Baron India Fund | Q1 2025

Dear Baron India Fund Shareholder:

Baron India Fund® (the Fund) declined 2.93% (Institutional Shares) during the first quarter of 2025, while its relevant benchmark, the MSCI AC Asia ex Japan/India Linked Index (the Linked Benchmark), was down 2.95%. 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 an India dedicated strategy beginning September 1, 2024, the Fund has outperformed the MSCI India Index by 532 basis points.

For the first quarter, we performed in line with our Linked Benchmark. As expressed in our December 2024 letter, we expected to enter 2025 with increased market volatility due to uncertainties around global trade and tariff hikes as proposed by President Trump. Indian equities declined by over 11% through February, followed by a smart recovery to end the quarter as the worst of the ongoing earnings downgrade cycle is now likely behind. Green shoot signs of an economic recovery are emerging, driven by a rebound in government spending on productivity-enhancing infrastructure capex. During the period, India also announced significant tax cuts for the middle class which should further bolster economic growth. In addition, the Reserve Bank of India, India’s central bank, kickstarted a monetary easing cycle by cutting repo rates by 25 basis points and injecting significant liquidity into the banking system. Such policy measures support our view of an earnings recovery going into the second half of 2025. From a trade perspective, India, compared to other emerging market peers, will be one of the least impacted from recently proposed U.S. tariffs given it is primarily a domestic consumer driven economy with a low share of global trade. Exports of goods to the U.S. account for only around 2% of India’s GDP. The Fund has a small allocation to export-oriented businesses, with minimal exposure to those that supply goods to the U.S. Lastly, the recent weakness in the U.S. dollar, attributable to declining interest rate differentials between U.S. and international bond yields, coupled with a growing likelihood of a U.S. economic slowdown and/or recession, should be a relative tailwind for Indian equities and the Rupee.

From a sector or theme perspective, our overweight positioning together with solid stock selection effect in the Financials sector, primarily attributable to our consumer finance theme (Bajaj Finance Limited (BFL) and Cholamandalam Investment and Finance Company Limited (Chola)), contributed the most to relative performance during the quarter. BFL, a leading non-bank financial company, leverages its proprietary data analytics platform to earn superior risk adjusted returns with an impressive ROE of over 20%. In our view, the company, under the leadership of Rajeev Jain and Anup Saha, has a best-in-class management team that has consistently delivered strong double-digit earnings growth and shareholder returns over the past decade. We are also excited about our investment in Chola, a leading financier of commercial vehicles, that is diversifying its product suite to include mortgages, personal loans, and SME (small enterprise) lending. We expect Chola to sustain roughly 20% compounded earnings growth over the next three to five years as its new business verticals become more profitable with increased scale and effective risk management. Favorable stock selection in the Industrials sector, driven primarily by our investment in InterGlobe Aviation Limited (IndiGo), also stood out as a key contributor to relative results. IndiGo is India’s largest airline with over 60% market share. While we typically shy away from investing in airlines, we believe IndiGo is unique given its dominant position in a quasi-duopoly industry, wherein the top two players control over 90% of the market. India’s aviation sector is expected to grow low teens over the next several years driven by rising discretionary incomes and improving airport infrastructure, especially in tier 2 and 3 cities. IndiGo is also competitively advantaged as it has one of the lowest industry cost structures in the world and primarily sources aircrafts from Airbus, which unlike its competitor, Boeing, has not suffered severe business disruptions. The company’s key rival, Air India, that relies more on Boeing for new planes, is unable to add sufficient capacity in a fast-growing industry, further adding to IndiGo’s moat. Lastly, our large overweight positioning in the Communication Services sector also bolstered relative performance during the period. Broadly offsetting the above was adverse stock selection effect in Consumer Discretionary (Trent Limited and Zomato Limited) and Information Technology (Kaynes Technology India Limited). Our underweight positioning combined with weak stock selection effect in the Materials sector also weighed on relative results.

