InstallatorGruppen (Copenhagen:IG) — Quarterly Investment Update

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 could be submitted at any time via the q and a tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Lucy Draper. Good morning. Good morning, everyone, and thank you for joining us today for the q three q three India Capital Growth Fund update. My name is Lucy Draper, and I'm joined by principal adviser to the fund, Gaurav Narain. Just as a quick recap, INDIA CAPITAL GROWTH is a London listed Guernsey domiciled investment company investing in small and mid cap Indian equities listed on the Indian stock exchanges.

0:54 So it's been an interesting quarter for the company. We announced our first interim dividend of 1.9 per ordinary share to be paid on the October 30. And we've also introduced a dividend reinvestment plan, allowing you to use your cash dividends to buy new shares through a special dealing arrangement. Shareholders can see further information on the dividend section. It's also been an interesting quarter for the investment team. Long term structural growth story continues, but there's been a clear divergence between large and small cap stocks. The solid returns on the portfolio have been driven by high growth in the small and mid cap sector. On that note, I'll pass over to Gaurav for a detailed update of the market and portfolio. Over to you, Gaurav. Great. Thanks, Lucy.

1:40 So thanks for joining us on this call this morning. Just by way of background, I've been doing in inequities over thirty years now, and I've been managing the INDIA CAPITAL GROWTH FUND for over years now. What I'll really do is, over the next, twenty five, what, minutes, take you through in fair detail about what's really happening in the in economy, its markets, and how we are investing in this environment. So to give a bigger flavor of the India story, the bigger picture is that India is projected to be a very high growth sustainable growth economy possibly the next two decades. Based on IMF forecast itself, we should be about a $6,000,000,000,000 economy in the next five years, which actually makes India the third largest economy.

2:32 But if you really look at the government, they are really thinking much bigger. For them, the target is a $30,000,000,000,000 economy by 2047, which is when India becomes the hundredth year of independence. But what's really interesting is that they're really using this target as a means of working backwards as to what is the sort of policy environment required, what each industry needs to do on infrastructure, etcetera, to be able to achieve these sort of targets. So it's a very thought to process, and each industry is really setting up up targets. So, really, it's not just one vision, but the whole idea is that India should grow nominal GDP growth at at least 10% per annum over these next two decades.

3:18 Even and even if you look at estimates of most global agencies, what you see in front of you is the IMF estimates for various economies over the next five years. India is there right on top. You know, the real GDP growth is forecast at about six and a half percent per annum over the next five years. But having said that, if you really go down to to the grassroots in India and see what the sentiment is, there is a fair amount of optimism within the corporate sector that India is actually on the right track. And I would say there are two big factors where there is this what is driving this confidence. And the first really is that it is a a very large domestic market. And the chart in front of you is really giving you the sort of demographics there there is.

4:08 And, you know, it's a very young population, median age of just 29 years, and it is the largest populated country in the world. What's really interesting is if you see the chart below, the per capita GDP is just $2,800. I would say, say, 61,000 for for The UK. But even with this, the size of the consumer market is is very large. To give a perspective, take the passenger vehicle segment. India is actually the third largest market already with sales of over 5,000,000 cars per per annum. So what you're really gonna see is and even with this, you know, if you see per thousand people, it's 34 cars per thousand individuals versus somewhere around two twenty for for China and almost 800 cars in The US. So there's a lot of opportunity of just not growth, but also also value addition.

5:02 And it's a very aspirational population. And one aspect of that is if you see the data consumption, India is the largest consuming data data consuming country in the world. In fact, per smartphone usage is almost 31 35 GB per month. Even The US is closer to about 20 GB per month. That's the sort of change you're seeing in this on the consumption side. But the second real factor behind this is on the investment side and the two aspects behind this. I think the first is that infrastructure in India has already improved dramatically. In fact, over the last decade, almost every infrastructure asset has has grown almost two x, be it airports, roads, ports, power capacity.

