Our Research

India to get more significant for Australian investors…. Why India? India is now the world’s 5th largest economy, at close to US$3.9 trillion, trailing only the US (29tn), China (19tn), Germany (4.6tn) and Japan (4.1tn)1. It is likely that India will surpass Germany and Japan by the end of the decade, given it will be the world’s fastest growing, major economy this decade. However, investors globally are underrepresented when it comes to exposure to India. The MSCI ACWI has a weighting of 1.7%, with most investors underweight India, in their overall global equity exposure. This has been driven by:  Low exposure to Emerging Markets (which have been a failed asset class over the past 15 years). Despite India’s significant outperformance of Emerging Markets, most allocators, researchers, and consultants still invest via broader buckets and hence their exposure is tainted by this thought process.  India is seen as “expensive and volatile” in nature as a stand-alone investment.  Western Media report only on only “events” rather than the growth and development being achieved.  However, for an AUD domiciled investor, there are several reasons why a specific allocation to Indian equities makes sense from a portfolio perspective. 1) Indian equities low correlation to Australian Equities and Global Equities, relative to Emerging Markets. India is a net-commodity importer which is uniquely different to Emerging Markets like South Africa, Brazil, Saudi Arabia as well as Australia. Hence is currency having a low correlation to commodity fuelled currencies like AUD or the EM basket. In fact, the INR/USD has about half the volatility of AUD/USD!2) India’s Nominal GDP growth and EPS growth have correlation (unlikely many other Emerging Markets). Nominal GDP growth has average 11-12% in India over the century, which is roughly equivalent to 11% EPS growth over the period. Impressively, India’s EPS growth has much lower volatility than the US or Australia – highlighting the impact of its demographics and under-penetration opportunity. Returns from India have surpassed most regions over the last 20 years. It is not a new story! Apart from the reasons of low correlation, robust and low volatility earnings growth, and high returns, we also note the following reasons (if we needed anymore): Corporate debt-to-equity in India is at a 25-year low, due to deleveraging by corporations over the last decade. Interest rates and inflation are lower than average over the last 20 years in India – a stark contrast to the rest of the world. India’s banking system has good liquidity, well placed in term of capital adequacy and a significantly lower level of non-performing assets (a significant improvement compared to 2018, post-bankruptcy and insolvency reform).  The INR is relatively stable given USD Forex Reserves are at an all time high and due to India’s inclusion in JP Morgan EM Bond Indices (June 2024).  The IT and Pharma Industries have been significant in seeing inbound capital. • The stock market is diverse, with the largest sector 25, largest company 7%.  India operates under a democracy, English Law and has had stable Government for 10 years now, with another 5 likely to follow. Rising Corporate Profitability India’s corporate profitability has been rising since COVID. In 2008 (when CorporateProfits-to-GDP reached 7%), corporate profits were booming due to significant investment led capex in the period from 2003-2008, the ratio fell to as low as 2% by 2019 as investments ran dry and consumption / leverage drove the economy. However, typically India’s ROE is relatively high compared to other regions due to the significant growth from a low base in most of its addressable markets. ROE peaked during 2003-2011 when corporate debt hit a bottom and capacity utilisation was over 80% in India.  With investment now driving GDP (Government spending has been significant and private capex now likely) and corporate debt to equity at a low point, it appears that the next cycle will see ROE’s reaching 2003-2008 levels again. Capacity utilisation has also climbed to 74% and seems likely to lead to increased capacity being added, particularly as operating leverage to a global recovery can be taken advantage of in India (whenever that plays out). Equity Market Opportunity Australian businesses will have opportunities to list on Indian stock exchanges. This will be a significant source of capital in the future as India’s wealth increases and equity market penetration rises. Currently India’s are investing close to US$20-25bn per annum into their own stock markets. As wealth rises this will become a source of capital for foreign businesses in a region where democracy and English rule of law prevails. Additionally, there will be opportunity for India focused businesses to list on the ASX. For example, Findi (FND.ASX) is an ASX listed technology company which is benefitting from its ownership of TSI India, a company involved in e-transactions and payments across India. India’s Equity Market Construct India’s stock market is now the 4th largest in the world, with a market capitalisation of close to US$5 trillion. India also has the most listings of any stock market in the world. The Bombay Stock Exchange was established in 1875 and is the oldest in Asia. Currently there are two stock exchanges in India: BSE and NSE (National Stock Exchange).  The top 500 stocks on the BSE account for over 95% of market cap. The Top 10 stocks account for over 25% of market cap and include predominantly by Financials (privately owned banks, government owned banks and insurance firms), IT Services, Energy and Communication Services. Most of these sectors thrived in the last decade as India went through a phase of financialisation and IT outsourcing became its largest service export.  India’s largest listed firm is Reliance Industries (A$367bn) which is involved in Petroleum Refining, Communications, Financials and Retailing – a true conglomerate originating from a family who rose to prominence in the last century from textiles.  However, with an eye to the future, the sectors that are likely to emerge as winners over the current decade include Healthcare, Real Estate, Industrials (manufacturing / exports / infrastructure) and Consumer Discretionary. This

