in India that you're growing at such a low pace. But having said that, since the beginning of last year, the government really again focused on getting that growth back. So they cut indirect taxes, they cut direct taxes. Since then, the Central Bank has cut interest rates by over 100 basis points. And in light of the Trump tariffs, the government actually accelerated its negotiation with other countries, and they've signed five FTAs last year, including with The U. K, the EU, Australia, New Zealand. So a whole host of actions were done, and that's actually got growth back in. If you see the fourth quarter GDP numbers just came out, and real GDP growth was 7.8%.

12:45 All expectations on earnings are back to 15%, 16% levels. So I would say India started two thousand and six, 'twenty six on a very strong positive note. But having said that, when everything was looking good, we have the Middle East crisis. And as the chart here shows you, India is very exposed. We import almost 90% of our oil. In gas, while imports are less at about 50% to 60%, but a bulk of it used to come from the Middle East. So that's that was one stress point. But what people don't realize is that India also 17% of its exports went to the Middle East. And not just that, it's a huge base of employment for Indians. 9,000,000 Indians live there, and they repatriate almost $50,000,000,000 of money every year.

13:35 So structurally, you know, I mean, March, this happened, the sort of exposure you felt, and India was, you know, one of those riskiest countries. Fortunately, so far, the impact has been minimal. But to give a perspective, where are we looking at it if this war continues?

13:51 I think the first is the growth because India is really all about growth. And what we've seen is the moment this war started, you started seeing GDP downgrades. So we were looking at a 7.5% to 8% real GDP growth for 'twenty six. It's actually come down to 6.5%. But even at 6.5%, you're actually seeing India being the fastest growing large economy in the world. Coming to earnings growth. Surprisingly, there's really been absolutely no impact on earnings growth. And this has really caught us by surprise because when we speak with companies, there's absolutely no impact on demand. There were supply chain issues in March, but that's been offset. And most companies have actually passed on all the cost inflation, And it's very easily being absorbed. I think no one is crying about cost inflation.

14:43 So frankly, I would say that we are back on that 14%, 15%. It's still difficult to say if the war continues, how it will get impacted. But so far, the economy has held up very well. I think where the challenge is really on the currency, that the big hit has happened on the currency. And as you can see, it's a 10% depreciation just in the last year and about 15% if you go back to almost two over the last two years. Now surprisingly, this has happened despite the strong macros I

15:14 was talking about. In fact, India is sitting on almost $700,000,000,000 of ForEx reserves. But the reason is something very different. It's actually what India is seeing is a flood of money moving out. And I've got two charts for this. If you see the chart on the left, which is a very interesting one, this is foreign direct investments into India, which is money coming by private equity funds, global corporate setting up arms in India. And what used to be a steady 70,000,000,080 billion dollars of gross flows and 30,000,000,000 to $40,000,000,000 of net flows, the net flows has actually come down. The gross is still rising at $95,000,000,000 but net is negligible. What's really happening? And what's happened is simply that Indian markets were doing well. Prior to equity funds are finding great exit opportunities.

16:02 In fact, you had 200 IPOs over the last two years. It's not just that. Global multinational companies, which had 100% arms in India, used India's great valuations as an opportunity to sell some stake. To give you a perspective, HUNDai, which is the second largest car manufacturer, they've been there since the 1990s, they were 100% owned, and they went public to repatriate some money. Likewise, you've seen LG Electronics, the largest consumer durable company in India, are doing something similar. And a host of multinationals have actually sold some stakes. So we've actually seen a flood of outflows more because the markets have done so well. The chart on the right is what foreign portfolio investors have been doing. And here, too, this year, month, you're seeing about $5,000,000,000 flow out. Over the last year and a half, it's almost $45,000,000,000 Once again, in this case, India is really

16:57 being used as a great market to exit because there's good liquidity and invest elsewhere. So you know, it's really this big outflow which has caused the problem. My sense is that phase is behind

17:11 for two reasons. I think, one, the ownership of foreigners has come down, market valuations have corrected. But the second reason is that the Central Bank is finally stepping in. And over the last two weeks, they've announced a flood of policy measures to encourage investment back in, more on the bond market side, where they're actually anticipating almost $50,000,000,000 to come in shortly because of some changes, reforms on the tax structure, etcetera. So that's where we are on this side. But coming to the markets,

17:44 this is where it's something we've never seen. It's kind of a horror show, what we are seeing here. This is the performance of India versus other markets since the markets in India peaked in September 'twenty four. India has underperformed almost 68% in this period. A lot of it is because other emerging markets have done very well, but India itself has fallen by almost 16% to 18%, though the currency may account for most of this. But the fact is we've not seen this before. And this has also impacted the five year returns. When I was last here, India was right at the top, beating even The U. S. Markets. So one point five years and India's today, the mid caps are still done reasonably well over five years, but the broader market is actually underperforming the emerging markets.

