C4Q25 Strategy Update
We are sharing summary of our C4Q25 investor letter:
Dear Investors:
In relatively more retail-heavy markets such as India, reliance on sell-side advice (or rather any publicly communicated advice) is often high. In this calendar alone, sell-side narratives have thrown nearly anything to keep domestic thrill-seekers entertained - Recall growth acceleration suggestions off of a religious event that occurs once every 144 years(!!), or similar postulation because of the 8th pay commission. These cheerful street narratives can often toggle between naïve and nonsense. While sell-side estimates globally tend to be predictably cheerful, Indian sell-side estimates usually reflect relatively more optimism. Quite a bit more! >90% of all months over the past 2 decades have had Nifty50 components receive more earnings downgrades than upgrades. To put that in perspective, since the global financial crisis, none of MSCI EM, S&P 500, or Stoxx 600 have shown nearly as sharp or as consistent earnings downgrades as we have witnessed for Nifty50. Essentially, Dalal street’s underlying expectations are nearly never grounded.
Despite expectedly sharp downgrades over the last year, India’s large-cap benchmark has somehow managed to stay flat, further elevating it from 22.5x F2025 (Mar) EBITDA (ex-financials) a year ago to just under 30x F2026E (Mar) EBITDA[1] by end of C3Q. Headline smallcaps meanwhile have seen >20% expansion in the multiple despite losing about 9% in value over the past year. Domestic investors meanwhile remain thoroughly desensitized to value. They need a long-delayed memo that capital flows and jubilation have absolutely no power to create enduring value. These flows merely serve to create/expand disconnects, until they can’t.
In C3Q25, Minerva India Under-served strategy was down -2.74% (net; in INR), vs. -4.56%, -4.14%, and -3.59% declines (gross; in INR) in BSE Smallcap, BSE Midcap, and BSE 500 respectively. Over the past year, Minerva India Under-served strategy was flattish (net; in INR), vs. -8.6%, -9.0%, and -6.6% declines (gross; in INR) in BSE Smallcap, BSE Midcap, and BSE 500 respectively. Over the past 5 years, Minerva India Under-served strategy was up +29.0% annualized (net; in INR), vs. +28.6%, +25.0%, and +19.2% annualized gains (gross; in INR) in BSE Smallcap, BSE Midcap, and BSE 500 respectively. Over nearly 15 years of deployment in India, Minerva India Under-served strategy is up +17.3% annualized (net; in INR), vs. +13.1%, +13.5%, and +11.3% annualized gains (gross; in INR) in BSE Smallcap, BSE Midcap, and BSE 500 respectively.
Minerva India Under-served Fund (Tattva series USD), which tracks our INR strategy[2], was down -5.58% (net; in USD) for the quarter, with -3.66% of that attributable to just weaker INR. It should be noted that reported performance of Minerva India Under-served Fund (Tattva series USD) is net of not only taxes paid on realized gains, but also tax accruals on unrealized gains. Despite having camped within the smaller end of India’s smallcap space, strategy’s since-inception annualized volatility has been nearly 250 bps below that of BSE Smallcap. To see how our upside and downside volatility have moved over time, in both absolute and relative terms, please click here.
Despite India under pacing EM peers by around 30% over the last year, headline India’s valuations still remain undeniably steep and in certain sectors (Consumer staples, Real estate, Consumer discretionary, and Industrials[3]) outright hallucinatory. Meanwhile absolute growth in headline names remains poor, and earnings estimate revisions continue to trail emerging markets and other peers.
If you thought retail crowd winning at investing for 2 years running ( atleast in most G7 markets) was astonishing, they’ve likely gone one better. Unless the fourth calendar quarter pulls out a bunny, it would be the third straight outperformance year for retail folks. Retail darlings in several markets have obliterated just about any benchmark. Unsurprisingly then, this has driven record valuations, and disconnects vs. underlying cash flows have now widened to unsustainable levels. We argue that the eventual drawdown could be one for the ages, given the sheer extent of ‘inexperienced participation’ globally in general, and India in particular. India isn’t quite used to ever going through an extended period of transmission of pain from ticker tape to main street’s consumption. We expect a rather painful ‘initiation’ for India’s young investors at this time, and we suspect that after-effects could be amplified this time around.
Impact of tariffs (assuming status quo) on employment cannot be overstated. As we write this investor letter, United States has imposed sanctions that directly target Russian oil majors, Rosneft and Lukoil. Since the decision making has now been effectively deflected from the Indian government to domestic crude importers in this case, it certainly makes for a solid case for political posturing to take a backseat, thereby potentially breaking the diplomatic deadlock.
Should the 25% “extra penalty” on India go away, given continued weakness in the INR, we see the Indian shrimp industry somewhat less impacted, at least in relative terms[5]. However, in case the penalty sticks, shrimp farming in India would be decidedly cooked[6] (figuratively speaking). Regardless of whether the penalty remains or is done away with, we see continued pain for India based textiles and apparel exporters, who in any case weren’t the most competitive vs. their subcontinent and ASEAN peers. It would therefore be silly to understate the overall tariff impact, particularly when the hiring environment elsewhere in India remains clearly muted. Our recent checks within staples distribution suggest that adjusted for the seasonal impact of Diwali, staples consumption, within cities/towns where exports to United States were a key driver of underlying consumption (Surat, Tirupur, Guntur etc.), is already witnessing low single-digit declines in volumes.