5:51 And it's the quality of assets which is which is strong. So I would say, structurally, one of the big bottlenecks in India of high logistics cost, that is behind. In fact, the government itself in the last five years, it has troubled its investments on infrastructure through the budget, and this has really become now the base case. The change we are really seeing is that what was earlier focused on things like roads, power, and rail today is moving more towards urban infrastructure. And that's where the big growth will happen in metros, etcetera. Already say 26 cities have have metro networks. But the fact is, you know, we're really looking at a pipeline of over $1,500,000,000,000 of investments just in infrastructure over the next five years, and almost 900 billions of dollars of this has already received financial closure. Even a city like Mumbai where I stay, at any point of time, you'll have almost $50,000,000,000 of projects being being implemented.

6:54 But the second aspect of the investment story is what is really gonna be taking India forward. And this really takes to the private sector investing in manufacturing. And if you see the chart on top, India's largely been a service oriented economy. In fact, the share of manufacturing to GDP is just about 13 to 14%, and the government really wants this to go up to 25% over the next decade. And the reason behind is is very simple that India's getting almost eight to 10,000,000 people into the workforce every year, so you need jobs. The other aspect also is that as India is growing, you need to derisk yourself of the imports imports, especially in a lot of consumer electronics, etcetera.

7:42 So there's a big effort at trying to get manufacturing scale up. And the government really is for the last decade as this make in India, program. But it's really over the last five years, I think they've got the model right. And it really started, with what was called the production linked incentive schemes where the government decided to focus specifically on certain certain sectors. And within that, provide incentives, but the government chose which other companies which should be avail of it based on their on their track record. So they started with 14 sectors, and they've received a lot of some of them have done exceptionally well. For example, in in mobile phone manufacturing, five years back, India imported all its mobile phones over to market of over a 150,000,000 phones.

8:33 But within these five years today, everything is assembled in India itself. In fact, companies like Apple have already are sourcing 25% of the global iPhone requirements from India. Likewise, Motorola, Samsung, they're all using India as a base for mobile exports. Similarly, a similar scheme came into renewable energy. And today, India is already the second largest manufacturer of of solar panels. But what's interesting is these schemes are long term, and they keep coming up with newer versions. And the idea is start with the low value added segment first and then keep backward integrating and adding adding value. So, really, that's how it's progressing. The latest is really on, say, semiconductors.

9:18 India actually has no semiconductor base. But four years back, they came up with the scheme, and already 12 projects are being implemented, five of which have already got commercial production. And they've already come up with a second scheme of about $13,000,000,000, which is going in towards the ecosystem for manufacturing gases, etcetera, which goes into semiconductors. So you've really seen a lot of activity, and it's only leading to demand. Even in in defense, you know, India is the second largest importer of defense equipment. And already in this last seven odd years from almost 70% imports, that's come down to 35% of imports. So, really, we're actually seeing this switch happen from largely imports towards a more demo manufacturing base. So we're actually entering, and I would say, the cycle of consumption and investment led growth, and that's where the confidence is is is coming from.

10:14 But having said that, I think what is also very critical is why there is this change is simply because the ecosystem has become very enabling, and I attribute three factors to this. I think the first is that India has had political stability. So, you know, you've had the Modi government now for this it's the twelfth year. So what that has led to is a policy continuity, which is very development focused. I think the second big change that happened is that is on the technology side, that India has been able to roll out one of the most sophisticated digital infrastructures. What's different with India versus the rest of the world is that it's owned by the government. So it's very high volume, very low cost.

10:59 And what it's done is it really brought about a lot of efficiencies both for the government and the private sector. To give a perspective, you know, what's really done is bridge the gap between rural and urban India. Earlier, the private sector found it not cost effective to do business in in the smaller town than rural India because the the income levels were low and the cost of doing business was high. All that has really, really changed. I think the third big change that's happened is access to capital. Today, India is a thriving capital market, be it venture capital, private equity, public markets. Capital, which used to be scarce a decade back, today, that's not an issue for any company which is investing investing for growth.