Given India’s pace of economic growth, reforms and infrastructure development and its youthful, entrepreneurial and large population, investors typically look to achieve and to benefit from capital growth by investing in the region. Unfortunately, investment returns don’t always work out as hoped, usually due to “unplanned” adversity. This might include events like the Global Financial Crisis, the COVID-19 pandemic or India specific issues like rising oil prices, political instability, stagflation and a volatile currency.   We can study historical returns to observe if they have aligned to expectations and if investment returns changed as the environment has evolved. India has been on an economic journey since 1991, when it first liberalised its economy. Several changes have occurred over the last 32 years which have impacted on investment returns and the volatility of those returns.   CAPITAL GROWTH Equity (share market) investments which produce a compounded rate of return equivalent to GDP growth plus inflation, (e.g., nominal GDP growth) should typically resonate with capital growth seeking investors where GDP growth has been, and is expected to be higher. Another way to look at this is to look at the risk-free rate of an investment market and the risk premium of investing in equities for that market (economy). In essence, the risk-free rate is the return that an investor would get by investing in a government bond in that economy; and the risk premium is the additional return one might expect by investing in equities in that market (inherently, equities are riskier than bonds, hence the equity risk premium).  A typical risk-free proxy is the US 10-year government bond yield (currently with a yield of 4.53%) for developed market domiciled investors. Assuming that investing in Emerging Market equities requires a higher risk premium to be earned of say 7.25% , this implies a return expectation of close to 12%. This is of course in no way a prediction of what future returns might be, but more so an indication of how higher growth and more risky equity markets can lead to greater return (and riskier) outcomes over time. Currency movements can impact the expected outcome for foreign investors.  Investor behaviour unfortunately tends to lead to “buying” at points when prices are high and “selling” at points when prices are low. This tends to impact the achievement of long-term robust returns as the “starting point” can have a significant impact on the compounded rate of return achieved over the investment horizon of the investor.   ROLLING 5-YEAR RETURNS TO MEASURE SUCCESS RATE A good way to measure the success of an investment strategy which seeks to provide growth over the long term is to look at its rolling 5-year returns. This essentially looks at every investors’ return over history from point to point over 5 years (dependent on the day they invested and assuming they reinvested their dividends/distributions). Of course, history is very unlikely to repeat, but it does give those researching where to invest their money, an idea of the type of return profile one can expect from an asset class.  In the example below, we compare the statistics from various major equity markets around the world using rolling 5-year period data. The data is built from monthly returns of MSCI Indices for each country (including dividends, net of taxes) and is from a period of December 2000 – August 2023, covering 213 rolling 5-year periods.   LAST 23 YEARS… Table Header AUS CAN CHINA FRAN GER INDIA JAP NZ UK USA Average Return 8.8% 7.5% 11.4% 5.7% 6.4% 12.2% 4.7% 8.5% 4.7% 8.7% Minimum -3.4% -6.2% -9.7% -11.1% -7.6% -7.2% -7.5% -8.7% -5.6% -6.9% Maximum 33.8% 33.6% 53.2% 25.9% 32.4% 53.2% 16.8% 26.8% 21.7% 22.3% Std Dev 8.3% 8.1% 11.9% 6.9% 7.8% 12.9% 5.7% 8.4% 6.1% 6.3% Source: MSCI The highest average return over the 23-year period was from India at 12.2% p.a. over rolling 5-year period (in USD terms), closely followed by China at 11.4%. Australia, New Zealand, USA and Canada follow in the next group, averaging between 7.5% and 8.7%. The laggards are Europe and Japan. Despite the returns of India and China being much higher on average, there was also a greater degree of volatility in the 5-year outcome (as measured by the standard deviation) relative to the rest of the pack. Mind you most of this was upside volatility, given the minimum 5-year returns are similar to major markets.   THE INDIAN EXPERIENCE OF ROLLING 5-YEAR RETURNS Over this period only 13.5% of rolling 5-year periods are below zero. Whereas over 53% of rolling 5- year periods were over 8% p.a. The returns used for this illustration are in USD terms for consistency across all countries. This is in a period where the USD has been a strong currency in general and underpins the strength of Indian equities long-term return profile in the past.   GREATER ALIGNMENT WITH EXPECTATIONS, OVER A 5-YR HORIZON It is important to note that volatility over 12 months is much higher than it is over 5-year periods. The following chart depicts the tighter range of outcomes over longer term periods. For growth investors, these are key considerations when applying a long-term horizon.   Aust Can China Fra Ger India Jap NZ UK USA 1-YR-VOL 23.6% 21.7% 32.9% 21.8% 24.9% 32.5% 18.1% 22.9% 19.0% 16.8% 5-YR-VOL 8.3% 8.1% 11.9% 6.9% 7.8% 12.9% 5.7% 8.4% 6.1% 6.3% The drop in volatility when the investor horizon shifts from 1-year to 5-years is significant for markets like India and China. Given India’s underlying fundamentals, it is likely that GDP growth will continue to be relatively robust, but with bumps along the way as global and local events and issues occur. However, in the longer-term investment returns tend to be more aligned to fundamentals rather than sentiment.   DISCLAIMER Any and all forward-looking statements are expressions of our intent, belief or current expectations with respect to market conditions. Readers are cautioned not to place undue reliance on these statements. It is not intended to take the place of professional

