InstallatorGruppen (Copenhagen:IG) — Gateway to the Real India

0:00 Good morning and welcome to the INDIA CAPITAL GROWTH FUND LIMITED investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and they can be submitted at any time by the Q and A tab situated in the right corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question received in the meeting itself, but the company can review all the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to make the following poll. I'd now like to hand you over to Lucy Draper. Good morning. Thank you, Alexandra, and thank you everyone for joining us this morning. As I'm sure you're are aware, the Board of INDIA CAPITAL GROWTH implemented a redemption facility in 2020, enabling shareholders to redeem their holding every two years in exchange for cash. The next redemption point is on November 28 and is open to all investors that are held shares at 6PM on August 29, the record date. It's been decided an exit discount of 3% per redemption share.

0:56 The board has stated that they will retain their entire holding and encourage shareholders to do the same. I'd also like to highlight that the redemption facility has no impact on your ability to trade your shares in the company as normal. But now on to the business of today, I'll pass over principal adviser to INDIA CAPITAL GROWTH FUND for an update on the trust, which will shortly celebrate its twenty year anniversary. Over to you, Gaurav. Great. Thank you, Lucy. Just a a way of introduction. You know, I've been associated with the Indian equity markets for the last thirty years. I've been managing the product for over a decade now. I'm based in Mumbai in India.

1:42 So, really, what I'll do is, you know, for those who are not too familiar about the fund, it's it invests only in the Indian equity markets. And now we've actually this month, we closed 20 the twenty year track record. What's really very unique about the fund is that it is it invests only in the mid and small cap segment of the market, very bottom up. In fact, 88% of our shares are off the benchmark itself, and 67% of the portfolio is actually in small cap companies. But what we really do is we really play the trust structure. So what we really buy is businesses for a very long term. So every company we look at, we would like owning for over five years. And today, over 60% of our portfolio, we've actually owned for over over five years.

2:29 What I'll do is really over the next twenty five, thirty minutes, take you through what's happening in India, the current environment, what's happening in the equity markets, and about the product and portfolio itself. So, really, about India, I think the story about India is that it's all really about growth. Today, it's actually the fourth largest economy. That's $4,000,000,000,000, and it's really been compounding at almost 9% per annum on nominal GDP terms. And every five years, you see that its ranking continues to increase. I think the story is bigger on on the outlook where actually you're actually looking at a real GDP growth of six to 7% per annum going into several years.

3:14 In fact, for the government for the next two decades, they're looking at a 7% real GDP growth. I think in the next three years itself, it'll become the third largest economy. But I really there are I would say there are three factors which makes everyone believe that, you know, what we are talking about is is a lot of confidence behind that. And I would say the first is really demographics. And the fact is that India today is the largest populated country in the world. It's but it's very young. The median age is about 28 or 29. And you what said that in the next decade, in 25% of the global incremental workforce will be coming from India. So what it does is it ensures that, you know, there's always this consumption cycle. And because of the large population, they're always in investment mode. So this demographics is really creating this investment and perpetual cycle of investment and consumption.

4:11 The second factor where there is confidence is that the economy has already seen a very big transformation. I would say two factors behind this. The first is we've had political stability. So there's been policy continuity, and this is the the third term of the Modi led government. The first term was all about reforms, and the last, I would say, seven, eight years is all about development. So two things have happened here. If you see the CapEx side of it, the government has really trebled its infrastructure spend in the last five years. And the second aspect they've done is they've provided a lot of incentives for the private sector to invest. So you really and, you know, that's really been playing out over the last decade now, this investment side of of the business.

4:58 And the third factor that's really happened is that India has been a big gainer of the digital revolution. And I would say India today has created one of the best digital public digital infrastructures globally. And it really started about a decade back when, I mean, today, UK talks about creating a digital identity, but India did it in 2015. And today, 1,400,000,000 people have a digital identity, which really is used today as a KYC. And with that, you know, the government actually opened banks opened almost 500 accounts to a section of society which was unbankable simply because the cost of opening accounts was very expensive. But today, because it's used as a KYC, you know, every household has a bank account with an identity, and then the governments launch various apps on top of it. What has done is a lot of efficiencies.