18:39 But why has this happened?

18:42 There were two reasons. I think the first is when you speak with any foreign investor, they all said India is expensive. And that was the case because it was growing so well. Now I would say that has come off, both on an absolute and relative basis. If you see the chart on the right, the P multiples are today at 19x. This is what historically India's average has been in the 18 to 19 range. On the relative side, India has always traded at a premium to emerging markets. And if you see the chart on the left, this is the premium of the Indian PE multiple to emerging market PE multiples. India used to be at 60% to 70% premium. It went all the way to 120% premium, and it's back to the 60% to 70% premium levels. So I would say valuations have actually normalized.

19:29 Though having said that, if you speak with global investors today, what their view is that, yes, no, valuations

19:36 have normalized, but India used to be the fastest growing economy. Today, other emerging markets are growing faster. So why should I look at India? So there's a bit of neglect right now, which I think is also a great opportunity to look at India from this angle because India is really not the AI play. Yes, the second reason really comes down to AI. The fact is it's a one trick pony right now, and India, frankly, has no direct hardware or LLM models to play. And that's really the big reason that you've seen India being the best anti play that people are selling India to invest in other markets. But a lot is happening in India. And India itself is seeing a lot of investments in data centers, semiconductors, etcetera.

20:24 The only challenge is it's getting absolutely dwarfed by what's happening in The U. S. So when you say $130,000,000,000 it's less than what one Google is investing. But having said that, the ecosystem is robust. And if you see the chart on the left, this is a study which Stanford does every year and their latest one, which came out a month back, puts actually India among the top three markets, the third largest market in AI competitiveness. Where India is really scoring is that on the R and D and the talent pool. In fact, I was just reading, 26% of all AI work is happening in India.

21:09 For even engineers like NVIDIA, etcetera, almost 20% of their workforce, their development team is in India. So the talent pool is there. And my sense is it's a matter of time where you'll start seeing something also coming out in the markets.

21:25 Now the other fact about the markets, it's become a very interesting market that today, India is becoming a purely domestic driven market. In fact, if you see the chart on the right, this is ownership of foreign investors in the Indian markets. It's at a fifteen year low. They just own about less than 15% of the market. On the other hand, if you see the chart on the left, this is the flows coming in into Indian equities. The blue columns are going into the domestic mutual funds and institutions, and the gray column is what's happening with foreign institution investors. And you see the difference. Over the last five years, domestic institutions have seen almost $265,000,000,000 of flows. On the other hand, foreign institution investors in the last five years have actually seen negative flows. So really, it's the domestics which are now commanding the market.

22:18 And that's a very, very interesting trend because you're seeing this whole aspect that domestic investors believe India is a big growth story, a future story, and foreigners are really looking at it from a more shorter term where the big growth is currently. So coming to our own fund, for those who are not too familiar, we are very unique because we play in a market segment where few play, which is the small and mid cap segment. In fact, 70% of our portfolio is in the small cap space. And what we really have, as I mentioned, our core team members are very stable. We've all been together for almost fifteen years over fifteen years now. We've delivered a return of almost 12%. This is in sterling return.

23:04 If you convert it into INR returns, we'd be closer to 15% to 16% annualized return. So how do we really invest? I think being in India is a big advantage because we really play to our conviction. We are very bottom up. We run a concentrated portfolio, and we really don't look at what stock is in an index or not. So it's really a 93% of the active share. But from an investment philosophy point of view, our core thesis is India is a growth market. So you play the growth story, but we are very, very sensitive on quality of the business and the management quality we are buying. What we also do is our portfolio turnover is very low. It's less than 10%. But any business we get into our portfolio, our idea is to own it for at least three to five years. And what we've seen is that today, as I said, almost 57% of our portfolio, we own for well over five years.

24:01 Some key themes in our portfolio.