The global economic landscape is currently marked by moderate growth and easing inflation, though it remains fraught with risks and uncertainties. According to the latest World Economic Outlook from the IMF, global growth is projected to be around 3.2% in 2025. This figure is slightly below the historical average, reflecting challenges such as high central bank policy rates, fiscal tightening, and low productivity growth. Inflation is expected to continue its downward trend, with global headline inflation projected to fall to 4.4% in 2025. However, the balance of risks remains tilted to the downside, with potential threats including geopolitical tensions, commodity price spikes, and persistent inflationary pressures. Policymakers face the dual challenge of managing the final descent of inflation while ensuring fiscal policies are sustainable and rebuilding economic buffers. Structural reforms and efficient multilateral coordination are also crucial for promoting productivity growth and mitigating the effects of climate change. In 2024, markets defied expectations of over-valuation in the US, India, and other select countries,performing exceptionally well. A stimulus-driven surge in the Chinese equity market during thesecond half of the year significantly boosted emerging market (EM) returns. India, now accountingfor 20% of EM, also played a crucial role in this positive outcome. The US markets, representing nearly 75% of the MSCI World Index, had a substantial positive impacton global developed market investors, especially those invested in the “Magnificent 7” tech giants.The tech sector continues to drive growth and employment in the US. As we enter 2025, investor caution is rising due to high valuations in regions like the US and India. Incontrast, Australia and New Zealand, while less expensive, are experiencing lower earnings growth.China stands out as an anomaly, with the potential for a stimulus-driven rebound and currentlytrading at low valuations. India is projected to be the fastest-growing major economy in 2025, with GDP growth expected to be around 6.5% to 6.6%. This impressive growth relative to other regions, is driven by a robust middle class, sustained investment, and strong consumer spending. SOURCE: IMF WORLD ECONOMIC OUTLOOK – OCTOBER 2024 India’s significant and youthful population provide a favourable demographic backdrop for rising GDP per capita. This will occur through rising productivity through better logistics and infrastructure, rising urbanisation and skilled employment. Significant opportunities exist in technology, renewable energy, infrastructure and manufacturing. The country’s focus on sustainability, electric mobility, and artificial intelligence will be crucial for future growth. The services sector, particularly ICT-led innovation, will also play a vital role. INFLATION AND INTEREST RATES India’s inflation dynamics are indeed interesting. With headline CPI at 5.5%, it’s at the higher end of the Reserve Bank of India’s (RBI) target range, largely due to a recent spike in food prices, which is expected to be cyclical. Core inflation, however, is more stable at 3.6%. Given the cyclical slowdown, the RBI might consider cutting rates in early 2025 to support the economy. Meanwhile, India’s 10-year bond yield has been falling, now at 6.88%, which is close to its 25-year average and 57 basis points lower than its peak in June 2022. This decline in yields could indeed be conducive to faster growth, and any rate cuts would likely help maintain momentum during this cyclical weak spot. Currently the market size of India’s pharmaceuticals is approximately US$63bn. According to a recent EY FICCI report, it is estimated to reach US$130 billion in value by the end of 2030 (and US$450bn by 2047). Additionally, India has the 3rd highest market share by volume in the global market for pharmaceutical products, which has already exceeded US$1 trillion. THRIVING INDUSTRIES The IT Services industry contributes close to 7.5% to India’s GDP. The industry generates US$250bn, with a significant part coming from exports and creating employment for over 5.5 million people. By 2030, this is expected to grow to US$350bn, with a further 2 million jobs to be added. India holds a significant position in the global IT services industry. As of recent estimates, India accounts for approximately 55% of the global market for IT services. This dominance is driven by a combination of factors, including a large, skilled workforce, cost advantages, and strong governmental support. The country’s IT services sector continues to grow, with increasing demand for digital transformation, cloud computing, and software development services. GENERIC PHARMACEUTICALS India’s has built an enviable industry in manufacturing of generic pharmaceuticals. This expertise has been built over the last 20 years and is leading to rising market share globally. The industry is being driven by: Government support for operational plants which have added capacity to supply the world. During the pandemic, India established itself as a leading exporter of generic pharmaceuticals and vaccines. As a result, India is well-positioned to see significant export growth. The largest number of FDA-approved production sites outside of the US. India has registered 376 facilities with the FDA for FY2024, including 200 Active Pharmaceutical Ingredient (API) facilities, 134 Finished Dosage Form (FDF) facilities; an An upcoming patent “cliff”, with at least 16 blockbuster drugs coming out of their patent periods. India’s economic scale, number of scientists and production capacity make it one of the cheapest locations for manufacture in the world. This places India’s generic pharmaceutical exporters in a strong position to gain market share. Tariffs Since his victory, Trump’s tariffs have been much talked about. They will have a potential negative impact on India. However, India’s trade with the US only stands at US$76bn, relative to its almost US$4tn economy. Its imports to the US include gems and jewellery, pharmaceuticals, petroleum products, electrical and electronic goods, engineering products, apparel, and marine products. Food Prices India continues to face challenges when it comes to food price volatility, driven byweather/monsoon. Food is close to 45% of India’s CPI basket and is responsible for India’s recentstubborn inflation, which can have a significant impact on the spending power of Indians. Foreign Direct Investment (FDI) India remains an attractive region for foreign direct investment. In FY24, India received US$71bn,which was slightly lower than peak flow in FY22 of US$85bn. This is not

