Dear Baron India Fund Shareholder:
Baron India Fund® (the Fund) appreciated 9.15% (Institutional Shares) during the second quarter of 2025, while its relevant benchmark, the MSCI (MSCI) AC Asia ex Japan/India Linked Index (the Linked Benchmark), rose 9.22%. As a reminder to investors, as of market close on August 30, 2024, Baron New Asia Fund was converted into Baron India Fund, necessitating a Linked Benchmark to allow the predecessor track record to attach to the new Fund. In essence, our reported performance represents the return of Baron New Asia Fund from July 30, 2021 (Fund inception date) through August 31, 2024 and that of the reconstituted Baron India Fund beginning thereafter. Similarly, the Linked Benchmark, effective September 1, 2024, will reflect the performance of the MSCI India Index, the primary benchmark of Baron India Fund, while the period from July 30, 2021 through August 31, 2024 will reflect the performance of the MSCI AC Asia ex Japan Index.
Since converting to a dedicated India strategy beginning September 1, 2024, the Fund has outperformed the MSCI India Index by 575 basis points.
| Fund Retail Shares1,2 | Fund Institutional Shares1,2 | MSCI AC Asia ex Japan/India Linked Index1 | MSCI India Index1 | MSCI AC Asia ex Japan Index1 | MSCI Emerging Markets Index1 | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 3 Months3 | 9.11 | 9.15 | 9.22 | 9.22 | 12.46 | 11.99 | ||||||
| 6 Months3 |
5.78 |
5.96 |
6.00 |
6.00 |
14.50 |
15.27 |
||||||
| Since Conversion3 (9/1/2024) | 1.48 | 1.73 | (4.02) | (4.02) | 14.73 | 13.12 | ||||||
| 1 Year | 5.56 | 5.90 | (2.28) | 0.85 | 16.81 | 15.29 | ||||||
| 3 Years | 7.03 | 7.29 | 2.93 | 15.65 | 9.24 | 9.70 | ||||||
| Since Inception (7/30/2021) | (0.74) | (0.50) | (3.10) | 10.14 | 1.41 | 1.44 |
| Performance listed in the above table is net of annual operating expenses. The gross annual expense ratio for the Retail Shares and Institutional Shares as of April 30, 2025 was 7.96% and 6.86%, respectively, but the net annual expense ratio was 1.45% and 1.20% (net of the Adviser’s fee waivers and expense reimbursements), respectively. The performance data quoted represents past performance. Past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate; an investor’s shares, when redeemed, may be worth more or less than their original cost. The Adviser waives and/or reimburses certain Fund expenses pursuant to a contract expiring on August 29, 2035, unless renewed for another 11-year term and the Fund’s transfer agency expenses may be reduced by expense offsets from an unaffiliated transfer agent, without which performance would have been lower. Current performance may be lower or higher than the performance data quoted. For performance information current to the most recent month end, visit BaronCapitalGroup.com or call 1-800-99-BARON. |
For the second quarter, we performed broadly in line with our Linked Benchmark. We are encouraged with the continued recovery of Indian equities from the lows of February, despite ongoing uncertainties relating to global tariffs and recent geopolitical tensions in the Middle East. Markets also held steady during a brief military skirmish between India and Pakistan in May. We believe investors are beginning to discount growing signs of an economic recovery, driven by a rebound in government infrastructure capex and recent tax cuts for the middle class. An expected normal monsoon season should also be stimulative to the rural economy. In addition, the Reserve Bank of India (RBI) continues to embark on a monetary easing cycle to bolster economic growth, most recently with a surprise 50-basis point cut in June. Year-to-date, the central bank has lowered repo rates by 100-basis points with growing expectations for further easing owing to a benign inflationary environment and a weaker U.S. dollar. We are entering the early innings of an earnings upgrade cycle that, in our view, should support relative outperformance over the foreseeable future. Lastly, the U.S. and India are making good progress toward signing a bilateral trade agreement that should serve as another potential upside catalyst for Indian equities. That said, the Fund has minimal exposure to businesses that export goods to the U.S., giving us comfort on downside protection in the event of an adverse outcome.