24:04 What I'd like to really highlight is, you you've seen these four themes, but what we really do is two things. One is virtually any company in our portfolio, despite being a small cap or a mid cap, are industry leaders or niches in this segment. So they really have that pricing power. And the second thing is what we're really looking for in our portfolio is that the business should be able to compound the earnings at 15% to 20% per annum for several years to come. So once in a portfolio, it's something which really derives your long term return. And if you see the themes, you take digitization, we own Apple, which is one of the largest and possibly the dominant player in the ad tech space. We own Car Trade, which is a leading online marketplace for auto sales, It gets about 150,000,000 unique visitors. They don't advertise because they virtually have a 95% market share in this segment.

25:02 The big theme is the manufacturing shifting out of China and India, the big gainer. And we are playing it through electronic manufacturing, pharmaceuticals, chemicals, textiles, auto ancillaries. Dixon, for one, is like the Fox corn of India. It's the largest manufacturer. It virtually manufactures phones for every Android manufacturer in India. It does TVs for Samsung, washing machines for Panasonic. It's really, really broadening its range. Consumption has always been an evergreen theme for us. But here, the portfolio has been seeing a lot of shifts. It's really moving more to the consumer discretionary side rather than the pure FMCG companies. But you'd be surprised to know most of you wouldn't have heard of Continental Coffee, but this is actually the largest manufacturer globally for instant coffee in the world.

25:52 I mean Nestle may be at the same size. But for a Tesco, all the private labels you'll see possibly here would have been manufactured by him. And then that pouch, they've just launched in India their own brand. So we've got a small sample of what they're branded brand in India. And Imami is actually, again, a very niche FMCG company. It focuses on the rural but at 70% gross margin. So you'll see two small products from them itself. This is what sells in rural India. And finally, we have domestic CapEx, which is where a lot of the incremental money is being deployed. Here, too, Skipper, it's a power sector plate, is the lowest cost manufacturer of transmission cars in the world. They've got an order book for the next three to five years.

26:38 TITAGAR is the largest manufacturer of railway wagons in India. They're also one of three manufacturers, metro coaches, etcetera. So likewise, the whole portfolio is really driven by very strong fundamentally strong companies, which we believe is really playing the India story. Coming to our portfolio valuations. I mean if you look at the table on top, two things. One is the valuation and the earnings growth. Earnings growth has never been so strong. It's above 30% over the next two years. But even if you adjust for about six outliers, which are coming off a low base, We are still seeing an earnings growth of 18.525% in the next two years. Last year, we actually delivered a growth of 21%, so much higher than if you saw the market growth of 6%, we were almost 21%.

27:30 So that's the quality of the portfolio we have. Our valuations are close to 20x multiples, which I would still say is on the higher end. We were earlier at 16 to 17 multiples. But I would say the growth is still is much stronger. And the table below gives the key holdings, and you'll find that a lot of them we will own for well over five years. Finally, the performance, I think relative to the market, we've done very well. Our absolute five year returns is also fairly strong. This is pound returns at about 61%. If I look at the INR return, it will be significantly higher. But even on a one year basis, though we are down about 2%, INR returns have been almost 9%. Actually, we really got hit by the currency, which has really, as I mentioned, it's really surprised us why it's depreciated so much. My sense is it's going to start appreciating from here onwards.

28:25 So what are the risks?

28:27 I would really feel that main risk is global, frankly. On the domestic side, I don't see too much. A lot is already in place to drive the growth. But one thing which really concerns me from a longer term perspective is employment generation. I did mention the demographics, but the fact is India is adding 8,000,000 people to the workforce every year. So you need to create these jobs. And where you're getting the jobs first, it was industrial automation, which was hitting manufacturing jobs And then you have now the AI, which is hitting services jobs as well. So from a long term, for the government, it's imperative that they keep that growth rate up, and that's why there's so much focus on growth and development. And finally, on the shorter term, this year is supposed to be an El Nino year, which means after five, six years, you may actually have a weak monsoon.

29:20 What it would do is possibly that it could divert government resources towards the rural market. May not impact growth much, but your fiscal, etcetera, could take a slight hit. So really, to sum up, I'd say, structurally, India's growth is very strong, and we are big believers that you may have a few hiccups like we did last year, but you're not sustained 14%, 15% earnings growth story. Middle East is an issue, but surprisingly, we've managed it very well, but we have to be very careful if it just goes on. I would say on the valuation side, it's now well in average levels. And my sense is it's a great year, a great time to be relooking at India. And I'm sure the moment this AI trade fades, India will be back in the limelight.