11:47 So, really, that's the bigger picture story. But having said that, if you really go into the corporate sector itself, balance sheets have never looked better. The chart in front of you on top is the asset quality of the banking sector, and the NPS have never looked better. It's in the lowest that we've ever seen. The chart on the right is the leverage levels of the corporate sector, which is also at record lows. In fact, profitability level levels are high. So the the private sector is in a very, very strong position. And the same with the government balance sheet as well. The fiscal deficit has continuously come been coming down despite the the increased investments by the government on on capital expenditure.

12:33 And the chart at the bottom is the inflation, which though rising is still within the central bank's range of two to 6%. So I would say, you know, structurally, the economy is is the government finances are are are very healthy. So really coming to growth. Now what India saw was post COVID, we saw the next four years a very strong strong growth phase. GDP was growing at eight to eight to 9%. Corporate earnings were growing at almost 20% per annum over the over these four years. But last year, we actually saw a substantial slowdown. In fact, earnings growth came down to single digits, which really caught everyone by surprise. There were various factors, I would say. One was, of course, we had elections which hit CapEx, And at the same time, interest rates were raised substantially over a 100 basis points, and then also uncertainty because Trump imposed these big tariffs in India.

13:34 But the government was quite proactive in responding, and they slashed both direct and indirect taxes. Since then, the central bank has also cut interest rate over a 100 basis points, and all that had had a fairly positive impact. In fact, growth is back. I think we were now two quarters of very strong growth. The last quarter itself, again, earnings growth are back to about 20% levels. But what and this is despite possibly the full impact of the Middle East war on the economy and pricing. In fact, volume growths have been very strong. Even on GDP, this last quarter growth was 7.8%. In fact, way above expectation of a 7% real GDP growth.

14:20 And here again, we've seen most global agencies upgrade GDP forecast quite substantially and closer to 7% levels for the full year. I would say the economy is doing well. And even if you look at the all the high frequency datas, everything's really pointing to things still looking very strong. In fact, credit growth is trending in 19 to 20% levels, this is across both retail and corporate sector. Your taxes indirect taxes are are growing at 15%. Automobile sales, be it two wheelers, passenger vehicles, or commercial vehicles, are all trending above 20% levels. Even exports, which were weak, has now gone back into strong double digit growth. So I would say the economy is is doing well.

15:10 But having said that, where is the risk? And I would say that, structurally, India has one problem, and this is on the current account deficit. We actually import a lot more than we export. So, structurally, this deficit used to be almost two to 3% about a a decade and a half back. It's come down to less than a percent. But given that we import almost 85 of our oil, every time there's a there's some form of global prices, you see it getting hit in terms of the currency. This year has been worse than last year simply because we've also seen a lot of capital outflows both in terms of foreign and equity investors selling as well as a lot of foreign direct money moving out.

15:59 So the currency has actually been among the worst performing amongst most markets, and that's been a a concern especially for foreign investors into India. Having said that, the central bank does have a lot of buffers, and it really used one of its instruments. About two months back a month back, actually, they they came up with this deposit scheme for foreign for nonresident Indians where the central bank said that they will bear the hedging costs for the banks. And they expected inflows of about 70 to $80,000,000,000 from these nonresident Indians. And what they saw was almost a $140,000,000,000 of inflows. Such was the level that the central bank actually shut the scheme a month ahead of of of targets.

16:47 And, again, what it's done is that your forex reserves are at all time highs of about $770,000,000,000, and it's brought the confidence back. So if you see the currency has actually now stopped depreciating. In fact, it's been in fact, it's been one of the better performers over this last two months. So but this remains one of the biggest risk factors for India that, you know, structurally, we are an oil importing country. And as long as the Middle East prices stays, you will always find stress on the external environment. Having said that, where are we on the on the markets? And this is India's performance over the last year, and it's not a very pretty sight. In fact, yeah, it was with the emerging markets.

17:36 India's underperformed almost 40%. This is, I mean, this is a real surprise. And given the fact that, I would say, post COVID, the first four years, it was exactly the opposite situation where India was actually the best performing market and actually catching even doing as well as The US markets. So, really, it's been a big surprise. And but having said that, you know, if you look deeper into the market, and this is the INR returns over the last year of the different indices, we've actually seen the small caps have actually done well, and that index is almost up 10% in the year. Whereas the nifty 50, which is the large cap top 50 companies, is down 7%.