Since India continues to waddle through what remains a disturbingly sticky challenge – ‘moving people away from farms[7]’, policy action has always been inevitably forced into the ‘easy’ (read ‘ineffective’) decision of pasting hefty tariffs on imports, and consequently burdening domestic end-users of all things ranging from poultry to ethanol. At the expense of sounding harsh, it isn’t United States’ obligation to fund shrimp farming in Andhra Pradesh, while India remains an effectively closed[8] territory for corn farmers in Iowa. That US did so for years was down to its greater self-interest, even as it decidedly harmed aquaculture in certain Southern states. We would be remiss if we don’t stress upon the key theoretical plank behind which globalization has always been pushed – ‘free and fair competition’. When it’s not ‘free’ or ‘fair’, it opens itself to critique, and certain countries are likely to be called out. We argue that India’s insanely high barriers only serve to protect select interests, while unfairly restricting expansion of several competitive suppliers. Street jingoism however can entirely hijack such critical, albeit uneasy, narratives.
Assuming that nothing changes over the next two weeks, India would keenly await US Supreme Court hearing of tariff arguments (beginning November 5th). However, a favorable outcome may not necessarily be seminal for subsequent trade. For instance, baseline tariffs can still be eliminated for certain countries vs. others, thereby establishing relative losers. Regardless, a ‘favorable’ Supreme court decision doesn’t alter the fact that headline Indian equities, nearly across the capitalization spectrum, remain draped in different shades of codswallop, with or without tariffs.
Elsewhere, given how the Euro has moved YTD, we believe that tariff-induced supply chain shifts would almost certainly drive inflationary pressure in United States over the coming quarters, and arguably softer prices in Europe, which is certainly a far more attractive market for most Asian exporters now.
Cuts in indirect taxes was timely, but benefits do not match street’s boisterous narrative. While up-trading across categories (that saw tax cuts) was expected, we are far off from the camp that expects a double-digit increase in say staples volumes. Our national checks suggest that volumes within staples categories should post about a mid-single digit growth vs. last year’s depressed Diwali base, which would be a somewhat soft acceleration from the 3-4% growth we had observed in the first 3 quarters of this calendar. Our discussions suggest that this soft acceleration is entirely attributable to recent indirect tax cuts. For context, in September (prior to the announced cuts kicking in), downtrading levels remained elevated, and had in fact worsened in metros while improving in non-metros.
September headlines for discretionary consumption were noisy - This year’s ‘Navratri’ shift to September masked continued weakness in India’s discretionary consumption. Tax cuts mostly only served to push consumers from ‘shraddh’ to ‘navratri’, and uptrade in select categories. September’s automotive sales headlines largely reflected shifts in the Hindu calendar. Adjusted for this shift, our discussions within automotive dealerships suggest that pent-up demand because of anticipated tax cuts has masked what is otherwise a clearly struggling consumer. In fact, if one were to look at ‘Shradhh + Navratri’ period[9], vs. monthly headlines, growth appears to be largely missing across most OEMs, with pronounced weakness in cars. Dealer-level inventories within both two-wheelers and cars meanwhile continue to be elevated.
Our checks suggest that median 2W ‘Navratri’ sales increased by around 11% vs. last year. While India’s mainstream media has mostly attributed this to the recent GST slab rationalization, it is critical to note that sales during the preceding ‘Shradhh’ period had likely dropped by around 13%, as buyers deferred purchases in anticipation of GST-influenced price cuts. Once adjusted for this shift, our checks indicate that 2W sales were likely about flattish vs. last year, suggesting that tax cuts have had little to no impact on two-wheeler demand. The only notable exception we would cite here would be Royal Enfield, where sales likely increased by ~30% over this period. That said, this reflects sustained underlying momentum because of its solid launch calendar (model launch share increasing from low-teens last year to high-teens in this fiscal) and a significantly different target-consumer,[10] vs. acceleration due to GST cuts. We note that pre-Navratri dealer inventory swells across 2W OEMs about matched what we saw last year, with the exception of Hero Motocorp, where inventory spiked sharply. Incidentally, our discussions suggest that it was likely the only OEM that managed to eke out some growth during the ‘Shradhh + Navratri’ period, which we believe was likely driven by more discounting (relatively speaking) vs. peers, since growth here was largely driven by legacy models. This is particularly critical since OEMs such as Yamaha and Honda (HMSI), which have two of the heaviest new model calendars in F2026, likely reported no growth during the ‘Shradhh + ‘Navratri’ period.
Car sales meanwhile appeared worse. Median car sales (across OEMs) likely increased by close to 25% during ‘Navratri’, after declining 30% during the ‘Shradhh’ period, which effectively translates into a mid-single digit overall decline for the ‘Shradhh + Navratri’ period. Relatively more subdued performance of Kia can be attributed to its weak launch calendar. In contrast, Maruti Suzuki and Tata Motors delivered relatively less worse declines, supported by their higher presence in segments that benefitted more from the GST rate cuts, with sub-1,200 cc models accounting for >80% of total sales for both OEMs.