Australian domiciled investors seeking diversification by investing abroad to gain exposure to different economies and currencies through their listed companies on overseas equity markets. Given their level of knowledge of foreign companies is generally lesser than companies listed on the ASX, this task is generally outsourced to an active manager, focused on outperforming an Index like the MSCI All Country World Index (ACWI) or an ETF seeking to replicate the performance of this or similar index.   Source: MSCI Observing the significant weight to the US market in the ACWI, most investors who have a balanced, growth or high growth risk profile, tend to have significant exposure to Australian equities and US equities in the growth component of their diversified portfolios. The Australian component is largely due to home bias and a taxeffective dividend structure, whilst the US component is largely a legacy of the strong performance of the S&P500 over the last 15 years since the GFC.  Active vs Passive For active minded investors the focus is generally on outperforming the MSCI ACWI through portfolio construction. If this is outsourced to a group of asset managers who are focused on the appropriate regional allocation and stock selection, then as an investor you are usually looking for outperformance which correlates with the philosophy, style and process of the asset management firms selected. Passive investors generally focus on keeping costs low and hold a view that a market-cap weighted index is hard to outperform. They may also seek to implement their own views through smart-beta or thematic ETF’s.  For the purposes of this note, we focus on actively minded portfolio constructors, who seek to create a portfolio that can outperform the ACWI.  Building a Global Equity Portfolio for Outperformance One of the key thematics being explored by investors constructing exposure to global equities is the performance of listed companies in emerging market (EM) countries. Today most investors continue to allocate to EM managers, benchmarked to the MSCI EM, as a ‘satellite’ option to generate greater outperformance. This is based on the belief that the expected GDP growth of these EM economies as an aggregate is usually forecast to exceed growth expectations of developed market (DM) economies. However, the “last period bias” of many investors will leave most feeling that EM has always underperformed expectations, particularly over the past 15 years. Over this period, EM as an asset class have had many false starts, luring investors to allocating an overweight position relative to the (EM weight in the) ACWI, in an effort to generate outperformance.   The chart above though indicates that there can be periods of significant outperformance (i.e. 2003-2008, where specific EM exposure can add value to a portfolio, relatively to purely DM only portfolio. 2003-2008 was a period where the USD fell from a peak (2003) and led to investors (particularly from the US) to allocate to EM in a ‘bucket’ type approach, using broad based EM managers to gain exposure to strong economic growth and appreciating currencies in these economies.  Fast forward to 2023… Post 2016, a period of de-globalisation emerged which has led some investors away from bucket style allocations to broad EM strategies, as economic and market performance has shown greater dispersion due to protectionism, trade-wars, the pandemic and geopolitics. The economic and equity market performance of regions like China, Turkey, Brazil, Middle East and Russia have shown great dispersion at times.   Under these circumstances, diversity sought through correlation benefits can be lost in a de-globalised world when aggregated strategies are considered over more less correlated themes / regions. The orange bars reflect the falling correlations over the last three years, as opposed to structural correlations measured over the last 20 years (blue bars). This perhaps points to a more ideal environment to select a region with strong structural growth, with correlation benefits when building a more optimal diversified portfolio. Quite often investors seek to invest in the lowest standard deviation outcomes across all asset classes, creating the potential for “over-diversification” and therefore losing the benefit of low correlation when building portfolios. This can create correlations which always seem to pop up when least desirable. EM investing EM funds are investment products, but by no means could this product be considered an asset class. There is no familiar trait from one EM to another and it is not homogenous. The idiosyncrasies of growth and its sustainability, politics, risks, levels of state ownership have far more dispersion than experienced across DM economies. This dispersion has led EM in aggregate to disappointment for investors, despite clear evidence of strong GDP growth in some of these economies.  The growth across various countries within EM has been inconsistent due to the cyclicality of economies influenced by commodities i.e. Brazil, South Africa, Russia, Middle East or reliance on exporting (Mexico, South Korea, Taiwan). Additionally, GDP growth doesn’t always correlate to EPS growth. Quite often, listed EM companies do not provide a true reflection of the local economy, which is driven more by its MSME’s that remain unlisted or the domain of local investors due to lesser regulation, lack of need for capital, compliance burden and lack of liquidity for larger institutional investors. Larger and more liquid stocks which tend to be the domain of EM funds can contain more state-owned enterprises, which can be inefficient and poor allocator of resources as well as larger more mature growth businesses, which have already experienced their S-curve. Why do we invest in EM Typically investors seek EM exposure in an attempt to access greater earnings growth, which is diverse to sources of earning growth in DM. Alpha attainable from investing in these markets should also be more abundant as you are ‘digging deeper’ into less efficient markets, with less broker coverage. However, investing in EM as an asset class has ended up being a high beta play on investing in DM. Inevitably the exposure fares worse in downturns as US investors (the home of capital) repatriate funds during a flight to safety. As recession fears increase, commodity and export driven economies tend