18:25 So, really, it's a slightly skewed market we've we've seen over the last year. And I would attribute this to two reasons. One is that the earnings itself on small and mid caps have done extremely well versus the larger companies. And I would say the second is simply because we've seen a lot of foreign outflows over this last one year, and most FIs invest in the large gaps, and that's led to the skewness. And this is really reflecting what foreign institutions are doing. They've been relentlessly selling India. In fact, the last year and a half, almost $45,000,000,000 have moved out. And even over the last five years, there's been outflows. To the extent that the ownership of foreign institutions in the Indian equity market is at decade at lows, and most FIIs are underweight India today.

19:23 So the question really arises, will they come back? And I think the primary reason why you've seen such relentless flows is because of artificial intelligence, AI, where I would say, you know, money is just India become the the funding market for the, you know, for Korea and other emerging market, which are which have the hardware and LLMs to play. And this is an area of India really has no pure direct play in this segment. And given that, you know, Indian markets have done well, it's a liquid market, really, you've seen just a flood of outflows from India. So going forward, how do we see this? Will the money come back?

20:11 Now there are two aspects to it this. One is growth, and I think India growth has come back. And as you see in the in the chart above, India is back on the earnings growth. But the big difference is India no longer stands out. In fact, most markets we are seeing have also seen a fairly healthy growth project for the projections for the next two years. So, clearly, we don't you know, it's not something which will stand out, which was the case two two years back. And even on valuations, if you look at at the chart below, while Indian valuations have corrected to historical averages, it's still not a cheap market. So my sense is that, you know, from a external investor, unless we see this Middle East crisis play out or, you know, there's fatigue on the AI trade, India may not be the prime market most investors would be looking at.

21:10 Having but, you know, the situation of the domestic market is absolutely different. You know, this is the flows coming into domestic institutions, and you're just seeing a flood of inflows. In fact, mutual funds are seeing monthly inflows of over $3,500,000,000 in a month. These last five years, I've seen almost $300,000,000,000 of flows into domestic institutions, and they're just sitting on on liquidity. What is interesting is that the flows are really coming from retail investors and that too from smaller towns in the form of systematic investment plans. You know, every month, you're seeing almost a 100,000,000 investors putting in small amounts into mutual fund schemes, and this is a relentless flows. The despite foreigners exiting India, the market is liquid very, very liquid.

22:07 And it's really, I would say, a tale of tale of two players, the the the domestics who are very bullish on India and and the longer term story, and the the foreign foreign investors who feel, you know, there are a lot of better markets to play. But what is done is that it's created a very, very vibrant capital market. A lot of the surplus liquidity is going into the primary market. The IPO market is booming. In fact, this year already till September, over a 100 IPOs have happened in the main main exchange. It's not just the IPOs, but a lot of listed companies are raising capital. And after a long time, what we're also seeing is multinational corporations who have 100% arms in India are actually listing the entity because they're getting good valuations.

22:56 Even some listed multinationals are reducing stakes and repatriating money overseas. What I find is that so this is really taking a lot of the surplus liquidity being absorbed in the prime primary market. But for us, what we find is over 90% of these new issues new issuances are in the mid and small cap space. A lot of these companies which are listing have have the a p or venture capital investors in there. The quality of businesses are are very strong. And what is done is it's actually further increased the breadth of the market. Some of the new issuances which you saw in two thousand twenty one, twenty two were largely digital companies, fintech companies.

23:42 These last three years, the sort of issuances we are seeing is largely manufacturing companies and some very interesting business models. So for a player like us who invest in the mid and small cap segment, you you know, the opportunity set is just getting wider and wider. And it's a very interesting market to be really operating in. Coming to our own fund, we're very unique because we play the mid and small cap segment of the market. We also have a very stable investment team. The three co members have been together since fifteen years. Since I I have been running the fund, we've delivered almost 13% compounded growth. But what we've done is we've created very strong processes to minimize mistakes.