5:50 To give example that all subsidies of the government go straight into bank accounts to the recipients, so zero leakages. You have a payment gateway by the owned by the government, is free. Last month, they did 20,000,000,000 transactions. It's really 50% of global transactions. One can go on and on about this, but what has done is created a lot of efficiencies in the system, both for the private sector and the government, and it's really bridged the gap between rural and urban in India. So really, that's, I would say, the transformation that's happened. And so say if you see the last decade, your infrastructure has doubled across all asset categories, be it airports, metros, and cities, etcetera. Your consumption is already a big market, and you can see that in an automobile, we are the third largest market. In cell phone in phones, we are the second largest.

6:41 But really what's most interesting is one area where is on the digital side, where today India is the largest consumer of data in the world. It consumes 32 GB per month per person. Even The US is 20 to 25 GB. So you can imagine India has really become a very data rich country, and that's the structural transformation we've seen in India. Having said that, where are we today? With all these changes, we saw post COVID. The GDP growth had been trending at over 9% per annum. This is the real GDP growth. Normally, it was even higher. And that also flowed into corporate earnings growth, which were actually moving at over 20% per annum. But last year, we've actually seen this GDP come down to six and a half percent.

7:30 Now from a 9% going down to 6.5% is really a a big slowdown in growth, And that actually got reflected in the corporate earnings growth also, which came came down to low single digits. This caught people by surprise, though there were two, three factors behind this. The first was we did have elections in May last year. Typically, when elections happen, you know, the entire government machinery comes to a standstill. And for six months, you know, the investment cycle kind of stops. Second reason was, I would say, a bit self inflicted because the central bank itself was very worried about credit growth being too high at 16%. So they really tightened liquidity in the system and put in a lot of regulatory measures to prevent lending to some of the risky asset classes like unsecured lending, etcetera.

8:21 And the third was inflation, which actually impacted rural growth. But finally, I think to top it all was geopolitics. And with Trump coming on board and a mini India Pakistan war, it led led to a lot of uncertainty among the corporate sector on the investment side. But I would say a lot has happened since then, and this new government, once they came back on board again, it was really going all out to revive and accelerate growth in the system. So they've done multiple things both on the fiscal side and the monetary side. So it really started with the budget in Feb February where they brought down income tax rate for individuals substantially.

9:07 They again accelerated the CapEx spend and the budget spending. This was followed by the central bank, which actually unwound all the liquidity tightening measures. But at the same time, they cut interest rates sharply by about a 100 basis points, catching the market by surprise. But more recently in the in September, the government came up with its next leg of reforms of indirect taxes, where they sharply brought down indirect tax rates. In fact, two tax slabs, were in the 2812% tax slab were done away with, and most products in the '28 came to an 18% tax slab, and those in the 18 came to a 5% tax slab. So across the board, you saw a reduction of 10 to 12% in prices, and you're seeing the benefits really come into play.

9:58 Now on the GDP side itself, if you see the chart on on top, it bottomed out at 5.6% in the second quarter of last year, and it's now in the last quarter, it was up back to 7.8%. It's not yet translated into corporate tax growth, But what we've seen post these reduction in in indirect taxes, in October, if you see the sort of data coming out, automobile sales were the highest ever. They were up 18%. What data we're getting from the retail trade is that the festival season saw almost a 40% growth growth in sales. So my sense is this current quarter will possibly be the best quarter we've seen in the last two years. And also on the tax collection, despite almost 400 items in tax reduction of eight to 10%, you've seen an increase in the indirect tax rates, which of collections, which reflect that, you know, the the big bounce back in in the economy.

10:54 So my sense is that, you know, there are three legs to growth in India. The first is the infrastructure spending, which is actually going at a very strong pace. In fact, the government CapEx in the first half of the year is up 40%. The second is consumption growth. And with all these tax cuts, I think we are actually back on consumption is is back on track. And the third is the corporate CapEx, which has been weak. Now if you see the chart below, these are the projects announced over the for the next five years versus the project announcements over the previous five years. The projects announced on paper are almost up two times. It's just that it's a lot of it is not being seen in activity on the ground. And one of the reasons is, I think, demand uncertainty, which I think has has has has got a lot more clarification.