Bajaj Finance Limited (BFL) is a leading non-bank financial company in India. Shares increased on strong quarterly earnings and signs of easing concerns about asset quality. The recently announced transition of long-time Managing Director Rajeev Jain to an Executive Vice Chairman role was also welcomed by investors, as the move ensures continuity. We retain conviction in BFL due to its best-in-class management team, robust long-term growth outlook, and conservative risk management frameworks. We think the company is well positioned to benefit from growing demand for consumer financial services such as mortgages and personal and credit card loans, among other related products.

Bharti Airtel Limited contributed during the quarter driven by steady earnings performance and visibility into strong future free cash flow generation, as the company has passed its peak capex intensity. As India’s dominant mobile operator, Bharti Airtel is profiting from ongoing industry consolidation. In particular, Vodafone Idea, a key player and competitor, is on the verge of bankruptcy amid severe pricing pressure and an unsustainable balance sheet. We retain conviction as Bharti Airtel transforms into a digital services company and benefits from rising mobile tariffs.

Cholamandalam Investment and Finance Company Limited (Chola) is a leading non-bank financial services company in India. Chola’s core business is vehicle finance, and it has diversified into other verticals, including loans against property, home mortgages, and loans to small and medium-sized businesses (SME), which help offset the cyclicality of its auto financing business. Shares rose on better-than-expected quarterly earnings and improving asset quality trends. We retain conviction. The company takes a conservative approach to loan underwriting and collections, and it has demonstrated strong asset quality trends through credit cycles. In our view, Chola is well positioned to benefit from growing demand for consumer financial services in India, and we are optimistic about several opportunities, including its newly launched unsecured consumer and SME loans product and further roll out of its home loans. We expect Chola to sustain 20% to 25% loan growth over the next three to five years while generating an attractive 20%-plus return of equity.

Trent Limited is a leading retailer in India that sells private label apparel direct-to-consumer through its proprietary network. Shares were down this quarter on lower-than-expected quarterly sales due to soft consumer spending in India combined with some store upgrades and consolidations. We remain shareholders, as we believe the company will generate over 25% revenue growth in the near to medium term, driven by same-store-sales growth and outlet expansion. In addition, we believe operating leverage and a growing franchisee mix will lead to better profitability and return on capital, driving more than 30% EBITDA CAGR over the next three to five years.

Kaynes Technology India Limited is a leading electronics manufacturing service player in India, offering services across the automotive, industrial, railway, medical, and aerospace and defense industries. Shares were down this quarter due to lower-than-expected quarterly sales, as execution on a subset of industrial-related orders was temporarily delayed. We retain conviction in Kaynes Technology, as we believe it is well positioned to benefit from the government’s Make in India initiative, which encourages domestic manufacturing of electronic components by providing attractive tax subsidies and manufacturing infrastructure. We are excited about the company’s decision to set up an Outsourced Semiconductor Assembly and Test facility, which we believe represents significant incremental growth opportunity in the medium term. We expect the company to deliver over 30% compounded EBITDA growth over the next three to five years.

Zomato Limited is India’s leading food delivery platform, with roughly 55% market share. Shares were down this quarter due to greater-than-expected losses in its quick commerce business, as the company increased investment amid rising competition. We retain conviction, as we believe Zomato is well positioned for the long term in the quick commerce industry, given its first-mover advantage, scale, and superior execution. We think Zomato will continue to benefit from structural growth in online food delivery in India, potentially doubling its revenue as well as improving profitability and growing earnings over the next three to five years.

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 March 31, 2025, we held 42 positions with our 10 largest investments comprising 53.2% of net assets.

Our principal investment themes with respective weightings (as of March 31, 2025) are as follows:

• Consumer Finance (28.6% of net assets): 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 (25.2%): 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
• Formalization of the Economy (22.4%): Economic reforms are accelerating formalization leading to market share gains for organized, branded players across various industries
• Power Reforms (6.2%): 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
• Global Security/Supply Chain Diversification (5.7%): Tectonic shifts in geopolitics are accelerating supply chain diversification (ex-China); significant opportunity for Indian players to gain market share in global supply chains
• Financialization of Savings (3.7%): 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 March 31, 2025) as follows:

• Phase 1 (6.0% 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 (13.7%): “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 (48.7%): “Compounders” – post scale up, our companies have gained durable competitive moats and are well positioned to compound capital and earnings over the next several years
• Phase 4 (23.4%): “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

* Individual weights may not sum to the displayed total due to rounding.