Recently a report was released from Hindenburg Research which insinuated logic for shorting the stocks within the Adani Group. This Report was released last week and has had an immediate adverse impact on the share prices of the Group companies as well as other businesses which may have some linkage to the Adani Group. As a result of the report, the seven listed companies within the Group have lost US$48bnin market value. The report flags concerns about the Group’s debt levels, market manipulation, accounting fraud as well as the use of tax havens. The report claims that there is a web of family controlled offshore entities in tax havens from the Caribbean, Mauritius and the UAE which were used to facilitate corruption, money laundering and taxpayer theft, while siphoning money from the Group’s listed companies. The MSCI India weighting of these companies is collectively 5.75%. The MSCI is currently seeking feedback on whether they will need to take any action. Whilst it may adopt to do nothing post feedback, another option is to exclude the Adani Group and associated companies from the index due to excess volatility.   The Adani Group has refuted the allegations made in the report, stating that it was published on the 24th of January 2023, without making any attempt to contact the company or check facts. They have claimed that the report is a “malicious combination of selective misinformation and stale, baseless and discredited allegations that have been tested and rejected by India’s highest courts”.  It was also stated that the report intentionally aims to undermine not only the Group’s reputation, but also to damage the upcoming US$2.5bn follow-on Public Offering from Adani Enterprises, which was set to be the largest FPO ever in India. The anchor investor component of the offering was oversubscribed, but the market premium demanded prior to the Hindenburg Report has now less than halved. Adani Enterprises have stated that there will be no change to the schedule or issue price of the FPO (27th -31st January 2023).  The Adani Group has risen to prominence over the last 3 years, but was founded in 1988. The company is head quartered in Ahmedabad and was founded by current chairman, Gautam Adani. The Group was founded in 1988 as a commodity trading business, with the flagship company Adani Enterprises. The Group’s businesses include port management, electric power generation and transmission, renewable energy, mining, airportoperations, natural gas, food processing and infrastructure.  In November 2022, Adani Group market capitalization reached top US$280 billion, surpassing Tata Group. The group is responsible for the Carmichael Project in Queensland, which is the operation of a coal mine, producing its first shipment in December 2021.  The Adani Group Companies are approximately 6% of the MSCI India, which is our benchmark.  India Avenue Equity Fund and India 2030 Fund have no exposure to the Adani Group at this time and thus are not affected directly by the fall in value of the shares of the Group. However, generally it has had a negative impact on market sentiment. This can occur as investor try to assess the short-term impacts on businesses which may be linked. We expect trading in these companies to be volatile and difficult to predict, given the Hindenburg Report and the upcoming FPO for Adani Enterprises. Rather than speculate, we prefer to stay on the sidelines and observe market action. We don’s see this causing any systemic issues related to Indian equities for investors. However, there will be increased market volatility, particularly for the Adani Group companies (7 listed) and associated companies like Ambuja Cements and ACC in the short-term. The strength in the AUD since October 2022, relative to the INR and the general market volatility caused by the Hindenburg report may present an opportunity for long-term investors seeking to invest in the India growth story. However, this note is not to be taken as advice. You will need to speak to your financial adviser on your existing portfolio and individual circumstances.  We intend to keep you updated with further relevant information as and when it becomes available. Our Disclaimer: Equity Trustees Limited (“Equity Trustees”) (ABN 46 004 031 298), AFSL 240975, is the Responsible Entity for the India Avenue Equity Fund (“the Fund”). Equity Trustees is a subsidiary of EQT Holdings Limited (ABN 22 607 797 615), a publicly listed company on the Australian Securities Exchange (ASX: EQT). The Investment Manager for the Fund is India Avenue Investment Management Australia Pty. Ltd. (“IAIM”) (ABN 38 604 095 954), AFSL 478233. This publication has been prepared by IAIM to provide you with general information only. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. Neither Equity Trustees, IAIM nor any of their related parties, their employees, or directors, provide any warranty of accuracy or reliability in relation to such information or accept any liability to any person who relies on it. Past performance should not be taken as an indicator of future performance. You should obtain a copy of the Product Disclosure Statement before making a decision about whether to invest in this product.  The India Avenue Equity Fund Target Market Determination is available. India Avenue Equity Fund’s Target Market Determination is available on our website: www.indiaavenueinvest.com/our-fund. A Target Market Determination describes who this financial product is likely to be appropriate for (i.e. the target market), and any conditions around how the product can be distributed to investors. It also describes the events or circumstances where the Target Market Determination for this financial product may need to be reviewed.   Click here to view the full article