30:10 And I think we have a very strong portfolio, and we see keep seeing a lot of new opportunities come up. So I'll really end with there and leave you with this slide, which really gives you how India has actually performed over long periods. And this is despite currency depreciation and the sort of weakness we've seen in the last eighteen months. It's still been among the strongest performers. It looked much better a year back, but even now, the long term story really stays intact. So I'll really end there and leave it to Elizabeth for further questions.

30:53 Gaurav, of course, thank you so much for your absolutely fascinating presentation. And great thing about listening to Gaurav is that every time you hear him speak, you learn something else new. So I personally enjoyed that enormously. So thank you very much indeed. Now I'm sure that a lot of you will have questions for Gaurav and indeed perhaps for us on the board. So we'd be delighted to take those now, if anyone would like to.

31:34 Thanks for the presentation. You mentioned quite a few times the war in The Middle East and the effect that has in terms of oil imports, etcetera. Have you made any changes to the portfolio since February, particularly with regard to, say, electric vehicles, which might become more dominant in India? I don't think we've made any structural changes because of the oil side. One, we know as a strategy, we've never played global commodities because we've always felt that, that's not our area of expertise. We'd rather play stories which are we have more control over. But having said that, we've had actually a I mean, we've looked at all electric vehicles, and we've got a good four, five portfolio companies to play with. But I think we are just waiting for the right price.

32:29 The one we want to own is, I would say, quite expensive. So we've really identified which one we want to own in a portfolio, and it's more of on the two wheeler space. But I think we've made a lot of portfolio shuffles in terms of weights really in this environment. And we really restructured a lot of it on the weight. But on the electric or EV side, we possibly have one of the best auto ancillary companies in the country. It's a company called Sona. It's a good three plus percent weight for us. And it makes very critical components like differential gearboxes, which really sit under the chassis. For example, it's one of the leading suppliers to Tesla.

33:14 It's supplying to multiple platforms in Europe. I think there are about five or six brands and multiple models they are supplying for. Then they make also for the two wheeler, they make these traction motors, which are the starter motors for all these two wheelers. So to give you a perspective, we now owned it for about three or four years. And when we owned it, started it, 10% of the revenues were from the EV space. Today, it's, I think, close to 30% or 40%. In the order book, almost 70% to 80% is on the EV side. And they're just winning platforms upon platforms in terms of orders. And it's a very, very high R and D company. For example, to win the BS Tier one supplier to Tesla itself reflects how strong they are on R and D, especially on a product like differential, which sits under the where you sit, and it cannot make noise at all because of it's an EV. So that's the sort of that's one such. Likewise, we have another two auto and three companies who are also winning a lot of contracts on the EV space.

34:27 But I would say Sonar is one which really stands out. And I actually feel it's possibly one of the core businesses where you see India's core R and D strengths come out.

34:44 Yes. Excellent presentation, Gaurav. My question is regarding the softening of the Indian rupee. So you mentioned that you are seeing that it is going to be better placed in the future. It's likely to appreciate. I wonder what's behind that comment. And the background is that there's still sort of Trump still is there. He's going to be in office for another maybe couple of years or so, at least. That's one. I'm pointing to the trade imbalance and tariffs. And the second is the reduction in Indian IT services, which is a prominent export, as you already mentioned, impact of AI on that. Yes. Okay. So the first one, the rupee. Actually, the fact that the rupee is grossly undervalued today.

35:32 And as I mentioned earlier, the fall has been more due to capital flows rather than a structural current account issue because the current account the numbers came out for the last year just last week, and your current account deficit is at record 0.6%. So it used to be 2%, 3%. So there's a lot of balance there. But till now, the Central Bank was not intervening in currency because their policy has always been, we will reduce the volatility, but we will not change the direction. But what you've actually seen is that, you know, the sharp depreciation, now it's hurting. So they've done multiple policy changes. I think last week itself, India had they use it as an opportunity to reform. I think the big reform that's happened is for the bond market.