11:45 But the other is is really what's happening on geopolitics, especially the Trump tariffs. And I think that's where India has been caught off guard, that India was really expecting to be one of the biggest gainers once Trump came on board because mister Modi had a very good relation with Trump. And in fact, India was one of the first countries to start negotiations on the trade agreement, Modi being among the first leaders to visit Trump. But having said that, you know, from expecting to be the best, we've actually been slapped with the highest tariffs at 50%. This does impact India even though it's more of a domestic economy, but US is our largest trade partner. Having said that, on the actual impact, almost 50% of the products, the key products which matter, like pharmaceutical exports, electronic exports, auto ancillaries, they're really out of the tariff ambit.

12:40 But what's happened is the high labor intensive sectors like textiles, gems, and jewelry have have taken a big hit. Now when we speak with the industry and what we read in the papers, the general consensus view is that it's it's a matter of time. It's very imminent that the these tariffs will get reversed. And so, you know, even the government, some of the textile companies we've spoken with, the government has actually announced no incentives for them because they're saying that, you know, it's just a matter of time when these get reversed. So we don't wanna do anything and then again take those measures back. I this think can be a slight kicker once that happens, but it's really the only dampening factor today. Otherwise, I would say there are a lot of tailwinds. The macros in India has never looked better.

13:27 Fiscal deficit's been coming down. Inflation is that close to all time lows. Forex reserves today have been trending at $700,000,000,000, which is almost eleven months of import cover. And even the current account deficit, despite high oil imports, is structurally on a lower lower level. Even if you look at the corporate side, balance sheets have never been stronger. So I'd really say if I, I would say that, you know, the economy is now at an inflection point where the earnings trajectory is really moving from a single digit, which was there last year, back to, I would say, double digits. Now coming to the markets, if I look spoke to you about a year back, you know, India was the best performing market. It was actually matching The US markets.

14:15 But this last year has really been one of consolidation. In fact, on a relative basis, India is the worst market. There's been performance is flat. It's just the other emerging markets have run up. But the three year view, India still done reasonably well, especially the small and mid cap segment of segment of the market. Now what's really happened is foreign investors have really when we speak with any investor, the prime argument we got was, yes, India is doing well, but it's expensive. And there were two aspects to this. The first is if you see the chart on the left, this is the premium of India versus emerging markets. India typically always traded at a premium of 60%, but last year it had actually gone up almost to a 120% premium.

15:06 Now that has normalized for two reasons. One, India's market's been flat, and emerging markets have run up. So I would say on the premium side, the relative valuations actually come below bit of historical average. But the absolute valuations still remain high, and one of the reasons, despite the market being flattened, that you had earnings downgrades last year. But here too, you know, the gap between India and the rest has actually come down, rest of the emerging markets. In fact, India's valuations were as high as The US about six months back. So I would say the valuations has come off a bit. And at least on a relative basis, the argument now stands that India is favorably placed.

15:53 Coming to but the big change we see in India is really what's happening on the underlying nature of the market. And today, India has become a market driven by domestic in investors. And it's a very interesting chart which is there on the right with the the blue bars show the money flowing into domestic institutions, primarily the mutual funds. Over the last five years, you're seeing almost $200,000,000,000 have come into the into the domestic institutions. In contrast, the foreign investors of ACCI over the last five years pulled out almost 8,000,000,000. So and the reason, as I mentioned, foreigners find India expensive, but the domestics are seeing a lot of flows. And the result is that the foreign ownership of Indian equities is at record lows. It's just 16%, and most institutions we speak with are underweight India.

16:47 Now here, it's a very interesting trend that's happened is that the result of these flows is, again, a large part due to the digitization of the demographics we talk about. The digitization has led to a lot of small retail investors from smaller towns who typically participated invested in real estate or gold have now started slowly investing in equity mutual funds. And it's also because it's a much younger population, and this chart's showing a very interesting trend. This is the what is called systematic investment flows into domestic mutual funds. Then this is data over the last six, seven years.

17:34 That what we are seeing is a monthly inflows, which used to be a billion dollars a month, today trending at 3 to $4,000,000,000 a month. These are about a 100,000,000 investors putting in about 20 to £30 every month into a scheme of a mutual fund. So, structurally, we are seeing a shift in the Indian markets where the retail investors are finally participating in the market. And these are typically investors who are from tier three and four towns. So what's done is that's done is that it's a very liquid market, and India has become a very vibrant market for IPOs. In fact, a third of all IPOs globally are happening in India. Last year, about $20,000,000,000 were raised through IPOs. This year also, it's expected to cross $20,000,000,000.

