Good Investing Talks - What Allocators Get Wrong About India - Raghav Mittal

Episode Date: October 28, 2026

Raghav Mittal (Dhamma Capital) on why India's index hides its growth, how he checks governance on the ground and how he values fast growers.

Rajav, you came here with 30 hours travel effort and had a stopover where? Bahrain. Okay. So if anyone complains about Deutsche Bahn delays, talk to that guy. Thanks a lot, Tillman, for the opportunity, and thank you, Shored, for the great presentation. So one more fun fact about you. Your team does 300 export calls a year. How many do you do yourself?

I am there in almost like 95% of them. Do expert already block you on their phone numbers or? We pay for the time so they're happy to talk to us. We made the money. We're also happy that you talk to us and we didn't pay for it. So enjoy a trip to India. Thank you. After the AI pitch, I'll sort of take you to a very unglamorous,

imagine a very boring, stealing. induction furnace in India where you have a business which is sort of selling a recurring consumable to the steel mill. Absolutely boring. Let's call it slum dog. I actually identified this business and saw it grow a hundred bagger over the last 10 years. Imagine my pain not buying it and just sort of observing the rise. That's why I'm calling it slum dog. What I could see on the surface was this growth like clockwork every year, growing at 25% plus top line, growing earnings at 40% plus analyzed, with a very high ROC.

I sort of just saw the surface. I never got into the deep work which would have allowed me to understand that it had the ingredients of a high-quality compounder. Why do I tell you of this mistake today? Because this mistake is the same mistake that people are doing for the whole country called India, where we are seeing the same pattern

that people see the country on the surface, expensive valuations, index not gone anywhere over the last couple of years, and it's only when you go deep down the surface, do you find the way to riches? So today we're going to talk about this mistake, and sort of I'll tell you the three keys to resolve this mistake. So two facts are real. Number one, Indian indices have gone nowhere over the last two years. It's given zero to negative returns with the last two years.

And at the same time, the companies below the top 200 companies, which is the universe of 2,000 companies, have grown at some of the fastest growth rates you'll find in any corner of the world. Just as a small example, my portfolio's earnings at Dhamma has grown 35% year-on-year, last year as well as this year. So what is this paradox? The paradox lies in the fact that the index does not represent the future of India. The index is a collection of businesses which have their best days behind them. The Indian growth story that you actually read about in the papers are actually under the belly,

which is sort of these 2000 companies. This is where the real fund lies and this is where the real path to riches lie. So now the question is, when we all know that this is where the real good stuff is, what's stopping us from actually making money of these 2000 companies? I believe there are three problems. This is a small example of how everybody sort of faceted on Taj Mahal while there is more and more fun stuff to walk around in India and sort of get your entertainment. So there are three reasons why people or allocators even today are not able to make real money

and make real alpha in India. And I'll tell you how to solve those three problems. One is governance. Governance you don't know how to trust. Number two, growth durability that you don't know how to underwrite. And number three, prices and valuations that you think are expensive. These are concerns that you'll hear across a lot of rooms. And I'll just sort of show you how do you do that in India.

Number one, governance. So, you know, as an outsider, all you see is murky waters, and it's only when you go on the ground, do you see actually there are a lot of good fishes as well, letting it fish from? I'll give you a real example. I actually found a company which, let's call it millionaire, just to sort of rhyme with slumdog millionaire, and the first signal of quality that I identified in this company was they had a sister concern, which was private, in the same line of business as them. The founders of the company bought at the sister concern at book value, at three times earnings,

even though the listed co was actually trading at 25 times earnings. So the owners actually allowed the listing co-shareholders to benefit from the value creation that will come from the private company. They did not sort of pay themselves a high amount of valuation. This is just one of the examples that actually showcases how, things are changing in India because of fun fact, roughly 49% of all primary markets fundraising, 49% of all private markets fundraising is actually equal into the IPO money that's happening in India every year.

So every year, there are 3 to 400 companies going public in India, and now it's a thing of prestige that you want to retain all the cash earnings inside the company so that you can create more wealth for yourself and your family, because you understand that good corporate governance actually leads to better valuations for you and better wealth for you and better public perception for you.

So this sort of pool of good governance companies is actually increasing each passing year but the question still remains like how do you underwrite for good governance apart from meeting some one-off high-quality small companies? So I mean the way we underwrite people and governance in India is actually very creative. You have to be on the ground

and so what we do is sort of we have a local network in each city in India where every business family knows the other family in that city. So once you sort of know some business family in each city of India and when you know the accountants in each city in India and when you know the bankers in each city in India, word spreads around. What's your reputation, what's your integrity over the last few decades of your whole family. You know, we sort of also employ independent forensic consultants

who sort of combed through all the shell companies or private companies that somebody might have outside of India. But there are lots of creative ways that, again, we try to diligence every single company by being on the ground, whether it's just talking to a bunch of their ex-CFOs who really know what's going on in the company. You know, there's lots of things that we need to do. But the idea that I want to leave you with, this is a key that is solvable by being on. on the ground by having a network of people across different sectors and sort of knowing the business families in different parts of the country.