From a sector or theme perspective, adverse stock selection effect in the Financials sector, primarily attributable to our consumer finance theme (Kotak Mahindra Bank Limited, Bajaj Finserv Limited, and Cholamandalam Investment and Finance Company Limited), was the largest detractor to relative performance during the quarter. Kotak, a leading private sector bank, is emerging from certain regulatory headwinds which is positioning the company to deliver robust loan growth with improving asset quality going forward. After generating superior returns earlier in the year, Kotak’s stock performance was relatively muted during the quarter, which wasn’t surprising to us. We remain excited about Kotak owing to improving business prospects along with recent RBI monetary stimulus measures, particularly a 100-basis point cut in the Cash Reserve Ratio, that should further support earnings growth. Our underweight positioning in the Energy sector, which generated double-digit returns during the period, also weighed on relative results. We will typically remain underweight Energy given the commodity/cyclical nature of the sector.
Broadly offsetting the above was solid stock selection effect in the Health Care sector, largely driven by our investments in Aster DM Healthcare Limited and Max Healthcare Institute Limited, which form part of our formalization of the economy theme. We are optimistic about India’s hospital services industry, which is expected to sustain low to mid-teens growth over the next several years. With a rising middle class and growing discretionary incomes, we are witnessing a structural shift in consumer preference toward organized, high-quality, hospital chains that today account for only 5% to 10% of the industry. We believe there is a massive opportunity for industry consolidation to play out over the next few years and expect both Aster and Max Healthcare to be key beneficiaries of this structural trend. Favorable allocation effect and good stock selection in the Communication Services (Bharti Airtel Limited and Indus Towers Limited), Information Technology (Centum Electronics Limited and Kaynes Technology India Limited), and Industrials (Precision Wires India Limited and InterGlobe Aviation Limited) sectors were also notable contributors to relative performance during the quarter.
Top Contributors & Detractors
| Contribution to Return (%) | |
|---|---|
| Bharti Airtel Limited | 1.61 |
| Max Healthcare Institute Limited | 0.78 |
| Reliance Industries Limited | 0.74 |
| InterGlobe Aviation Limited | 0.74 |
| Eternal Limited | 0.63 |
Bharti Airtel Limited is a leading telecommunications company, with operations in 18 countries across Asia and Africa. The company’s offerings include wireless services, mobile commerce, and fixed-line broadband. Shares rose on steady earnings and growing visibility into strong future free cash flow generation, as the company has moved past peak capex intensity. As India’s dominant mobile operator, Bharti Airtel is benefiting from ongoing industry consolidation. In particular, competitor Vodafone Idea appears on the verge of bankruptcy amid severe pricing pressure and an unsustainable balance sheet. We retain conviction in Bharti Airtel as it continues to transform into a digital services provider and capitalize on rising mobile tariffs.
Max Healthcare Institute Limited is a leading hospital chain in India led by CEO Abhay Soi, a restructuring specialist with expertise in cutting costs and improving return metrics at poorly managed hospitals. These efforts have helped Max Healthcare stand out among its peers with best-in-class EBITDA margins, average revenue per occupied bed, and return on invested capital. Shares rose during the quarter, driven by sustained revenue and profitability growth, as well as strong visibility into network expansion. We are excited about the multi-year growth opportunity for hospital services in India, and we view Max Healthcare as a key beneficiary of ongoing industry consolidation. We expect the company to more than double EBITDA while sustaining mid-teens revenue growth over the next three to five years.