36:21 For foreign investors, India charged a 20% withholding tax on interest, plus they charged a 12.5% capital gains tax. So they removed that. Now India has already got included in the JPMorgan and the Bloomberg bond indices. So this itself is going to lead to almost a $50,000,000,000 sort of inflow just by this one measure. Then they've done two, three other measures to curb excessive speculation by Indian banks, etcetera, on the forex market in terms of the sort of open exposure, etcetera, you can have. And the third aspect is the government itself has also chipped in because India is a big importer of gold. It's largely retail imports because gold is an asset which every Indian household wants to own. So here, they've doubled the customs duty on gold. I think it's gone up quite sharply to curb the gold imports. So that also leads to a less drainage.

37:15 So my sense is, you know, the government has given its indication, and you're already seeing the currency appreciate a bit. So it's really giving the right signal that, look, enough is enough. And the fact is it is undervalued. Sorry, the second question is on the IT services side. Now this is a very big debate, frankly. And if you ask me, we've spent the maximum amount of time in the last six months in trying to figure out what's happening. And frankly, there are two views. If you speak with any Indian IT company, they say nothing changes. We are finally we are just implementers, this AI is just one more tool. And for any large corporate, they need domain specialists. And who are the domain specialists? It's us. So they will have to go through us. The only change that happens is the pricing model changes. Now it's become outcome based rather than a per unit of labor, which is happening.

38:13 And there is some logic to what they're saying is because they're still winning five- and ten year contracts from U. S. Enterprises. So the business is still flowing through. And we own two IT services companies. One is seeing earnings growth at 20%, the other is growing at 35%. So there's been no damage to business. And what should interest you is that the CEOs of these two companies we meet, we own, they're all sitting in The U. S. They're not sitting in India. So they're not out of sync with what's happening. But having said that, when you look at an overseas investor, their view is very different. For them, it's that there is no terminal value to this business. At some point of time, the way artificial investing, the pace at which it's changing is unprecedented. And at some point of time, the business will totally disappear. So from their point of view, you play the AI story, sell the IT software services story. And these stocks have actually already derated almost 30%.

39:11 So it's actually two dramatically different views. But fortunately for us, the two IT services companies we are playing are the cutting edge on AI. In fact, they have workforce of 25,000 people each, and they've been able to pivot very fast. The larger companies, TCS or Infosys, which have 500,000,600,000 people, they're doing a lot of core infrastructure management businesses, which is more difficult to switch from, and that can be more at stress. So that's where we are. I think only time will tell. But I would say a lot of effort is going in. And I think the whole issue is, yes, we also keep seeing I mean, we also keep finding out what's happening, etcetera. But time will tell, but there's a very I mean, if you speak to any IT services company, they say nothing changes. You need domain specialist, and we are the domain specialist, and all the companies are finally coming to us.

40:13 Certainly enjoyed your presentation, so thank you for that. My question is about the transition from fossil fuel dependency towards hydrogen. And I wondered if the portfolio included companies which were engaged in that space. There's quite a I know from discussions at one point with Reliance India, they were looking at building a corridor across India to provide energy to industrial sectors fueled by a hydrogen pipeline. So I just wondered what sort of thoughts you had on that sector, which is has its ups and downs in Europe, it goes forwards and backwards. It's on a backward trajectory. And a related question in a way, what exposure does the portfolio have to private companies as opposed to public quoted companies? Okay.

41:05 So on the hydrogen side, I think you're right that this is one area where India is possibly at the forefront on the R and D side. And the big players are putting in investments, so like Reliance, the Adani Group, because they are banking a lot that hydrogen could be a game changer for India. But the fact is, as of now, there's been no breakthrough on it being economically viable. So you've had pilot plants, etcetera, work. But I would say there's no real core. I mean, Reliance is such a big conglomerate that you can't play the hydrogen story as yet. But having said that, a lot is happening on the hydrogen side, and India is possibly ahead of the curve for a change on R and D in this space. Where there's a lot of opportunity which is happening is in the green energy place, the renewable side of it.

41:55 But we've looked at a lot of players, and we just feel there's too much capacity coming on and there are no entry barriers, really. So we've stayed out of that. Sorry, what was the second part of it? Private companies. Yes. So on private companies, we have we can take exposure in private companies. But what we found is two things. One, in India, the private company market is even more competitive than the public side of it. Every private equity fund globally is in India with big pockets, a lot of domestic funds, a lot of individuals, huge angel network, that you actually find that the valuations they command is very high. And a lot of them have listed. I mentioned 200 companies listing last year. Lot of them were private ones, PE funded.