18:20 But it's not just new offering by by by companies, but it's also following offerings by existing companies. And for the first time, we are seeing multinationals, you know, listing on the Indian exchange. For example, in this last one year, we've seen Hyundai, which is the second largest auto company in India, go public. We've seen LG Electronics go public. So the length breadth of companies listing in the Indian markets have improved dramatically. And and if if you you look at data, there's sort of there are almost 200 companies with the filed documents with the regulator for going public. So the trend is really increasing. But what it's really done is it's widened the depth depth of the market, and it's really ensured that balance sheets of corporate India is very strong.

19:13 So it's a very positive development, and it's really absorbed all the surplus capital which is come coming into the Indian equity market. So it's keeping the valuations in some some in check also. So really to summarize on the Indian economy, what I'd really say is that, structurally, the long term story remains very strong. I think a lot of initiatives have happened to accelerate the growth, and you're already seeing the inflection happen. And the markets itself have consolidated, so the relative valuation now now are no longer on on the excessive side of it. So coming to how are we trying to manage this in this environment, and just as a bit on a investment philosophy, you know, our philosophy is very clear that, you know, we will buy high quality businesses.

20:07 And for us, it means buying for us, quality is the first test is on the management side because, you know, we play in the small cap segment of the market. So management credibility is key. On the business, we are always looking at business which are scalable. But most important, we buy businesses which are generating free cash and have a threshold return on capital employed, which is much above the cost of capital. What we've done is we build very strong processes, and the processes are really driven so that we don't make mistakes. So, you know, we we have our own universe which excludes any company where we find we have no edge or their government's issues, etcetera. But most importantly, our philosophy is very simple. You know? You pay the India growth story, pay the compounding story, and we buy everything with an intent to hold it at least for five years.

21:03 So I I would say we try and keep it as simple as possible. Our belief is that, you know, India is a growth story, and you just play and ride this growth without making too many mistakes. So how have we built our portfolio? And the fact is our portfolio has a a very high growth bias. And if, you know, here I bucket it into four categories, but the core of our portfolio lies in the category what we call our consistent compounders. Several of these companies we won for over a decade, and these are businesses where we are seeing earnings grow at least 15 to 20% per annum. For example, PI Industries, which is right on top, it's an agrochemical company. We won it for over a decade now. In In this period, its earnings has compounded at about 27% per annum.

21:52 And since we bought it, we were among the first investors in the company. And, you know, it's, I think, up 17 x for us over this over this period. Like, I bought Krishna, it's a a tires company. It makes, know, tires for tractors, heavy machinery. Nine 80% of his business is exports, And, you know, it's it's it's a big player in the European market, big player in The US markets, and off wheat also in the domestic market. For a tire company, it earns margins of about 28%. So that's the sort of strength of our business. We again owned it for a decade, and it's also compounded at over 15% for us. Where we are buying new companies are more in the newer generation, high growth segments.

22:38 And, again, these are businesses which we see almost 30 to 40% earnings growth for several years. So what I'd really like to highlight is that while we play in the small cap segment, a lot of companies we own are really leaders in their sec in their in their categories and have very strong fundamentals and financials, which give us the confidence of holding them for a long long term. What we've also tried bracketing our companies into where we see the big India India themes. And, frankly, today, India's every sector really has a story of its own. I the think only area where we find that India has no place is on the AI side. But broadly, I would say that, you know, we have a lot of companies in digital space, but all of them are are positive positive cash flow generating business, getting operating leverage.

23:29 China Plus One is a big team, and we've seen it through an electronic manufacturing company, like pharmaceutical and chemical companies, auto ancillaries. Consumption has always been our biggest theme. But here, we've seen a fair amount of changes from pure staple companies. We really graduated more towards discretionary companies largely because the wealth effect that's happening in India. And where where we've been deploying a lot of our capital incrementally is on the domestic CapEx side and largely because we're seeing a big in investment play happening in India. So that's really where a lot of incremental capital is go is going. On a portfolio activity, if you see, as I mentioned, you know, we really don't buy too many new companies. But when we do, we we really hold it for a long term. So new portfolio entries and exits over the last one year is just about four to five.

