Excerpts From Our Mid-Year Investor Call

If we take a moment to get into some of the one might say many weeds out there, the INR the Indian rupee has materially weakened recently. Partly this is due to the perception right or wrong that India and therefore its balance of payments and therefore growth would be hit by higher priced energy impacts. If we unpack that particular week, we can say that this has not happened the way many assume given the government's fiscal hit growth has not weakened and at least our portfolio has not been very impacted. That's an FYI and again maybe right maybe wrong. One of Goldman's top macro trades right now is short the USD long the INR.

They may be right. Certainly though shorting the rupee does not currently seem to be the slam dunk that it was.

The other weed we're all struggling with is the AI crowding out trade. One stock in Taiwan and two in South Korea are now such massive overweights in their respective indices that it seems both a rock and a hard place if one invests in those markets. India in contrast while we may not have had a market ramp from AI we also don't now face the challenge of historic stock concentration.

And this is not too shabby. It's not only AI agents and chips that produce EPS growth. And if that was true in the past, it will also be true in the future.

In answer to the question, what could be the AI impact on India's IT outsourcing and back office workforce and sector economy? The answer is the impact is actually rather small. Somewhat unnoticed also by many commentators, India's manufacturing economy has been growing a pace for a while now just surpassing South Korea.

In investing, the two things that over time matter the most, EPS growth and valuation. India now stands at two standard deviations below its 5-year average. That is a material discount to India's historic valuation levels. We might assume the cause of this 2SD decline was some bad event or trend. But that is very much not the case. As we have seen GDP, PMI, revenue, EPS All very robust. This is oversold territory.

What about relative valuation versus MSCIM index? India is now in the bottom quartile of its price to book.

Widening out the focus to the past 20 odd years, we can say that we have seen and invested through a number of business cycles and narrative frameworks. Nicely color coded here. The sweep of persistent absolute and relative growth is clear from this chart. Betting against India over the long time has not worked out.

Power infrastructure in the US has gone from ignored investment backwater to something closer to indispensable, premised mostly on the need for reliable electricity for the explosive growth in data centers. But interestingly in India even before considering much of any AI the number is even greater more than 800 terawatt hours totaling more than $400 billion new capex in construction. And because the base is so much lower the proportionate growth in India is a multiple that expected in the US even under the most optimistic AI-driven scenarios. And with India being the largest consumer of mobile data in the world and increasingly one of the largest producers of digital data of any kind, thanks to commercial reasons and policy developments, that data is going to be increasingly housed indigenously in India data centers. It will need even more reliable power to service it. It is an exciting attractive development. But to put it in context, just perhaps 7 cents of every dollar of power capex is going to be AIdriven. Most of it is going to be for more traditional rosaic end users, more air conditioning, more manufacturing, more appliances, more electronic powered trains and buses. And because of that, the buildout and power in India has in common with the build about housing in mobile telefan and it is not principally an AI story. It has risks. It has challenges and dependencies. But the question that needs to be answered is in the main will hundreds of millions of Indian families continue to buy their first electric appliance, their first apartment, make their first quick commerce order, get their first smartphone. And the answer so far is an emphatic yes.