With reference to underperformance to our benchmark (MSCI India), specifically over the last 12 months to 30 November 2022 Reiterating our Philosophy and Process As a philosophy, India Avenue Investment Management has sought to provide transparency to its investors. It is our view that as a boutique investment firm focusing on India, we must provide both an investment experience and educational journey to help our investors understand the region. Over time this will reduce the risk premium of investing to benefit in India’s growth story. India Avenue’s investment process involves identifying highly credentialled investment managers, based locally in India, with over 10 years of track record of managing equity portfolios successfully and build a blend of 3-4 of these managers into a portfolio. We do not invest in the funds of these managers, but build an investment mandate in partnership with these investments managers which provide the guidelines for the advice they provide to us. Thus these investment managers, essentially are investment advisers to our fund. We implement the portfolio and align weighting to each manager based on our view of the future which takes in our macro and micro views which we discuss at the India Avenue Investment Committee (India AvenueInvestment Team plus two external industry veterans based in Australia and India). Essentially, we are insourcing stock selection ideas and portfolio construction expertise of locally based practitioners who are highly knowledge of their own local economic and corporate ecosystem. Our underperformance over the last 12 months Over the 12 months to 30 November 2022 the fund has underperformed its benchmark by approximately13.5%. We attribute this to the following reasons:  Our preference to run a quality bias as long. It is our view that investors seek exposure to India’s growth story through well managed companies which are leaders in their addressable markets, whether they be large or smaller industries. The growth of addressable markets over the next two decades will be significant. This style bias has impacted the portfolio as several stocks which are high on quality (i.e. have a moat, higher margins and RoE) have underperformed as foreign investors have fled India’s equity markets with the view that rising oil prices and higher inflation will impact investments into Indian equities and currency, as it has in the past. This has led to their P/E premium being reduced, we believe temporarily.  Underperformance of small cap stocks in India has been driven by a shift of investors from risk-on to risk-off which occurred at the end of 2021 as inflation rose due to congested supply chains and rising commodity prices. The India Avenue portfolio has exposure to small cap stocks as we continue to seek businesses which likely to be leading players in their less established addressable markets. Our businesses are all profitable and when we invest in smaller caps, we pay lower P/E multiples given the higher liquidity risk. However, in environments where investor sentiment switches to acute riskoff, then there is a more significant discount applied to this space. We continue to see this segment as selectively undervalued, and feel there can be arbitrage given a low level of broker research and potential value add from our advisers primary research. The Adani Group of stocks have performed with distinction over the past two years as the Group has aligned itself with the needs for private capex spending in India. The focus of the Group has been on developing India’s physical infrastructure via Renewables, Ports, Energy, Gas, Transmission. They have made several acquisitions along the way to build a vertically integrated platform for execution. However, our advisers feel that this Group has done so on the back of a significant build up of debt financing and prior to profitability. This is reflected by the P/E of several of the stocks (over 350x) in the Group.  These stocks have contributed approximately 50% of the MSCI India’s 9.5% local currency return in the last 12 months. Our Fund continues to hold zero exposure to these companies due to our advisers concerns on the funding structure of these businesses and the lack of transparency. This may change at some point in the future, but until the debt question is answered and valuations are justifiable, this will remain the case. Active managers based in India are largely absent from shareholdings in the Adani Group. It is tightly held with close to 70% ownership held by promoters and the remaining holders being passive funds, foreign investors and a government owned Insurance/Asset manager in India named LIC.  Government majority owned companies have significantly underperformed the market over the last 12 years. However, the last 12 months has seen strong outperformance of these cheaply valued businesses relative to their earnings. Typically, foreign investors have avoided State Owned enterprises for lack of efficiency, low growth and imposition of regulation and Government controls which may impact business activities. However, the last 12 months have seen withdrawals from foreign investors as noted earlier, which “value-oriented” buying from domestic funds have seen these companies rally due to their perceived margin of safety. Our advisers typically hold the same views as us i.e. that Government owned businesses of heavily regulated or influenced industries are likely to be inefficiency or destroy shareholder value over time.   Government Owned 30/11/2021 30/11/2022 1 Yr Return MSCI Weight P/E P/B Coal India 152 227.25 50% 0.46% 5.4 3.2 NTPC 127.25 172.2 35% 0.86% 9.9 1.2 SBI 460.55 602.45 31% 1.42% 13.1 1.8 Container Corp 620 771.95 25% 0.27% 41.2 4.3 GAIL India 86.53 94.75 9% 0.29% 5.3 0.65 Powergrid 206.75 224 8% 0.90% 10.5 2.2 Outlook Looking forward, we feel our portfolio is well positioned to benefit from a continued strong period of outperformance from Indian equities relative to the MSCI World and MSCI EM. It is our view that Indian companies corporate earnings growth will stand out due to the following factors:  Low corporate leverage (in a rising rate environment)  Ability to add capacity in an environment where supply chains are shifting, and other economies will