24:24 But we do a lot of weight trimming based on the volatility in the markets and how stocks have done. So play a lot more on the weights of existing companies, but new entrants and exits typically are just three to five in in a in a year. This on the portfolio, as you can see, 67% is small caps at this slide on the bottom left. Our largest weights are in staples and I mean, it's in consumer and financials together would be about 40%, but the rest is really all were just individual stock driven. If you look at the table on the top, this gives our valuation and earnings growth. Now our earnings growth, as you can see, you know, the next two years is very high, and it's really reflecting of the growth we're talking about.

25:13 The previous year was actually negative for the first time, but it was really due to some cement companies and financials. The financials took excess provisioning and which is why the bounce back is happening in the current year. Valuations are at about 23 times. If I go back five years, this would have been 16 to 17 times. So the markets have rerated, but I I would say the growth going forward is also much higher than we've seen in the past where the growth used to be about 16 to 17%. On our performance, the last year has been weak. We are down about 4%. Though a lot of it is due to the currency, which has depreciated about 8% versus the pound. The if you see the three year numbers, we're still up about 41%.

26:01 We've handsomely outperformed the MSCI India index, but against the mid cap index, we've we've underperformed. I would say this is largely because of our focus a lot on the quality side of the business. So in a in a rising market, we may tend to underperform as we are low on the risk side of it. And before I end, I thought, you know, looking at India from a long term perspective, India has actually been, even going back, been one of the best performing markets over the last ten years. It's possibly become the closest to The US markets. And even on a twenty year period, you know, the market itself has compounded at over 11% in in dollar terms.

26:48 And we also if you look at our performance since I've been managing the funds since 2011, we've also compounded at almost 13 and a half percent over over this period. The reason behind this is very simple that, you know, the nominal GDP growth itself for India over this last twenty years has been almost 999%. My own sense is going forward, the nominal GDP growth is going to be even higher. It's projected at 10%, 10 to 11% plus. And typically, in India, earnings tend to follow the GDP growth as well. So you should see this period of a sustained earnings growth, which itself should drive markets going forward.

27:33 So I'll really end there and and take questions. That's great. Well, thanks very much for your presentation. Ladies and gentlemen, please do continue to submit your questions. You can do so just by using the q and a tab that's situated on the top right hand corner of the screen. As you can see, we have received a number of questions throughout today's presentation. And, Lucy, if I can hand over to share the Q and A, that'd great. And then I'll pick up from you both at the end. Thanks very much and thanks Gaurav. Great presentation. We've definitely had a few submitted, but keep them coming. Gaurav, economic activity and investment always has a tendency to ethical fuzziness, which therefore demands a commensurate clarity about how decisions will be navigated. Can you clarify the approach of the fund? Yeah. I think, you know, we look at this from a risk perspective that on the ethics side of it. So it's one of the biggest risks, which is where we are very focused, as I mentioned, the first thing on the management quality and comfort we get on the management.

28:35 So we will never invest in a business where we've heard of any negative doing by the management of a company. That's one side of it. I also highlighted how we have a universe and, you know, we don't want to make mistakes. And that really comes from the fact that certain businesses we will stay out of. For example, if historically, used to stay out of anything which deals a lot with the government because of low level corruption. For example, we never invested in a pure developer, say, in an infrastructure developer because you have a lot of low level corruption at that side of it. We stayed out of real estate because that was one of the most corrupt sectors. Though having said that, while we don't own a real estate company, regulation has changed, which has, you know, improved that sector a lot. But I think what we really do is we we use see it as a risk. We are very strong on ESG and governance side of it. But whenever we hear of any unethical practices, we really try and stay out of that business. So it's really as I mentioned for us, it's all about not making mistakes.

29:47 And in India, there are, you know, certain corporate houses also have a reputation of being very close to the government. So, you know, we kind of ensure that in our universe, certain business houses are not there because, you know, you don't know when that risk will hit you. From our side, also certain sectors we don't invest in, for example, defense, etcetera. So that's all from a ESG perspective as well. So we're very clear that, you know, we should not make mistakes, and these are all risks which which which come into the business. For us, I would say, you know, the opportunity set in India is very vast. You know, today even today, you'll have almost 450 companies which are a billion dollars plus on market cap. So, really, there's no shortage, and we've invested in companies which are $50,000,000 in market cap. So, you know, I I don't think there's a shortage of opportunities. It's just that you have to play in your comfort zone, and there's enough opportunities to be able to buy into businesses which don't give you sleepless nights.