Reliance Industries Limited is India’s leading conglomerate, with businesses spanning petrochemicals, refining, and oil- and gas-related operations as well as retail, telecommunications, and media. Shares rose during the quarter due to a strong recovery in retail growth following a period of store rationalization. We believe Reliance is well positioned to leverage its telecommunications network to evolve into a digital services company, with offerings such as video streaming, broadband, and e-commerce services. The company is also laying the foundation to create an online marketplace that will connect roughly 13 million mom-and-pop retailers to over 480 million mobile and internet subscribers. We believe earnings will sustain mid-teens growth over the next three to five years.
| Contribution to Return (%) | |
|---|---|
| Tata Consultancy Services Limited | (0.22) |
| Shaily Engineering Plastics Limited | (0.12) |
| Siemens Energy India Limited | (0.04) |
| Kotak Mahindra Bank Limited | (0.04) |
| REC Limited | (0.03) |
Tata Consultancy Services Limited (TCS) is India’s largest IT services company. Shares were down due to investor concerns that a slowdown in the global economy could lead to lower discretionary IT spending and a prolonged revenue conversion cycle for TCS. We retain conviction in TCS, as it is uniquely positioned to benefit from structural growth opportunities arising from a multi-year cloud migration journey by global enterprises. Given its large scale and R&D capabilities, we believe the company will continue to capture share from smaller players as customers increasingly consolidate their IT services vendor base. Backed by the renowned Tata Group, TCS enjoys best-in-class corporate governance and a strong leadership bench. In our view, TCS also stands out from competition due to its best-in-class employee retention, which is one of the key drivers of its industry-leading profitability and return profile. We expect TCS to sustain low double-digit earnings growth over the next three to five years and to consistently return at least 80% of profit to shareholders through dividends and share buybacks.
Shaily Engineering Plastics Limited is a leading Indian manufacturer of precision injection-molded plastic components, with diverse product offerings spanning categories such as furniture, pharmaceuticals, and toys. Shares fell during the quarter, likely due to profit-taking, despite the company reporting strong quarterly results and outlining plans for a significant ramp-up in its GLP-1 pen business over the coming year. We remain invested in Shaily, as we believe the company is well positioned to benefit from global supply chain diversification away from China, as well as opportunities in GLP-1 pen manufacturing.
Siemens Energy India Limited (SEIL) is India’s leading power equipment manufacturer, offering solutions for power generation and transmission. The company’s product portfolio includes power transformers, generators, and gas and steam turbines. SEIL was a modest detractor during the quarter after we received shares as part of a spin-off from Siemens Limited. We retain conviction in SEIL as a key beneficiary of India’s ongoing power sector reforms, which are expected to drive a multi-year investment cycle in interstate transmission infrastructure to meet rising electricity demand and integrate renewable energy sources into the national grid. In our view, SEIL is well positioned to capitalize on this opportunity given its broad capabilities across equipment, services, and engineering, procurement, and construction. We expect the company to deliver over 20% compounded earnings growth over the next three to five years.
Portfolio Structure
We combine a bottom-up investment approach with a thematic overlay to construct and manage a portfolio of high-quality, competitively advantaged companies located in India. Consistent with the “Baron Approach,” we invest behind value-creating, private sector entrepreneurs with significant ownership stakes, whose businesses are either gaining market share, disrupting, or consolidating their respective industries. We leverage our deep relationships in India to discover and invest in growth-oriented businesses for the long term.
The Fund is a diversified, all-cap strategy with the flexibility to invest across market caps, especially in small- and mid-cap stocks where we see significant mispricing due to limited sell-side coverage and/or those that remain “under the radar.” We typically invest across 30 to 50 stocks and concentrate capital toward our highest conviction ideas. As of June 30, 2025, we held 44 positions with our 10 largest investments comprising 51.0% of net assets.