Exposure by Market Cap: The Fund may invest in companies of any market capitalization, and we have generally been broadly diversified across large-, mid-, and small-cap companies, as we believe companies of all sizes in India can exhibit attractive growth potential. At the end of the first quarter of 2025, the Fund’s median market cap was $12.8 billion, and we were invested 58.5% in giant-cap companies, 24.7% in large-cap companies, 7.4% in mid-cap companies, and 1.2% in small and micro-cap companies, as defined by Morningstar, with the remainder in cash.

During the first quarter, we added three new investments to existing themes 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 consumer finance theme by initiating positions in Kotak Mahindra Bank Limited and Bajaj Finserv Limited. Kotak is India’s fourth largest private sector bank. It offers products across various verticals including commercial banking, consumer finance, securities lending, investment banking, asset management, and life insurance. In our view, the company embodies the hallmarks of a high-quality bank, with a strong deposit franchise, robust capital base, and a prudent approach to risk management. Having navigated India's rapid consumer loan expansion with a cautious approach, Kotak is now well positioned to drive balance sheet growth from a position of strength, particularly as deteriorating asset quality begins to affect its peers. In addition, the Reserve Bank of India’s recent decision to lift restrictions on digital client onboarding and credit card issuance marks a significant inflection point, enabling Kotak to expand its retail loan book more rapidly. This move not only allows the bank to acquire customers more cost-effectively but also strengthens its presence in the high-margin credit card segment, reinforcing its long-term growth trajectory. We believe Kotak is well positioned to sustain mid-teens earnings growth over the next three-to-five years, while also being less impacted from global trade related uncertainties given its focus on domestic consumption and corporate activity.

Bajaj Finserv is a leading financial services conglomerate and the parent entity of BFL, a top three position in the Fund. As a holding company, Bajaj Finserv has investments in various subsidiaries, which cater to over 100 million customers with a diversified product portfolio, helping individuals and businesses meet their financial and risk management goals. The company holds a 51% stake in BFL, a leading data-driven, non-bank financial company that offers housing loans, consumer durables financing, small- and medium-sized enterprise credit, and rural loans. Bajaj Finserv also owns and operates Bajaj Allianz Life Insurance Company (BALIC) and Bajaj Allianz General Insurance Company (BAGIC), which offer life, health, motor, and travel insurances. Indian households have historically carried very low debt. However, we believe the appetite for credit is changing, with growing demand for consumer loans and related services driven by a rising middle class with higher disposable incomes. Rising financialization of savings and increasing penetration of general insurance products such as health, property and casualty, and motor, together should create significant opportunities for BALIC and BAGIC, respectively. In our view, Bajaj Finserv is well positioned to capture the multi-year growth opportunity in financial services, with a diversified investment portfolio, best-in-class leadership team, and conservative risk management.

During the quarter, we also added to our formalization of the economy theme by building an investment in HealthCare Global Enterprises Limited (HCG), India’s largest cancer specialty care hospital chain with approximately 2,500 beds. India is the most populous country in the world, and an estimated one in nine people will develop cancer over their lifetime. In addition, the country’s cancer population is subject to significantly lower early-stage diagnosis and higher mortality rates compared to China and the U.S., due to low awareness, affordability, and availability of health care services. HCG addresses the under-served oncology market in India, operating 25 cancer centers across 10 states and serving both urban and rural regions. With the involvement of private equity investors, management has focused on cutting costs and improving return metrics following a period of debt-funded expansion. Going forward, we believe HCG will continue to turnaround acquired centers, improve profitability at greenfield sites, and drive operating leverage at mature facilities. We are excited about the multi-year growth opportunity that lies ahead for hospital services in India and believe HCG will be a key beneficiary of ongoing industry consolidation. We expect the company to deliver mid-teens compounded revenue growth and 18% to 20% compounded EBITDA growth over the next three-to-five years.