Impact of tech layoffs and export related cuts are increasingly evident. We note that layoff announcements within tech[11] names have already begun to influence weakness within discretionary spends in ‘tech-heavy’ cities[12]. This is somewhat similar to the adverse wealth effect we had noted earlier this year after material drawdowns in Indian stocks led to a disproportionate impact in relatively high equity-ownership clusters[13]. Other than iPhones, where the new launch makes the comparisons noisy, we note a materially weaker discretionary consumer in the tech-cluster across other discretionary categories such as luxury watches, or premium apparel and footwear, with weakness in luxury watches being particularly broad-based across the tech cluster. This is at a time when amazingly sticky F2026E street estimates for a leading luxury watch retailer in India are being capitalized in the mid-50s.
Even as our exposure increased YTD, we continued to huddle into fewer securities. Minerva India Under-served ended C3Q25 with only 10 holdings. For context, we haven’t held as few positions since August 2012. This is despite our net exposure increasing from 61% at the beginning of the calendar to 70% at the end of last quarter. We have actively exited tail exposures this year, even as we continued to add to our highest conviction holdings - Essentially, our ability to identify high-conviction incremental value has somewhat waned as the year has progressed, and therefore exposure increases have almost entirely come off of capitalizing upon intermittent and indiscriminate panic elsewhere.
Interestingly, our portfolio concentration has coincided with what appears to be an increasingly ‘constructive’ street view on (at least) Nifty50 valuations and associated earnings. For whatever it’s worth, we can’t get around to owning majority of these headline names 25% lower from here, let alone 15% higher. Accordingly, we thoroughly diverge from the camp that expects anything other than investment-grade credit like returns within headline Indian equities over the next few years.
At 70%, our net exposure remained unchanged during C3Q25. That said, there was considerable rejig within the book – We completely exited two positions (An auto parts name, and a television broadcasting name), while also paring exposure in another traditional broadcasting name. This however was offset by significant increase in exposure in a legacy forestry name, which is now also our biggest position, while also adding in a couple of existing consumer discretionary holdings.
Idiosyncrasies are driving significant growth within our top-5 holdings in this fiscal, with all of them likely to deliver double digit EBITDA growth, and all but one likely to report earnings growth in at least the mid-20s. This positioning cost us 9.7x F2026E (Mar) EBITDA at quarter-end, or about 6% below this book’s own pre-pandemic[14] multiple. This at a time when nearly all benchmarks trade well off of their pre-pandemic averages.
To access the entire letter, please click here.
[1] About 18.5x F2026E (Mar) EBITDA, if we were to exclude Grasim and Eternal
[2] Our INR strategy performance is reported net of mgmt fees and all charges, but before performance fees. Our performance fees typically gets crystallized @10% over a 10% hurdle. Our USD fund performance is net of all actual and accrued taxes, charges and fees, including monthly performance fee accruals, if any; Our mgmt fees is accrued monthly for INR strategy reporting purposes, even as its charged quarterly. Vast majority of our clients in our separately managed accounts structure are aligned and are run on the same strategy with nearly same allocations (unless expressly requested otherwise). Our offshore commingled fund is also aligned with the INR strategy, with insignificant tracking error.
[3] While Indian Consumer Staples and Real Estate ended C3Q trading at >300% premiums over EM peers, Consumer discretionary and Industrials traded at around 200% or higher premiums. The latter two are particularly interesting since state ownerships within these sectors in India is higher than what we see at their EM peers.
[4] Despite sharper cuts in India, the median core earnings beat within headline names (i.e. Nifty50 components excluding Financials, Energy, and Materials) still underpaced that at EM peers in the first half of this calendar.
[5] Since Ecuador (primary alternative to the Indian shrimp industry) has been dollarized since the turn of the century
[6] Vast majority of India’s shrimp exports are unprocessed, and are therefore quickly replaceable
[7] From a much lower base a decade ago (~30% of population engaged in farming), emerging South East Asian nations have catalyzed about as fast a migration off of farms as India has managed.
[8] Barely 1% of India’s corn consumption gets imported, before onerous BCD of 50% (plus ‘social welfare charge’ and IGST) kicks in
[9] We arrive at this through dealership checks and empirical evidence around how sales typically shift between ‘Shradhh’ and ‘Navratri’.
[10] Urban adventure-seeking riders
[11] 50,000 layoffs announced until F2Q26 (Sept), representing ~2% of tech workforce
[12] We considered the following within India’s tech cluster - Bangalore, Hyderabad, Pune, Gurgaon, and Noida. For contrast, the following were classified under the ‘non-tech’ cluster - Lucknow, Bhopal, Ahmedabad, Indore, Bhubaneswar, and Goa
[13] Mumbai, Delhi, Pune, Bangalore, and Kolkata were included within ‘high equity ownership’ cities. This cluster’s sales trend was then stacked against Hyderabad, Ahmedabad, Jaipur, Baroda, and Surat (included within ‘low equity ownership’ cities).
[14] 2014-2019 average, including both years