Our principal investment themes with respective weightings (as of June 30, 2025) are as follows:
- Formalization of the Economy (28.0% of net assets): Economic reforms are accelerating formalization leading to market share gains for organized, branded players across various industries
- Consumer Finance (24.7%): Low penetration levels; industry poised to grow mid-to high teens over the next several years; well managed private sector players to gain market share
- Digitization (22.6%): India’s rising middle class and smartphone penetration (over 700 million and growing) is creating significant opportunities across e-commerce, food tech, digital streaming, and fintech
- Global Security/Supply Chain Diversification (10.9%): Tectonic shifts in geopolitics are accelerating supply chain diversification (ex-China); significant opportunity for Indian players to gain market share in global supply chains
- Power Reforms (6.0%): Market friendly reforms along with growing demand for electricity in India (real estate, manufacturing, data centers, AC penetration) is necessitating a multi-year investment cycle in power generation and transmission
- Financialization of Savings (4.5%): Structural shift in household savings from gold/real estate into financial products such as equities/life insurance savings policies; capital market proxies along with asset managers/life insurers to benefit
We also segment the portfolio based on a S-curve analysis to serve as a form of risk management framework with respective weightings (as of June 30, 2025) as follows:
- Phase 1 (10.0% of net assets): “Under the Radar” or in “Investment Mode” – a phase of market mispricing/time arbitrage and an opportunity for significant alpha generation as these businesses enter Phase 2
- Phase 2 (18.6%): “Disruptors” or “Scale Builders” – this is a period when our holdings should generate non-linear growth and continued alpha capture on price discovery, earnings upgrades, and/or market disruption
- Phase 3 (46.1%): “Compounders” – post scale up, our companies have established durable competitive moats and are well positioned to compound capital and earnings over the next several years
- Phase 4 (22.1%): “Market Performers/Mature Businesses” – period of stable growth with good earnings visibility; allocation to this segment will be viewed from a risk management / portfolio beta perspective
| Percent of Net Assets (%) | |
|---|---|
| Bharti Airtel Limited | 8.5 |
| Max Healthcare Institute Limited | 7.3 |
| ICICI Bank Limited (IBN) | 6.4 |
| InterGlobe Aviation Limited | 4.8 |
| Reliance Industries Limited | 4.7 |
| HDFC Bank Limited (HDB) | 4.7 |
| Bajaj Finance Limited | 4.7 |
| Trent Limited | 3.4 |
| Cholamandalam Investment and Finance Company Limited | 3.3 |
| Tata Consultancy Services Limited | 3.1 |
| Percent of Net Assets (%) | |
|---|---|
| Financials | 29.7 |
| Industrials | 13.6 |
| Communication Services | 11.2 |
| Health Care | 11.2 |
| Consumer Discretionary | 10.3 |
| Information Technology | 7.5 |
| Energy | 4.7 |
| Consumer Staples | 4.0 |
| Utilities | 2.5 |
| Materials | 1.0 |
| Real Estate | 0.9 |
| Cash and Cash Equivalents | 3.3 |
| Total | 100.0* |
* Individual weights may not sum to the displayed total due to rounding.
Recent Activity
During the second quarter, we added one new investment to an existing theme while also rebalancing weights of a few holdings based on company specific fundamentals. We strive to concentrate capital toward our highest conviction ideas.
We increased exposure to our global security/supply chain diversification theme by initiating a position in Centum Electronics Limited, a leading electronics manufacturing services provider in India. Centum offers engineering research and development, manufacturing services, and build-to-specification solutions for mission-critical applications across a variety of end industries, including defense, aerospace, industrial, automotive, and health care. With over three decades of industry expertise and a core emphasis on quality control, the company has established strong relationships with marquee global clients, such as Thales (OTCPK:THLEF), as well as key Indian government entities, including the Defense Research and Development Organization and the Indian Space Research Organization. In our view, Centum is well positioned to benefit from the government’s “Make in India” initiative, which encourages import substitution of electronic products and components by providing attractive tax subsidies and manufacturing infrastructure. In addition, amid escalating geopolitical tensions, we see further upside from India’s accelerated efforts to indigenize the design, development, and manufacturing of defense equipment, such as surveillance satellites, an area where electronic system providers like Centum stand to benefit. We are also encouraged by the company’s commitment to restructure its loss-making Canadian subsidiary and enhance operational efficiency at its French division. We expect Centum to deliver 18% to 20% compounded revenue growth and 25% to 30% compounded EBITDA growth over the next three to five years.
Finally, we added to several of our existing positions during the quarter, most notably Max Healthcare Institute Limited, ICICI Bank Limited, Bharti Airtel Limited, Reliance Industries Limited, HDFC Bank Limited, Trent Limited, and InterGlobe Aviation Limited. During the quarter, we did not exit any of our positions.