42:41 And almost 70% have seen their valuations come off in the six months post that. The second issue, and we've looked at some companies in detail, is that the effort one has to put in on a private company. Either you have to be a specialist in that area or just say it's not your cup of tea because you have to the risk levels are much higher because management credibility, how do you assess that. So we've looked at it, and then we realized that if you're not getting a deep value, then why are you wasting your time on it? So that's the thing. And what I see with most PE funds, etcetera, they will invest in five companies in the same space so that if one of them succeeds, they'll make them money. That's not applicable for us, that we'll have to pick that one, and that becomes slightly more difficult.

43:34 Thank you. Thanks, Gaurav. I'm just dragging you back to the threat of AI. Unfortunately, you seem to keep coming back to that. I think the IT services sort of discussion that you articulated makes sense. People are obviously sitting on the fence, and there are two sides to it. But my concern is that a lot of development over the last several decades in India has been around the offshoring of administrative and back offices. I don't see any change or hear of any change happening. How are people viewing that threat? Because my concern is that when change takes place, it's going to happen very, very fast, which could lead to quite considerable middle class unemployment. The change is happening. And I'll give you an example. The Microsoft head was in India. This is just last week, and I was reading an interview.

44:23 And he was saying that the top three IT services companies itself are using 300,000 copilot licenses. So they've pivoted very fast. My view on IT services is that's one segment of India that there's always change in every five, six years. So the mindset of these companies is always to pivot as fast as possible. I'll again come back. The ones who would possibly find it slightly more difficult is the very large ones because they are 500,000,600,000 employees, and that's slightly difficult. The smaller ones are more nimble, and which is what we are playing. But I think the pivot has happened. It's and it's not just IT services. You know, some of the companies we meet I was talking about Apple, etcetera. You know, the sort of stuff they're doing on the AI side. I mentioned two companies, Kartraed and Apple. The work they've done already done. You know, I remember we met Apple in November last year in Delhi.

45:18 And I was zapped. I said, look, we seem to be having an AI company. You know, he was just demonstrating some 100 AI agents. They just had, I think, 300 workforces. And each, he was showing what was happening. The sort of presentation he was I came back, I didn't know India had an AI play. That's what's happening. So I think the companies are really pivoting fast. And, you know, I just mentioned one thing. The 25% of all AI work is happening in India. And that's data from I mean, even Anthropic was saying that this is an interview, again, I read. They were saying that 20% I think it was 28 or 29% of Claude licenses are being used in India. So that's what's happening.

46:04 But it's going under the table because you're not seeing it. Today, the whole story is on some of the frontier models, which are led by the big global players or the or what's happening in the infrastructure side of it. But I would say underlying it, a lot is happening. But again, it still comes down to the what challenges has this pace of change. I don't think it's unprecedented, the pace of change. So you really don't know whether they can pivot in time or something else will happen. But if you see the big global players, they are also setting up services companies now because finally, you need someone to implement also. I've got two questions for the board.

46:52 On the 01/01/2025, the fund according to the annual report was worth EUR 180,000,000. On the 12/31/2025, it's worth EUR 126,000,000 after you bought back GBP 33,000,000 worth of shares. At the end of April twenty twenty six, it's EUR 116,000,000, which is another EUR10 million reduction. At this rate of retraction, does it have a future as a standalone fund? That's question number one. My second question is, you already have a revenue loss of almost EUR 2,000,000 and yet you're going to pay a dividend of 2%, which according to my calculation is going to cost you another EUR 2,000,000.

47:43 That EUR 2,000,000 plus the revenue loss has got to come out of capital. So you're already by paying a dividend, effectively reducing the fund further. Is that the right decision? You. Sorry. Thank you very much for your question. I think you know that we had extraordinary general meeting earlier on this year where we announced where we asked shareholders to vote on altering the redemption facility, which as you know, probably you know, was introduced in 2020. And at the time, I think was the right thing to have done.

48:31 But what we did see as a consequence of the redemption facility was and I hope that nobody in the room will mind me saying this, is that we found that activist investors were basically round tripping us. So for our long term shareholders, that wasn't really acting in their best interests. Activist investors would buy shares in the company six months or so before the redemption facility came up at the end of the year and then they would sell all their shares into the redemption, which has, as you rightly point out, reduced the size of the company over time. At the same time, of course, investment companies have generally been selling at discounts in the marketplace. So we've also been buying back shares to support the share price and to avoid the discount getting too wide.