24:30 The portfolio we've it you know, by default, it's more of a growth and quality biased portfolio because we are in the small cap space. But what we've done is we've ensured that we have this whole exclusion list where we are very clear that certain businesses we will never invest in. Wherever we find an eye out of corporate governance issues or very complex businesses, difficult to understand global commodities. We really stay out of businesses which we we we feel, yeah, we are uncomfortable with. The portfolio is fairly diversified, but what you'll see is it's very concentrated. We typically have 30 to 35 stocks in the portfolio, and we are very bottom up. For example, while our benchmark is the MSCI mid and small cap index, even within that, we are 93% off benchmark. So, really, we don't really look at what's in the index. Purely, it's based on on on companies.

25:27 What we really build our portfolio is that we're really looking at portfolio companies which can really compound earnings over time. You know, we're looking at companies which can grow at least 15 to 18% earnings over a long period of time. And the portfolio really comprises, I would say, industry leader even in even though they are in small and mid caps business which are very strong niches, which are niches which really give it the mote. And by default, what we find is every business we look at, we want to own it for at least three to five years, and that's reflecting a portfolio where over 60% of our portfolio companies we won for over five years. If you look at the themes in the in the portfolio, I would say these are the four core themes.

26:13 The big change we've seen is that about about five years back, we'd be very, very consumption heavy. Today, we are more manufacturing heavy. And within consumption also, it's more more towards discretionary place than pure FMCG companies. But to give a profile or sample of some of these companies, I would say each has very strong niches. For example, if you take China plus one, Dixon is a a company which is like the Foxconn of India. It makes mobile phones for almost all the Android players. It makes laptops for four of the five big global players. It's into washing machines for Samsung, etcetera, growing at, you know, over 20% per annum. A company like PI is in agrochemicals, very strong in r and d, works with the top 10 global agrochemical companies for the new poly new molecules discoveries.

27:08 If you see consumption, a company like Continental Cafe, it's called CCR Products. You'd be surprised, but it's the largest manufacturer of instant coffee globally after Nestle. It's a b to b company that supplies there's over 2,000 varieties of coffee. If you go to possibly a Tesco, the private label coffee you see is is made made by made by this company. Take domestic CapEx as a theme. Skipper is actually the largest manufacturer of transmission towers outside China. I would say over the next five years, they'll be the largest manufacturer globally. And it's not just the growth in power sector, but even the big data sector teams you're seeing both in India and in The US, they're really riding piggyback on this because they're getting a lot of orders from developed markets.

27:59 Likewise, TITAGAR, largest manufacturer of railway wagons in India, is building the metro rails. It's building the high speed rails. So really just three players in India doing doing such. So really each company in the portfolio has a story of its own. The niche is very strong motes and which gives us the growth growth visibility for our portfolio. Coming to our portfolio characteristics, if you see the table on top, it gives you the valuation and the growth. What you'll see is the growth is very strong. It's actually 30% earnings on an aggregate over the next two years. And even if you adjust for certain one offs, you're still seeing a very strong 18 to 25% growth.

28:47 And last year also, it delivered 20% plus growth in the market, which grew just about 8% in earnings. On valuations, it trades at 22 to 23 times, which is actually on the higher end. My own sense is, you know, this is this is a bit of a challenge. I think there are enough growth opportunities in India, but valuations are not cheap. So, really, you have to be very careful on what you're buying, and you have to have that predictable growth because you won't get good businesses cheap. Tape the table below gives our top 10 holdings. And what you will notice is most of our top holding we've held for many years. Skipper, which is the largest holding, we've actually owned it now almost for a a decade.

29:36 We used to, at one point of time, own almost five and a half percent of the company. Today, we own about one and a half percent. And simply because we've been trimming taking profit in this company because it it's done so well for us. So it's certainly a more of a risk weight adjustments which we're doing. Finally, on performance, I think we've had a very good year. I think in the last one year, you we've know, outperformed not just the mid cap index, but even the MSCI index quite handsomely. And I would attribute it not to any sector or an individual stock. It's actually basically, almost all our portfolio companies have performed very well on earnings, and that's really driven driven the returns. So it's really more individual sectoral team that have driven it, but pure stock performance.