30:50 Thanks. And we've got a couple of questions here around valuations. I think you've probably answered some of it, so I'll skip to the second one, which is the valuation premium to the rest of Asia has normalized. But if profit margins are normalized, it still looks near the top end of its historic range. How dependent on top line growth is the Indian investment case in the near term? See, one of the reasons why in there are two basic reasons why India has always been at high valuations. The first is the growth itself. It has you know, the the earnings growth of the market has been significantly higher than emerging markets. The second reason is the return on equity of the market. That's about 16%, which is significantly higher than any other emerging market. It's closer to The US markets.

31:39 There are two reasons behind why the market has such high ROEs. The first is the compositional market. It's not a commodity driven market. It's a very diverse market. It's a big chunk of consumer companies, IT companies, health care companies. So, you know, the average ROC of ROEs of these businesses is is itself very high. And the second reason is that India, if you go back in time, the interest rates used to be 16%. So companies are very, very capital conscious. So, you know, people would not set up projects which did not give you a payback of three to within three or four years. So there was a lot of risk aversion. And hence, you know, Indian companies are very, very capital conscious, which is why you structurally have a higher ROE of the market itself.

32:32 So that's one is the structural nature of the market. But to answer the second leg of it, the fact that the PE multiples have also been if you take every five year period, the PE multiples have actually been expanding. And there's a there is a reason behind that also, and that is that the cost of capital in the Indian markets has been coming down. India used to be historically a high inflation market. Average inflation rate used to be 8%, if not more. But I did mention that a lot of reforms happened in the first phase of the Modi government, and one of them was that the central banks used a change to inflation target as its core mandate. And since then, inflation has structurally come down.

33:17 So inflation, I mean, today, it's trending at closer to 2%. Historically, we've never seen inflation like that. And this is a structural change that's happened, a, driven by the central bank targeting inflation. But the second aspect of that is that we are even on a current account, are big oil importers. Now the oil intensity has come down. So current account deficit, which used to be two to two and a half to 5% a decade back, today, it's below 1%. And the reason behind is that we've got huge services, exports, etcetera, that today, you know, the oil imports of, say, $180,000,000,000 is more than matched by just IT services exports, etcetera. So, structurally, you know, your cost of capital has come down, which is why your r your p multiples have been also rerating over time.

34:09 Thank you. And then what are the biggest risks you are seeing for the Indian market going forward, both political, US, China, and domestic? I think on the domestic side, I think there are a lot lots happening. I think there are a lot of tailwinds, and I think the government still has a lot of ammunition to keep changing things around to accelerate growth. I think what's not in India's control is is the is the global side of it. One is, of course, on on on the tariff side of it. And, you know, if the Indian tariffs are not reversed, then then you you have a structural problem possibly because you're you you know, at 50%, you're really not competitive, and there's no way companies can compete with other emerging markets.

34:58 I think the second factor is if you look at the Indian neighborhood itself, you know, all our neighbors are bankrupt, be it Pakistan, Sri Lanka, Bangladesh. They're all struggling. And on the other hand, you have you have China, which also our relation, though they're on the mend, are not the best of relations. So I think geopolitics is, I I would say, today, the is really the biggest risk India has. On the domestic side, I I don't I see there are, you know, I think a lot happening. I think there are a lot of tailwinds itself that the government has, and a lot has already happened to create that momentum. Thank you. And now a bit more in-depth on the portfolio process. What parameters do you use for individual stock liquidity?

35:44 Are you running other funds that follow this strategy, and what is the overall AUM that you're running? How much headroom do you have for this fund size before liquidity becomes an issue? Okay. I don't think we have any liquidity issue. Our AUM today is about a 175,000,000 GBP. I think we can go to three x that size equally. I think 90% of our portfolio, we can we run a lot of risk parameters on liquidity. We do it on a stock level, portfolio level. And I would say, I think within ten days of of like, five to ten days, 90% of us of our portfolio, we can liquidate. I think there are only three, four stocks which, you know, go beyond maybe a thirty to ninety day liquidity.