Finally, we added to several of our existing positions during the quarter, most notably Cholamandalam Investment and Finance Company Limited, InterGlobe Aviation Limited, Tata Consumer Products Limited, Max Healthcare Institute Limited, Tata Consultancy Services Limited, Power Grid Corporation of India Limited, and Bharti Airtel Limited. During the quarter, we also exited positions in JM Financial Limited, Zen Technologies Limited, Neogen Chemicals Limited, and Avenue Supermarts Limited due to uncertainties over durability of earnings growth and/or competitive positioning going forward.

We are entering a period of increased market volatility as elevated global tariffs imposed by the Trump administration, if not remedied soon, will, in our opinion, most likely lead to a U.S. recession and a broad global slowdown. While we cannot predict policy outcomes, we feel confident about the Fund’s thematic and bottom-up positioning with a key focus on risk management using our proprietary frameworks. India, in our opinion, is the big “relative winner” as the country is one of the least impacted from a trade war, given that it is primarily a domestic consumer driven economy with a low share of global trade. Goods exported to the U.S. account for only around 2% of India’s GDP, and as per our preliminary assessment, the impact of announced tariffs will modesty impact GDP growth to the tune of 0.2% to 0.7%. Put another way, India’s current real GDP growth trajectory will likely trend down from 6.5% to 7.0% to 6.0% to 6.5%, which still positions the country as the fastest growing large economy in the world. There are a few factors that could broadly offset the tariff impact. First, the U.S. and India are currently in active discussions to sign a Bilateral Trade Agreement (BTA) with a lofty goal to more than double trade to $500 billion by 2030. In our view, India will likely increase purchases of U.S. oil and gas, and defense equipment to narrow the current $46 billion trade surplus with the U.S. We are closely monitoring developments on this front as the execution of a BTA should trigger a meaningful reduction in tariffs and set the stage for increased bilateral trade - a win for both countries. Second, a global slowdown will have a deflationary impact on key imports for India, as is evident with the recent sharp correction in the price of crude oil and other commodities. A sustained weakness in energy prices will be a fiscal tailwind and boost consumption, as the country imports over 85% of its oil demand. Lastly, the recent correction in the U.S. dollar, attributable to declining interest rate differentials between U.S. and international bond yields, should be another relative tailwind for the Rupee, India’s currency, and broadly for Indian equities.

From a bottom-up perspective, we have allocated capital toward our highest conviction ideas that are less impacted from external shocks and those that are primarily levered to India’s domestic economic reforms and consumption plays. The Fund has a small allocation to export-oriented businesses, with minimal exposure to those that supply goods to the U.S. We have zero exposure to Indian pharmaceutical manufacturers that derive a material share of profits from U.S. sales. We are also underweight IT services providers whose forward earnings are increasingly at risk owing to a potential U.S. slowdown and/or recession. Our largest position, Bharti Airtel Limited, India’s leading telecommunication services provider that is benefiting from industry consolidation and mobile tariff hikes, should experience little to no adverse impact from global trade tensions, and is increasingly being viewed as a safe haven investment by a critical mass of investors.

Going forward, we believe U.S.-India economic and military ties will further strengthen given tectonic shifts in the geopolitical landscape, especially amid rising tensions between the U.S. and China. We are witnessing a paradigm shift in global supply chains, as corporates diversify their manufacturing footprint and vendor relationships ex-China, which should position India as an attractive export hub over time. Apple is a prime example we highlight to investors - the company has increased its iPhone production in India from just 1–2% a few years ago to around 20% today. This mega trend is likely to further accelerate owing to the recent extraordinarily high tariffs (rate of 145% as we write this letter) imposed on most Chinese goods by President Trump. As we enter an increasingly deglobalized world and transition to a “multipolar or regional” trading order, India, in our opinion, will continue its rise on the global stage as the world’s fastest growing large economy and source of opportunity for its trading partners. We believe “India is the New China” in such an environment.

We are optimistic and excited about India’s long-term growth potential and view any short-term market corrections as an excellent opportunity for investors to establish positions in one of the world’s most promising investment destinations. Over time, we believe 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.

Thank you for investing in Baron India Fund.

Sincerely,