Not the House of Commons. Not your cabinet. Not the press lobby, your internal factions, or the increasingly creative polling methodologies that tell you whether the public prefers your energy to your opponent’s vibe. The bond market. The £2.7 trillion market in UK government gilts - which is, for all intents and purposes, the financial world’s running commentary on whether it believes a word you’re saying as a PM (or PM challenger).

As Keir Starmer’s premiership enters what the newspapers are diplomatically calling “a difficult period” (read: his poll numbers have fallen off a cliff and the party is doing that restless energy thing where everyone’s suddenly very interested in the rules for leadership challenges following the local elections recently), the usual Westminster machinery has kicked into gear. Potential successors are gearing up with more conviction than usual. Allies are briefing journalists. Everyone is very busy not-quite-running for a job that isn’t quite vacant yet.

Fine. Normal politics. But here’s what the challengers need to understand before they start printing business cards with “10 Downing Street” on them: the gilt market will have opinions about you. Loud ones. And unlike a parliamentary select committee, it won’t give you three weeks to prepare your answers.

Why gilts, and not, say, the FTSE?

This is actually an important question and not enough people ask it. The instinct, especially for politicians whose economic literacy was formed in an era of cheap money and benign markets, is to watch the FTSE 100 as the national economic mood ring. It’s on the news when the markets are at an all time high (or low). It has a number. It goes up and down in a satisfying, legible way.

The problem is that the FTSE 100 is basically a collection of multinational companies that happen to be listed in London. When sterling falls, FTSE earnings (many of which are denominated in dollars) mechanically go up. So you can have a genuine UK sovereign credibility crisis - the kind where serious people in serious buildings are having very unserious conversations about emergency liquidity, and the FTSE might be fine. Slightly up, even. This is not a useful signal.

Gilts are different. When you buy a 10-year GILT, you are making a very specific bet: that the British government will be solvent, competent, and broadly not chaotic for the next decade. The yield on that gilt is the market’s real-time price for that bet.

Low yield = we believe you, carry on.
High yield = we have concerns, please explain yourself.

And unlike a parliamentary vote of no confidence, the gilt market runs every single business day. There is no recess. There is no prorogation. It just... prices things. Continuously. In public.

The 45 day internship of Liz Truss

You know the story. But it’s worth telling it again in a specific way, because the lesson most people took from it (”don’t do unfunded tax cuts”) is the right lesson but slightly incomplete.

In September 2022, Truss and Kwasi Kwarteng stood up and announced £45 billion of tax cuts in their mini budget. Fine, tax cuts are a legitimate policy choice. What they also did, with what can only be described as remarkable confidence, was skip the Office for Budget Responsibility (OBR) forecast that would have independently stress-tested the numbers. This was not a small thing. The OBR exists precisely to give gilt investors an independent anchor - a document they can point to and say “okay, here is what independent experts think happens to the deficit.” Without it, investors had nothing to price off except vibes and political conviction, which are not, historically, great collateral.

The gilt market’s response was immediate and, by the standards of sovereign debt markets, genuinely dramatic. Thirty-year gilt yields moved by amounts that traders described, with some understatement, as “unusual.” Sterling fell toward parity with the dollar. Pension funds, which had been running liability-driven investment strategies using gilts as collateral, started getting margin calls that threatened to turn into a full-scale liquidity spiral. The Bank of England (BoE) had to step in and buy gilts. Not as monetary policy. As financial stability emergency response. To fix a problem the government had created. Twelve days later, Kwarteng was fired. A month after that, Truss resigned.

And here’s the thing: it didn’t do it because it had ideological objections to tax cuts. Bond investors are not, as a group, closet socialists. They did it because the numbers didn’t add up and the government had made it very clear it didn’t particularly care whether they added up.

So what does this mean for whoever comes after Starmer, if at all?

The UK’s fiscal position right now is not comfortable. Debt-to-GDP is north of 95%. The OBR’s famous “fiscal headroom” has a habit of disappearing the moment anyone looks at it carefully. Growth is sluggish. The gilt market is not in crisis, but it is paying attention.

Any successor who comes in swinging with big spending commitments and a casual attitude toward how they’re financed will find the gilt market waking up very quickly. Any successor who overcorrects into aggressive austerity will likely strangle the growth that makes the debt trajectory sustainable, and gilt investors, who are quite good at modelling debt dynamics, will notice that too.

The viable path (which is genuinely narrow) is what you might call gilt-compatible ambition. Growth-oriented but credibly costed. Deferential to the OBR (not because it’s always right, but because it’s the institutional anchor the market trusts). Clear in communication to debt markets about the rules of the game. Rachel Reeves, for all the political noise around her, has understood this constraint more clearly than most. Any successor who is smart will either keep her or find someone who operates with equivalence in this regard.