…………to be led by a focus on manufacturing Global Manufacturing Landscape Global Manufacturing was significantly impacted by the COVID-19 pandemic, both during (various lockdowns imposed) and after (supply chain issues). While some industries fared far worse than others, most sectors suffered major disruption. Whilst during the initial phases of lockdown the ecosystem was impacted by lack of mobility and a massive shutdown of demand, the more long-lasting effect has been disruptions to supply chains from inputs to the manufacturing process (raw materials/finished goods) as well as labour force attrition.  Pre COVID-19 Over the 30-year period from the mid 80’s to 2012, China’s has been dominant when it came to manufacturing. Their rise to a manufacturing powerhouse was primarily driven by their large population, allowing for structurally lower labour costs, which led to efficient and economic production for the rest of the world and their eventual status as a manufacturing hub. As a result, China now holds a significant technological advantage over its global manufacturing peers, holding 28% market share pre-COVID19   However, the trend of de-globalisation from 2015 onwards and accelerated by the Trump Government started to questions China’s dominance of global supply chains. Other geographies also started to become wary of its territorial ambitions and influence on technology and R&D. The China + 1 thematic was already in play and accelerated by onset of COVID-19. Post COVID-19 China has faced significant headwinds since the pandemic. Its economy has slowed dramatically due to its troubled property sector as well its government’s zero tolerance policy for COVID infections. Essentially the economy has been largely shut down for a few years now. The rest of the world placed a significant reliance on China due to their capability to produce goods at a cheaper price due to their structural advantages and scale. As a result, corporates around the world have been focused on diversifying risks associated to their supply chain and an “over-reliance” on China. Where to from here… China was essentially “exporting deflation” to the rest of the world. However, with supply-side shortages and rising demand post lockdowns, inflationary conditions have persisted. Other economies like India, Vietnam and Indonesia for example have the potential to take advantage of global supply chain diversification. India has the advantage of a significant labour force in skilled areas. However, it is the unskilled areas i.e. labour-intensive manufacturing where progress needs to occur. India Manufacturing: 1990 – 2020 India vs China – manufacturing vs services – two different paths  While both India and China have been the growth economies of the last 30 years, their growth has been quite divergent as China chose manufacturing as the growth engine of its economy, by leveraging its large and low-cost labour force. Whilst China’s manufacturing data is not readily available prior to 2004, it contributed between 30-40% of its GDP, whilst India which progressed more through an internal demand for services driven route, contributed only 15-20% of its GDP through manufacturing.    China’s focus on manufacturing One of the key benefits from focusing upon manufacturing is the job opportunities that arise from it. China’s overwhelming supply of labour was met by the government providing opportunities through the constructions of roads, buildings and more. This significant employment was incredibly positive for the workforce and resulted in mass urbanisation across China. This increase in demand for labour met the supply and ultimately allowed for China’s workforce to be fully harnessed to its potential.   India and China’s GDP per Capita were following a largely similar trend until the 1990s. This can be attested to China’s willingness to adopt an Open-Door outlook, allowing foreign investors and companies to utilise their lower labour costs to benefit themselves. In this time, India maintained a focus upon Services leading to them falling behind in GDP-per-capita, as manufacturing has a far higher multiplier effect on GDP growth in comparison to services. India’s weak manufacturing India’s manufacturing as a percentage of GDP fell below 14% recently due to a lack of focus and private investment over the last decade in the lead-up to COVID-19. India had structural issues such as bureaucratic red tape, archaic labour laws, high cost of manufacturing especially due to high power and energy costs, high cost of capital (high interest rates), high corporate tax rates, inverted duties on raw material in certain cases and the inability to build scale. Additionally, infrastructure and transportation systems have been a bottleneck in the past, which is being addressed through various measures taken by the Government.  The Government’s goal is to increase manufacturing as a percentage of GDP from 15% to 25% by 2030. The initial goal set in 2014, when the Modi-led BJP came into power was 25% of GDP by 2022, which has not been achieved. The Make-in-India campaign set up in 2015 to promote manufacturing in India, with the aim of creating jobs and skilling labour, has not been successful to date. The reality is that the manufacturing industry in India has been losing jobs since early 2016. The sector has fallen from employing 51 million to 27 million people. COVID-19 is not the only aspect contributing to this lack of employment opportunity. India’s manufacturing push to date has been in capital intensive industries. However, with close to 10 million people being added to the workforce every year, the focus has to also include labour intensive industries and be inclusive of unskilled labour. For India to boost itself into a manufacturing and economic powerhouse, these issues need to be solved sooner rather than later. Among India’s major economic sectors, it is manufacturing which requires the highest amount of fixed investment upfront, relative to potential output (compared to agriculture and services). For investors and entrepreneurs, this presents itself as a huge risk as a huge amount of money must be committed without any guarantee of return. This has resulted in a lower presence of manufacturing industries and therefore employment opportunities.   Furthermore, the demand for manufactured goods also plays a key role in this. Indians tend