30:26 So I'll end that with my last slide, which is really the long term performance of the Indian market, both for the MSCI India and the small mid cap index. This is after two very poor years for the Indian market. Say it's still done reasonably well versus other emerging markets over the last ten, fifteen, and twenty years. The numbers look much better a year back where I would say the MSCI India was growing at about had delivered about 10% compounded returns, and the mid cap was closer to 12 to 13%. But my sense is, you know, if the nominal GDP continues to grow at grows at 10% per annum, India should again remain one of the best performing markets over the longer term going forward.

31:14 So I'll really end there and take questions. That's great. Thank you very much for presentation. Ladies and gentlemen, please do continue to submit your questions just by using the Q and A tab situated on the top right hand corner of your screen. Just while the company take a few moments to review those questions submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published q and a can be accessed by our investor dashboard. As you can see, we have received a number of questions throughout today's presentation. And, Lucy, could I please ask you to read out the questions and give responses where appropriate to do so? And I'll pick up from you at the end. Thank you, Lily. Thanks, Gaurav. That was really interesting as always. I've got a question here on climate change. So India has climate change vulnerabilities and potential. When do you anticipate climate change related effects in India or the wider environment having really significant effects on the Indian society and economy? In other words, how long does business as usual last?

32:12 Well, I think we're already seeing the impact, frankly. This year has been a weak year on on the rains and monsoons. And I think, you know, this is something one companies have to live with, and they really have to, you know, adjust business models to how how things change and try and take an advantage of it. But, clearly, you know, it's something we're already seeing. You know, you right on neighboring country, Nepal just had that big landslide. And even, you know, you've had the monsoons and, you know, you have one part of the country which has seen 25% deficit rainfall, one part which has seen, you know, above normal rainfall. So I think this is something you wanna live with, and you have to just you know, it's really up to the company how proactive they are in trying to modify their business models to to try and take advantage of whatever opportunities you see.

33:11 Thank you. And how do you assess governance risk before investing? You know, I'd mentioned this issue of exclusions right in the beginning, and one of the big exclusions for us is on governance. And for us, the biggest criteria we have is management quality. So the advantage of sitting in India is that you're able to get a very good feel through back channels on any issues you find with the management or the quality of governance. Of course, we done we are very rigid on our ESG practices, but we find, you know, the numbers don't tell you. That's based on past experience that, you know, the balance sheets and audited numbers sometimes what happened behind the scenes is something very different. So for us, on the governance, our our experience has been as if you've heard of a rumor of something, just assume it's it's gonna be true.

34:18 And, you know, we've done in the past. In the past, in fact, we've done a lot of due diligence. We've spoken with banker. We've spoken with everyone, you know, when you've heard something wrong and nothing's come out. And then when when things start going wrong, then the problem start. So as a as a practice, we've taken a view that if you ever hear of any any issues, especially on management or or the practices, we we stay away from it. So as I said, you know, you have to minimize mistakes, and the best way of minimizing mistakes is not investing in any business where you've heard of some some issues because that's what hits hits your your return.

35:03 So we are very, very conscious of that. And, you know, as a process, we have what is called an investment universe. And any company which we've heard of any issues on this front, it's just not included in our in the universe. So you take it out right from the beginning itself, so you don't get carried away by low valuation or it's a great great story or things like that. Perfect. Thanks. And can you give any color on the energy policy and the resilience of base load capacity capacity now and steps to ensure future resilience and low wholesale pricing? Well, I think one of the sectors which has seen the maximum growth is the energy sector. And, you know, I did mention renewable energy.