49:24 So when we thought about this at the beginning of the year and thought what can we do, because I, sitting here on the board, not surprisingly, and I think my fellow board members also agree that we think this is a company with a very unique investment proposition. There isn't another investment trust investing in small and mid cap India shares, and I don't think there are very many open ended companies doing the same thing. So we sort of thought, what can we do that will bolster the company, allow it to continue to exist, to make it interesting for shareholders and to reward shareholders for their patience. And I'm sure you're aware that a number of investment trusts have introduced dividends over time. It's my belief that we may see as India matures as a market and governance improves, it's not that governance is bad, but as governance changes, that more Indian companies will begin to pay dividends as well.

50:31 So hopefully, we'll see that support our efforts to reward shareholders for their patience by paying a small dividend. It's not going to be a huge dividend. It's going to be a small dividend to start out with to start out. And also the altering the redemption facility to be a conditional upon performance. So if we perform in line or better than the benchmark, there won't be a redemption triggered in five years. So that's the reason for the plans. We think the company has a very good reason to exist. You've heard Gaurav talking about it. We know that people, retail investors in particular, are very interested in the strategy. And we think it's definitely worth doing what we can to help shareholders continue to find it interesting and to reward shareholders for their patience.

51:24 So I hope that sort of answers your question. Sorry, it answers your logic in answering my question. It doesn't necessarily mean that I agree with the strategy. Well, thank you very much for the question nonetheless. Any other are there any other questions? Lucy, we've got some online. Do you want to? Yes. So we have a couple of a couple online. Do you expect domestic Indian investors to continue offsetting foreign institutional investor outflows? Well, I've also questioned it, but the fact that what we are seeing and when we speak with distributors and asset management companies who are seeing the inflows, they are saying it's a very structural change that happened where people are really historically, Indians have really invested in gold and real estate.

52:36 And equity investments is just 6% of their allocations. And you're seeing this shift happening where people from the salaries are putting a small amount, maybe GBP $20.30 every year through systematic investment plans. And most of this is coming from small town India. It's really not the top twenty, thirty cities. So that's a bit of a structural aspect of it. But what is enabling this structural change is the digital revolution I talked about. It becomes so easy to onboard an investor, it's so easy for them to transfer wealth and a lot of education. So the really inflection happened during COVID when people had time and they have these apps.

53:22 And so it's really a very structural shift that's happening that and we've monitored it for the last five years. Every month, the inflows have been increasing. And today, it's trending at almost $3,500,000,000 a month. And these are through over 100,000,000 accounts. It's not like a few concentrated bets that's happening. So that seems very structural. And we always worry that what happens if markets collapse. And India has not done well for the last eighteen months. So an investor who put in this money had started it through these systematic plans even three years back has actually not made much money. But if you see what happened in March, I think the Indian markets fell about 10%. They're the highest ever inflows in that month. So it's a very different mindset you're seeing of Indian investors.

54:13 And it's really not the volatile bit is the high net worth individuals, etcetera, who pull out and pull in. This is very, very steady systematic flow which is happening. We were also speaking with one of the largest wealth management companies and he was saying what's also happening is earlier people parked their money in fixed deposits in banks because they didn't understand finance. So the losers are the banks who are losing some fixed deposits, which is now moving a bit into equity side of it. But so far, we've not seen any signs of stress. For the foreign investors, it's great because they're finding such easy exit that there's so much liquidity. But my sense is it will continue. Mean, I've been for the last year saying, this is a big risk, this is a big risk, but it's not happened. And the monthly numbers just keep increasing. And the great part is it's small ticket sizes. It's not big flows.

55:07 So that's where we are. But it's always a worry that $200 plus billion in five years and from small investors, but it's continuing. Another one for you, Gaurav. Small cap multiples are very elevated relative to large caps, and margins across the index are at or about record highs. With retail flows fading, do you see any risk to the strategy from potential intermarket rotation into large caps? I think what's happened is the small caps have done very well because of earnings growth. But the fact is the large today, small caps are trading at a much higher multiple than large caps. And one of the reasons behind this is that foreign investors have been selling, and they are largely in the large cap space. So there's a valuation gap has gone up. So if you've seen so much outflows, a bulk of it is happening in the large cap. So you've seen this wide spread between the performance of mid and small cap versus large caps.