Introduction Digitisation is both a social and economic transformation which is far more significant in its impact in a developing economy. The process results in the vast adoption of digital technologies to produce, process, circulate information and is a crucial economic driver in GDP growth and employment creation. India has a significant, young and widespread population and which has access to the lowest cost data in the world, setting the landscape for significant opportunity from digitisation and greater inclusiveness of rural India in the country’s growth story. There are over 700 million Indian’s who use the internet. Just thinking about that number is mind blowing. However in the context of the 1.4 billion population of India, there are still close to 700 million to go! Internet penetration in the past has been impacted by difficulty of usage, lack of knowledge of benefits, lack of internet access at home and  affordability. The benefits of Digitisation Digital India was a campaign launched by the Government of India in 2015 in order to ensure the Government’s services are made available to citizens electronically by improved online infrastructure and by increasing Internet connectivity or making the country digitally empowered in the field of technology. It is both enabler and beneficiary of other key Government of India schemes, such as BharatNet, Make in India, Startup India, Standup India, industrial corridors and infrastructure projects. The first major step was the Aadhaar Card, a digital biometric identity card now held by over 1.2 billion people. The broad aim of the Government was to make India a knowledge economy and improve governance and foster inclusiveness. Some of the reasons for pursuit of digitisation were: Nationwide information infrastructure – broadband highways enabling connectivity Easier mobile connectivity, public access to the Internet IT training for jobs Manufacturing of electronics in India (Apple and Samsung now manufacture in India) E-Governance improving leakages related to corruption and “middlemen” and improved the audit trail of flow of funds to appropriate sources Linking India’s national identity card, banks accounts, subsidy payments Significant Internet and Mobile Penetration According to a report published jointly by Internet and Mobile Association of India (IAMAI) and data analytics firm Kantar (1 ICUBE 2021 Report – Internet in India, a study conducted by the IAMAI and KANTAR), internet penetration should increase from here, with users estimated to rise to 900 million by 2025, driven predominantly by growth in rural India. The pace of rural growth was evident from 2017-2021 at 27% p.a., outstripping urban growth at 8% p.a. Mobile phone penetration has also increased at an incredible rate, with over 1.14 billion wireless subscribers (625 million urban, 516 million rural) by March 20222 . India’s tele-density at the wireless level is now at 83%, driven by urban density at 130% (rural is at 58%). There remains a massive opportunity in rural India for India’s privately owned mobile phone operators (Reliance JIO 35% share, Bharti Airtel 32%, Vodafone Idea 23%, Government owned BSNL 10%). Digital Transactions Experiencing Strong Growth India’s more significant mobile and internet penetration is changing the face of how business is done. IAMAI/Kantar report says around 346 million Indians are engaged in actual online transactions such as e-commerce and digital payments, which is more than the entire population of the United States! This growth has accelerated since the Digital India initiative was launched in 2015 by the Government of India, with a view that digitisation can help overcome physical barriers and costs and could boost the transformation of almost every aspect of governance. In November 2016 the Modi Government also introduced Demonetisation as a reform, which indirectly pushed more transactions from cash-based to digital by tackling the “black economy”. Finally, along came the Covid-19 pandemic, which sparked a 51 percent increase in digital transactions in two years!    Internet usage still growing Entertainment, communications and social media were the top three activities engaged in by Internet users across India according to the IAMAI/KANTAR report. There are 467 million social media users in India. The penetration of over-the-top (OTT) digital technology platforms i.e. Netflix, Amazon Prime, Disney etc. in rural India is at par with that in urban India, however, the penetration of other digital services such as online gaming, digital commerce and digital payments is still skewed in favour of urban users. This mix will change as rural India has greater connectivity going forward and inclusivity is likely to drive stronger economic and corporate profit growth.  5G to accelerate connectivity and growth The Government and India’s privately owned telecom service providers are focusing on increasing the internet penetration in India, especially in rural India. The Government recently approved a package of A$30bn to boost ailing state-run telecom service provider BSNL in a bid to help it expand its 4G services to wider catchment areas across rural India. Meanwhile, the more recent 5G spectrum auctions saw a high level of interest. Outlook India’s significant population, with an average age of 29 years and its digital ecosystem of having lowest cost data in the world3 , is likely to lead to significant growth for corporates who are increasingly conducting business digitally. This has the potential for rising revenue, increasing efficiency and productivity and enabling significant cost savings. The points below highlight some of the opportunities and growth due to India’s digital transformation:  India has the second largest number of “unicorns” (a company which was a start-up which is now worth over $1bn) and is only behind the United States (US) in building new unicorns4 , with, several of them relying on a sizeable young population, digital transactions, ecommerce, technology sophistication and low-cost data.  Foreign direct investment in India continues to rise, particularly targeting businesses driven and supported by technology. In FY22 over US$83bn5 was received, with a significant amount going to computer software and hardware.  According to McKinsey, digitisation can bring logistics costs down by 20-30% (India having one of the highest logistics cost-to-GDP at 12-14%, compared to the global average of 8%).  We estimate the digitisation of India can