35:48 Today, 50% of our capacity is renewable. I think we're somewhere around 250 gigawatts. And by 2030, the target is 500 gigawatts. So, you know, India's been one of you know, after China, the fastest growing renewable energy market is India. But having said that, you know, if you see the you know, I've talked about numbers of how growth is happening. The past sector growth itself is 12 to 13%. That's the demand growth. So India, at one point of time, had said they will not set up any more thermal capacity. But that stance has changed because they are again setting up also coal fired plants because they need that base load also, and it cannot just be renewable energy dependent.

36:34 So today, we have the situation that, you know, during the day of surplus power, but at night, if, you know, it's a very hot hot, you know, thing, you suddenly find that there's a shortage. And there is a very active energy trading exchange, which at at times you see them negative power cost as well. But I think India has got its act together. There's a lot happening on the renewable on on on you know, even on the coal side. So I don't think energy is is a is a problem anymore. You know, this was a situation ten years back. And as I mentioned, you know, part is gone. I mean, that sort of growth that we've seen in infrastructure. So these are not topics which come out for discussion much that, you know, there's a there's a shortage of energy in India.

37:20 In fact, we are exporting energy to Nepal and Bangladesh, etcetera. So, I mean, if you're talking about energy, this is on the past side. I don't know whether it was referred to on the on the oil and gas side. There, we are we are totally import dependent. As I mentioned, it's 85 to 90% is our our requirement of oil. What the government has done is, you know, pre Ukraine, we were sourcing from about 27 different countries. Today, you're sourcing from about 41 different countries. So, you know, you've added Venezuela, etcetera. We're all sourcing from there as well. But having said that, it was very Middle East dependent. And I would say today, 45% of our oil is coming from Russia, and that remain remain the problem factor.

38:13 And, you know, Trump again has come up with his latest thing where it wants to put tariffs. But having said that, when we speak with experts in India, mostly, it's, you know, expecting India to stop Russian imports is impossible because India is the second largest importer of oil in the world. We do about 6,000,000 barrels a day. So if India stops buying from Russia, then what happens to oil prices? And if you ask the government, the government said, you know, pre Ukraine war, we had less than 1% of our imports from Russia. The reason we switched to Russia was because Europe asked us to ship there because they needed the energy. So it's it's a it's a You can't win, I do think. Not win either way. But what my sense is, you know, with Trump tariffs, etcetera, you will again get it down from 45% to maybe 25% and, you know, find other sources.

39:15 But the fact is today, India is still a a big exporter of refined products. So it's not that there's a shortage. We are being able to source all our oil, and there's been absolutely no reduction on on exports of refined refined products. So definitely, there's no there's no shortage, but, yes, geopolitics, as I said, if if you see, that's one big risk we see. Thank you. And that might lead into the next question. So large caps discounted versus the Asia region, small caps less so. Could you give some comments around the impact of global flows that you alluded to overseas flows possibly returning and liquidity cascade alongside increased domestic participation in the context of the relative portfolio with SMIDCAP focus on the outlook tactically.

40:04 Yeah. So I think fact is, you know, the foreign investors have just been exiting. And one reason for this is other than the AI side of it that, you know, India has become this so called big anti AI trade. But it's also been because there is so much liquidity because of the big flow of the domestic. So for them, it's to exit India has been one of the easiest markets to do so. And this is the case even for private equity investors that, you know, it's been very easy to to exit. Now what's happened is because of the big domestic liquidity, you know, if historically, you've seen such huge outflows from foreign investors, the markets would have crashed.

40:50 That has not been the case. You know, as as I mentioned, you know, while India has underperformed significantly, the absolute performance of the markets has not been too too weak, and a lot of the negative is more because of the currency. So the markets have really held on despite so much selling, but it is very liquid. So what happens is the FUNDINUS come back in. You know, you can see, again, valuations go to abnormal abnormal levels. You know, you know, why why is such a thriving IPO market is simply because there is so much liquidity. So a lot of the domestic liquidity is going into the capital market. Right? The put in valuations there are still very high. Having said that, you know, what's also happened is, you know, the large caps is also, you know, dominated by, you know, financials where some of the top two players have not done well. It's got a very large holding of Reliance, which is 10% of the market, again, which has not done well because of oil and gas. And then it has big exposure of IT services company, which are getting hit by AI.