And there are a few hundred companies in India out of 6,000 listed company that I can fairly say with confidence that have good corporate governance, and that's a very big pool to fish from. Number two is how do you underwrite the durability of the growth? Now, this is a commonly known fact. India is the fastest growing large economy in the world.

In the backdrop of the age economy in the world, Iran war, which is a very tough quarter for India, India again sort of did a 7% plus GDP growth. And India is going to be the third largest economy in the world by the end of this decade. But the real fun fact lies outside this number. If you sort of actually look below the number, where is this growth coming from? India is not IAT services. IAT services is just a single legit percentage to India's GDP contribution. India is more than 20 sectors where you have pervasive diversified growth with years of underpenetration still ahead of you. So we are seeing very, very accelerated profit pools being created in so many different sectors,

whether it's pharma, whether it's aerospace, whether it's semiconductors, whether it's battery chemicals, whether it's defense and whether it's technology and so on. So there's lots of profit pools to actually look for high durable growth in a non-linear level. fashion for an active manager. And this is again a mistake that I'm going to come back to is I actually identified the pattern in the slum dog. In the last 10 years, the profitability actually grew 55 times. And I saw this picture play in front of my eyes and still couldn't participate. So it was a big mistake that I actually atoned, fortunately, by seeing this pattern repeat itself in some other part of the country, let's call it the millionaire, where they are on the same trajectory

in a similar industry, but growing even faster. So they are actually growing at roughly 90% annualized over a span of few years. So this is just a small example of what does high growth in Indian small and midcaps look like. It is actually very strong, very durable, and very predictable because of a bunch of reasons. Number three, the last key to sort of unlock, if you want to make money, India is sort of valuations. How do you make sense of valuations in India? I mean, yes, there is a perception that India is always expensive and rightfully so.

On absolute basis, it will sort of look expensive. But the thing is that there is a lot of durability of growth, which if you adjust for, the price to earnings growth, the PG ratio as Peter Lynn sort of popularized, it actually trades fair. people really know what they're paying for and in India you sort of have a lot of terminal value that you're paying for as well so number one if you buy something at 1 to 1.5 times PEG that's the right way to value

India it's not PE you have to adjust for the growth that you're sort of getting there on the platter and number two is markets are always very bad in discounting high growths which sort of non-linear in nature and which can sort of compound for long periods of time

so this is just an example from my portfolio you again, we sort of come in at one to one point five times PEG, but the earnings growth is sort of so strong and so durable that the multiple sort of really start dropping very rapidly over the next one, two, three, four years. So this is the way where, you know, if you're able to understand and underwrite a few businesses which are fast growers and have predictability in front of them. You still have one minute. Sure. So this is sort of the real life example. We came in into this business at 25 times next to your own. earnings, but was training at very optically high 45 times trailing 12 months earnings.

And fun fact, it has actually sort of given us a return of 300% over the last one and a half years, and yet I believe it's trading cheaper than when we entered. Because the earnings are actually growing at 600% over a span of 2 to 3 years. So today is trading at 20 times forward earnings, but again, on trailing 12 months, it will look expensive. So the key to actually making sense of valuation is to really know your business and to sort of really be able to value this durability of growth.

That's how you really make very handsome returns in India, which is sort of broad-based and depends on real cash flows that you're seeing today versus the hypes that we are seeing in some parts of the world. So just to sort of summarize the paradoxes that in India you really start with governance first and the durability of growth and the valuations last, unlike the US.

And that's how you really make money by inverting the order. So yeah, so that's sort of the way to go about solving the three keys and then really making money of the 2000 companies that are below the index and really represent the future that is India. Thank you. I rest my case. We have room for one question. Yeah, one question, because primarily

I thought India was expensive, as you said. I have had numerous clients in Sweden which has been approached by investment bankers in India, primarily saying, well, you company, you trade at 10 times multiple in Sweden, we can list to your Indian subsidiary for 30 times, which primarily doesn't have very much growth. So in essence, either something has happened in the last two or three years or Indian stock market does not pay for growth. because primarily you're saying almost lower multiples for high growth companies than they were claiming being paid for pretty much no growth companies. Okay. I would sort of rephrase that. So what I meant was the multiples look high today, but the growth is sort of so strong that it really sort of, you know, grows into the multiple very quickly.

you know, it's sort of non-linear compounding that happens. So I'm not saying that India does not pay for growth. India will only pay for growth, but the growth has to be there. The moment sort of the growth goes missing, the multiple will get derated to sort of 15 times. So whatever is expensive, is expensive for maybe two reasons. One is that there is very strong growth that is, you know, predicted for that business. On number two, it's like a heavily moated business, which is very well discovered, has high corporate governance. and because of a lack of alternatives,

there are lots of investors from all over the world crowding onto the same name in the top 200. That's the second reason. But those are the only two reasons for which India really pays up good multiples.