36:32 But what how we look at liquidity is that what I find is that if you have a good quality business, I can sell it when I want. All I need to do is sell it at a 5% discount to the market, and there'll be enough buyers. So for me, you know, if you've your worries start if you've the the the stock in your portfolio which is low on quality because liquidity problems arise when something something happens to the market that the market's correct and no one wants to buy, which is where your real challenge is. So if you've got a good quality business at a 5% discount, you'll have enough buyers. So we really played through quality that if you have quality, your all your concerns on liquidity are not there. And we've seen that in the past that, you know, if you wanna sell something and you are eager to sell it, you, you know, you will you will have a buyer.

37:29 Okay. Great. And a further question here on capital gains tax. Do you pay capital gains tax for each transaction or at fund level? What does a NAV before deferred tax provision mean? Yeah. I actually, what we do is, as a policy, we provide 400% capital gains tax. So even if we've not incurred it. Now, unfortunately, the Indian regulation for foreign investors is that there is a short term and a long term capital gains tax. So our NAV already accounts for all the provisioning on the capital gains tax. So if I have a unrealized long term capital gains tax, our anyway already reflects it, which is why you'll you know? So the better we do, you know, you'll always find that a lot of times we are underperforming the market. And one of the reasons is that our NAV assumes of has 100% provisioning for all forms of capital gains tax in our NAV. So the actual NAV is slightly higher. And the better we do, the more the gap happens with the with the actual performance versus our NAV. So and today, think the long the capital gains tax is about 2015%.

38:46 So that's that's the hit our NAV takes. Thanks. And then looking at the different states and your exposure to rising consumption, do you see a greater potential tailwind from poorer states with catch up potential or from richer states with greater discretionary consumption? You see, I I think if you really look at India, you if you go towards South India and West India, that's the more progressive states. South India where it's and West India are very industrialized, and they actually have a labor shortage. If you see the per capita income today, in South Indian states, it'll be closer to $4,000. In in the two biggest states, which are North India, Uttar Pradesh and Bihar, together, they have about a population of over 300,000,000 people, closer to three fifty million people.

39:39 The per capita income there is between 800 to $1,200. So that's the sort of gap you see. And these are the population states, and they are driving a lot of labor migration happens from the North to South India. So it's a very different country, frankly. But what I'm seeing is the big upside is happening in you know, even at 4,000, if you look at South India, you know, you know, the whole country is moving up up the per capita side of it. The fact is, you know, today, we are our India's per capita income is $2,700 or $2,600. You know, I think UK is maybe 40 or $60,000. You know? So, I mean, this and I think China is about 14,000. So, you know, as this development happens, the whole country across the board, you have have the up up upgrades happen. And you're you're seeing this across the country, frankly, that, you know, the premium premium segment is growing much faster than the mass segment.

40:41 But we do look at it, you know, a state like Uttar Pradesh. Why was it's possibly the state which has seen the biggest change that's happened. The logic was that it's got a new government over the last decade. It was a lawless state, and they managed to control that bit of it. And because they've got their, you know, law and order in place, now you're seeing the industry slowly moving in there as well. It's becoming a big tourism hub. So a lot of development is happening on that side. So, you know, it's a it's a mix of all, I would say. The Southern states, it's more about, you know, higher value added growth happening, which is where all the tech industry, the all the AI startups, you know, Bangalore, which is in a South Indian state, is the tech hub. Hyderabad, another state is, again, a big big tech tech hub.

41:30 So that's a lot of value added, but the real I think mass growth may happen in the in the less developed states. What's really the interesting part about India today is that every state government has realized that getting jobs is is what is driving votes. So they're all fighting to attract investments. So any big project coming up today, state chief chief ministers running to those companies and saying that, you know, we'll give you free land. We'll give you tax benefits. We'll you know, for the next five years, we'll pay half your salaries, etcetera. So it's a very interesting trend you're seeing that, you know, every state wants to attract investments, and it's become very competitive. In fact, one thing the government has done is, I think the World Bank used to come up with an index of, you know, they should rank states based on the policies. So the Indian government adopted it, and the central government every year comes with a ranking of states based on which state had the best economic policies.