42:00 So, you know, the index is not really representative of what's really happening in the rest of the economy, which is why also you have this divergence that's happening. And the rest of the market, the earnings growth is significantly higher than what you're seeing in the large caps. But really to answer that question, you know, once foreigners come in, you can see a a very substantial improvement in the markets. But for that, as I said, you know, if the emerging markets or the AI trade remains as as strong as that there is, India, clearly, in that bucket does not have any play. But, again, it's a market which is not dominated by two or three three companies. It's a very, very broad based market. So, eventually, my sense is, you know, this the earnings growth over the longer term period will will will drive the markets.

42:50 Thank you. And we've got one final question here. I think it's worth answering. So what prompted the introduction of the dividend policy, and where do you see Indian companies gaining market share from overseas competitors? Perhaps if I just pick up on the dividend policy point first before handing over. So the board introduced a dividend almost in direct direct feedback from shareholders. It's not uncommon for trusts, obviously, to to pay out dividends, and I think there is a pay to wait concept. And so we felt or the board felt it was the right time to introduce a dividend. It also has a dividend reinvestment plan. Should you not wish to receive your dividends, you can obviously reinvest. Gaurav, would you like to pick up the second point around Indian companies gaining market share from overseas competitors?

43:41 So I'll I'll tell you, you know, India is getting very efficient is on the manufacturing costs. For example, in you know, our labor cost today are one third of China. And broadly, for most companies, if you speak with them, they're saying the manufacturing costs are at par or below that of of the Chinese companies. So this whole rebalancing of supply chains that's happening, India is becoming a very beginner in in that aspect. And what India has also been able to do is get into free trade agreements with most countries. And what that that's done is India on the tariff level, India has become at par with, especially with in in The UK, you've seen that.

44:28 So even the competitive disadvantage we had on higher tariffs has all also gone. So broadly, I'd say in most manufacturing categories today, India is actually at par or lower on cost, and you're already seeing it, as I mentioned, in electronics, etcetera, where India is is now, you know, gradually gain gaining share. And that's gonna be the story in most manufacturing sector that India will become a manufacturing base. I think where India lacks is that we have mostly no r and d. You know, r and d, there's point 68% of GDP, and most of that is also by the government. So if you're really talking about high end, top end products, India is just not there. You know, it's China which is dominated and, you know, in pure high-tech side of it, we'll always we'll always lose out. And I really don't see that, you know, happening for for several years years to come.

45:26 But in co manufacturing and, you know, I I would say that India is now very cost competitive even with Southeast Asian countries. And in in a lot of cases, you know, we are lower than China on the cost side. So we are actually seeing it across. And one big story for India is exports because a lot of companies are now gaining share in Europe, in The US, and also it's a conscious strategy by companies there to be linked from China. So India is really becoming a big gainer. And a lot of our portfolio companies are gaining because of that. You know, most of them are seeing a very strong export market as well. Thank you. I think that's us.

46:12 That's great. Thank you for answering those questions you care from investors. And, of course, the company can review all questions submitted today, and we'll publish those responses on the investor meet company platform. Just before redirecting investors to provide you with the feedback, which you know is particularly important to the company, Gaurav, could I please just ask you for a few closing comments? Yes. So how I would really, look at India is, you know, structurally, it's it's in a very good position. It's really I would say the GDP in the last ten odd years has compounded about 8% in USD terms. My sense is gonna grow at a much higher 10% level. All the ingredients are already in place. You know, the momentum is is strong. Markets are volatile. I think they're I what FUND looks at India on a longer term basis, India has delivered and will continue to deliver over the longer period of time.

47:07 And I I would say the big opportunity is really in the mid caps, which have already delivered stronger in the past and will continue to do so because of just the higher growth we we see from these these segments. That's great. Thank you for updating investors today. But please ask investors not to close the session as you'll now be automatically redirected to provide your feedback in order that management team can better understand your views and expectations. This may take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team, we'd like to thank you for attending today's presentation, and good morning to you all.