Outlook
While we expected increased market volatility entering 2025, owing to proposed global tariffs and a dynamic geopolitical environment, we are encouraged by the resilience of Indian equities and broader emerging (EM)/international markets year-to-date. As the Trump Administration continues to negotiate trade deals with several countries and while ongoing tensions in the Middle East and near-term spikes in oil prices make newsworthy (and rather scary) headlines, we are focused on doubling our due diligence/research efforts to opportunistically increase exposure to our highest conviction ideas during periods of market uncertainty. While we cannot predict policy outcomes or geopolitical events, we can control our time spent interacting with company management and engaging with industry experts to better position us to “buy the dip.”
We believe India is entering an earnings upgrade cycle that bodes well for relative outperformance over the foreseeable future. Green shoot signs of an economic recovery, driven by a rebound in government infrastructure spend and recent tax cuts are beginning to get discounted by investors, in our view. Under the new leadership of Governor Sanjay Malhotra, the RBI has renewed its focus on economic growth by kickstarting a monetary easing cycle and reducing regulatory complexity. In our opinion, such policy measures should support higher credit growth and have a multiplier effect on the broader economy. In addition, an expected normal monsoon season will likely boost farmer incomes and stimulate rural consumption. The ongoing correction in the U.S. dollar, attributable to declining interest rate differentials between U.S. and international bond yields and concerns over tariff related inflationary pressures amid a slowing U.S. economy, should be another tailwind for the Rupee, India’s currency, and broadly for Indian equities. Lastly, from a trade perspective, we believe the U.S. and India are making good progress toward signing a bilateral trade agreement that should serve as another potential upside catalyst for Indian markets. We continue to view India as the big “relative winner” in the aftermath of “Liberation Day” as the country is one of the least impacted from a trade war and a likely global slowdown, given it is primarily a domestic consumer driven economy with a low share of world exports.
We remain excited and optimistic about the multi-decadal growth opportunity that lies ahead for India and truly believe the country has become a “breakout” investment destination within the EM/international landscape. Productivity-enhancing economic reforms are kickstarting a virtuous investment cycle and positioning India as the fastest growing large economy in the world this decade. In our view, India’s roughly $4 trillion economy, growing 6% to 8% in real terms and 10% to 12% in nominal terms, will leap ahead of Germany in the next two to three years to become the third largest economy, only trailing the U.S. and China. India is also a key beneficiary of the tectonic shifts in the geopolitical environment, amid rising tensions between the U.S and China, with a critical mass of global corporates favorably viewing the country as an attractive destination to diversify manufacturing and supply chains ex-China.
Over time, we have little doubt India will become a dedicated asset class for global allocators given the superior risk adjusted returns generated over the past two plus decades, and the attractive growth outlook and geopolitical tailwinds that lie ahead. The MSCI India Index has generated 9.88% annualized returns (in U.S. dollars) over the past 20 years compared to 6.45% for the MSCI Emerging Markets Index and 5.83% for the MSCI ACWI ex USA Index. Put another way, $10,000 invested in India two decades ago is now worth approximately $66,000, compared to around $35,000 and $31,000 for EM and international equities, respectively.
Thank you for investing in the Baron India Fund.
Sincerely,
Anuj Aggarwal, Portfolio Manager
Michael Kass, Portfolio Manager Adviser
|
The performance data quoted represents past performance. Past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate; an investor’s shares, when redeemed, may be worth more or less than their original cost. The Adviser waives and/or reimburses or may waive or reimburse certain Funds expenses pursuant to a contract expiring on August 29, 2035, unless renewed for another 11-year term and the Funds’ transfer agency expenses may be reduced by expense offsets from an unaffiliated transfer agent, without which performance would have been lower. Current performance may be lower or higher than the performance data quoted. For performance information current to the most recent month end, visit BaronCapitalGroup.com or call 1-800-99-BARON. Investors should consider the investment objectives, risks, and charges and expenses of the investment carefully before investing. The prospectus and summary prospectuses contain this and other information about the Funds. You may obtain them from the Funds’ distributor, Baron Capital, Inc., by calling 1-800-99-BARON or visiting BaronCapitalGroup.com. Please read them carefully before investing. Risks: All investments are subject to risk and may lose value. |
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