42:32 So I I I think that itself is driving a lot of competition because this is putting a lot of pressure on the bureaucrats. It's really ranking the bureaucrats within the states. So a lot of I would say a lot is happening. If you really come down to India, the sort of changes that are happening in states, I mean, the sort of investments, take a city like Mumbai, that itself is having about $80,000,000,000 of investments, of which about $20,000,000,000 in the last two years have actually got complete, another $50,000,000,000 of projects ongoing. And it's it's simply because, you know, each state, each city is looking at building its infrastructure to attract people and capital. Great. Thank you. And one that's a bit more detailed on the team. So, please, can you talk about the team that you're working with? How many analysts you have? How it's organized and how they influence your decision making?

43:24 And then as an aside to that, what is your personal ownership and the team's ownership and commitment to the fund, and how are you incentivized? Yeah. So I think we I think one of our biggest strengths is our team. We're a team of four. Three of us are very senior. I've been with the FUND since 2011. My two other colleagues have been with the FUND since since its inception in 2005 and 2006. So the three of us have worked together now for, you know, well over a decade. And we have one other team member on the research side. He's been with us for close to a year and a half. He's a he's a fresh MBA graduate, and, you know, we got him on board simply because we wanted one of the Gen z guys to really give us the up you know, the big consumption pattern changes that are happening. So, really, we are a team of four, and we we think that's more than enough because, you know, we invest in few companies, but what we go into, we go into very details.

44:27 We really don't need too many team members. We've got a lot of processes which we've adopted over time, which really makes us very efficient. Plus, we try and use the sell side and broking network extensively. What we've experimented in the past, you know, with a bigger team, but we found that, you know, the three of us, we want to be absolutely on top of companies. So we'd rather use the external research and other software packages to enhance our our level of knowledge rather than having too many people to deal with within within the team itself. And we have only one product. So this is our only product. So, you know, for us, it's, you know, all our time is on this one fund, which has 38 stocks and all. So it's a very, very focused approach on on the team side.

45:16 Sorry. There was a second leg to that question. Yeah. What is the personal ownership and ownership of the team and commitment to the fund, and how are you incentivized? Yeah. See, unfortunately, the I can't own shares in the fund because of regulation. I think the central bank has a regulation that an Indian cannot invest in a fund which invests back in India. And the reason behind it, there's a lot of historically, a lot of Indians used you know, businessmen used to round trip money. They used to take money out of India illicitly and get it back in through a legal channel. It's sort of convert their black money into white money. So, unfortunately, because of that, all all of us face this flack.

46:05 But what we've done is so we you know, and we couldn't replicate that portfolio with our sort of investment because of, again, regulatory reasons of, you know, you can't buy stocks what you're buying in the fund. But for what we've done is, you know, the team sits in India. So, structurally, what we've done is we've linked our the our fees or rather salary comes out of share of the management fee we earn the fund earns. So the fund does well, our management you know, whatever fee the asset management gets, we get a, you know, a a percentage of that. So it's totally linked to how the fund performed, and it's really linked to the management fee, which is driven by how well the fund does. So, structurally, everything to us, our entire income and salaries and bonuses all get linked to the management fee, which is a percentage of which is totally linked to how the fund does.

47:06 Perfect. Thank you, Gaurav. I think that concludes the questions for today. So I will pass back over to Alessandro. That's great. Well, thank you very much for answering those questions from investors. Of course, the company can review all the questions submitted today, and we will publish the responses out on the Investing Your Company platform. But just before redirecting investors to provide you with their feedback, which is important, Gaurav, can I just ask you for a few closing comments? Yeah. So, really, what I'd say is that, you know, the Indian economy has seen a period of consolidation. I would say now we have we have a lot of tailwinds. I think the earning downgrade cycle is is behind. The inflection has already started, and my sense is we're going back into a double digit growth phase.

47:54 Even on valuations, it's absolute is high, but, you know, the relative hasn't really come off. So my sense is economy is back on track, and I've I'm very, very positive on the longer term scenario that really a lot happening in in in the economy to sustain a higher growth over the next few years. That's great. Well, Gaurav, Lucy, thank you once again for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback? Or the management team can better understand your views and expectations. On behalf of the management team of INDIA CAPITAL GROWTH FUND LIMITED, we'd like to thank you for attending today's presentation, and good morning to you all.