56:13 My sense is when the foreign investors come back in, it will again be driven by the large cap. So you may have this phase of the normalization happening where large caps do exceptionally well and mid caps may not. How I look at it is, look, we are really looking at it. We are not trying to take macro calls. What we are really trying to say is get a great portfolio of great businesses where earnings can keep compounding. And you may have volatility, which you've seen in our own fund. But over the long term, you will get that as long as the earnings grow, you'll get that compounding. So something is not in our hands, frankly. But if you ask me, you will have a phase where large caps will catch up. You can't have a I think the gap is almost 20% in this last eighteen and a month, which is which will definitely narrow because the large caps definitely are, I would say, on valuation that's very, very attractive.

57:14 There will, of course, be an opportunity to ask Qurab and indeed, Sohrab and Shahil and the Board any questions any further questions you might have over lunch. But I think it's probably now time that we turn to the formal business of the meeting. And the reporting accounts have been in your hands for the statutory period. And therefore, with your permission, we'll take the notice of the Annual General Meeting dated the 05/18/2026 as read. In addition, unless anyone has any objections, I propose that we take each resolution as set out in the same notice of meeting as read. All right, thank you. May I remind you that only registered shareholders, duly authorized corporate representatives or registered proxies may vote on resolutions or ask a question. Well, that's a bit late, isn't it, for that? A schedule setting out a summary of the proxy votes received for each resolution is available from the Secretary.

58:15 The proxy totals will also be announced to the London Stock Exchange and will be available on the company's website following the meeting. So there are eight ordinary resolutions that are proposed. And in order that an ordinary resolution be passed, a simple majority of the total number of votes cast for and against the resolution is required. So let me start with Resolution one. I propose that Resolution one, as set out in full in the notice of Annual General Meeting dated the 05/18/2026, that the annual report and the audited consolidated financial statements for the period ended the 12/31/2025 and the report of the directors and the auditors therein be received and adopted.

59:05 I propose that Resolution two, as set out in full in the notice of the Annual General Meeting, that Deloitte LLP be reappointed as auditors of the company and that the directors be authorized to fix the remuneration of the auditor? And then Resolution three, I propose Resolution three set out in full in the notice of the Annual General Meeting that the Director's Remuneration Report for the period ended the 12/31/2025 contained within the Annual Report and the audited consolidated financial statements of the company be approved. Resolution four, I propose Resolution four as set out in full in the notice of the Annual General Meeting that Elizabeth Scott be reelected as the Director of the company.

59:53 Resolution five, that Patrick Firth be reelected as the Director of the company. I propose Resolution six that LIMITAK MIN be reelected as a Director of the company. And Resolution seven, I propose that Nick Timberlake be elected as a Director of the company. I propose Resolution eight as set out in full in the notice of Annual General Meeting dated the 05/18/2026 that the directors be authorized to allot relevant securities. And now I move on to the special resolutions that are being proposed. And in order that a special resolution be passed, not less than a 75% majority of the total number of votes cast for and against the resolution is required.

1:00:43 So Resolution nine, I propose that Resolution nine is a special resolution as set out in full in the notice of the Annual General Meeting that the company be authorized to allot shares up to a maximum of 20% in the company and grant right to subscribe. And I propose Resolution 10 as a special resolution that the company be authorized to make market acquisitions of up to 14.99% of its own issued share capital subject to certain conditions. And I think at this point, Gervais, would you like to collect any proxy votes that haven't been collected? Yes.

1:01:33 Gervais is just going to put down his computer and gather them up. Thank you very much indeed. And so while Gervais is gathering up the poll cards, I would of course like to thank you very much indeed for joining us here today. I'd like to declare the meeting closed. But I'd also like to thank each advisers for allowing us to use this splendid room with an extraordinary view, although sadly the rain doesn't show it off at its best. But don't forget that down there is a whole IT infrastructure going on, no doubt working closely with our Indian colleagues and friends. And thank you all so much for taking the time to come today.

1:02:19 Thank you for your continued support of INDIA CAPITAL GROWTH FUND. I know it's not always easy. I hope you'll join us for something to eat. And please do take advantage of your time with us to chat to us and the investment team and ask any questions that you may have. So thank you again for joining us today.