A brief note on Donald Trump, who also figured this out

The POTUS’s second term has featured an ongoing, unacknowledged, and quietly fascinating accommodation of Treasury market signals. The sweeping reciprocal tariff announcement in April 2025? Paused for ninety days, almost precisely as ten-year Treasury yields pushed toward levels that would have made US corporate debt refinancing genuinely painful. The Iran escalation rhetoric? Modulated when dollar funding markets twitched. The threats to Federal Reserve independence? Walked back when bond markets started pricing in the kind of institutional chaos that makes foreign holders of US Treasuries nervous.

Even the proclaimed ‘most-powerful person in the world’ operates within a constraint set, and at the top of that constraint set, above Congress, above the courts, above polling, is the cost at which your government can borrow. Push that too high and nothing else works. You can’t fund your agenda. You can’t cut rates to juice growth. You can’t run the deficits that pay for the things your voters elected you to do.

Trump, whatever else you think of him, is a transactional pragmatist. He found the constraint and he worked around it. That’s actually the correct approach.

The bottom line

Power, in an open capital market democracy, is always partially borrowed. And borrowed from people who will re-price it if you do something they don’t like.

The constitutional theory says that a Prime Minister serves at the confidence of the House. The practical reality is that they also serve at the confidence of whoever is buying UK sovereign debt.

For anyone in Westminster currently doing the quiet maths on a leadership challenge, the question isn’t just: can I get the votes? It’s: what happens to ten-year gilt yields when I announce the challenge or the morning after I win?

If you don’t know the answer to that, if you haven’t thought about it, if your team hasn’t modelled it, if you’re assuming it’s a detail to sort out later, then the bond market will sort it out for you.

It’s quite good at that.

Subscribe now

Every geopolitical conflict triggers two markets.

One prices physical disruption.
The other prices loss of trust.

Oil captures the first.
Gold captures the second.

When conflict expands, oil surges because supply chains fracture. Tankers reroute. Insurance premiums explode. Strategic reserves suddenly matter again. Gold rises for a different reason. It signals something deeper: the market’s confidence in the financial system is eroding.

Right now both forces are building at the same time. Middle East escalation, fractured alliances, weaponized trade, and rising fiscal stress are pushing both commodities higher.

The real question for investors is not whether they rise.

It is which one wins the race. Because that answer reveals the next macro regime.

The First Reaction: Oil Always Moves First

Energy markets are structurally fragile.

Nearly 20% of global oil trade flows through the Strait of Hormuz, a narrow corridor that connects Gulf producers to the global economy. When that corridor becomes politically unstable, oil markets reprice risk immediately.

The recent Middle East escalation triggered exactly that reaction.

Brent surged close to $120 per barrel, a near 25% jump in a single trading session. Traders quickly began discussing scenarios closer to $140–$150, levels not seen since the 2008 commodity supercycle.

Oil shocks ripple through the economy with unusual speed.

The IMF estimates that every sustained 10% rise in oil prices adds roughly 40 basis points to global inflation. That transmission forces central banks to keep policy tight even when growth is slowing.

Oil spikes therefore carry a second-order consequence. They turn into monetary policy events.

Gold Is Pricing Something Different

Oil reflects disruption.

Gold reflects distrust.

Historically gold rallies when three macro forces converge:

• geopolitical instability
• declining real interest rates
• central bank reserve diversification

All three are now visible.

The data behind that view is structural. Central banks have purchased more than 3,000 tonnes of gold since 2022, the fastest accumulation in modern reserve history. At the same time, global public debt has crossed $315 trillion, roughly 330% of global GDP, limiting how aggressively central banks can keep real rates elevated if growth slows.

Reserve managers are increasingly wary of a system where currency reserves can be frozen, sanctioned, or politically weaponized. That shift helps explain why gold has already pushed above $5,000 per ounce, a level that few strategists considered plausible just three years ago.

Unlike oil, gold does not require a supply shock.Its price moves when global portfolios reallocate.

What the Banks Are Saying

Institutional forecasts reveal an important asymmetry.

Oil expectations remain tactical.
Gold expectations look structural.

Institutional Commodity Forecasts (2026)

Across desks, the message is consistent.

Oil shocks come and go.

Gold rallies tend to reprice the system itself.

The Indicator Macro Investors Actually Watch

Serious macro investors rarely analyze oil and gold separately. They watch the Gold/Oil Ratio.

Gold/Oil Ratio = Gold Price ÷ Oil Price

The ratio measures how many barrels of oil one ounce of gold can purchase. Over long periods the ratio averages 15–20. It functions as a surprisingly powerful macro signal.

During the 2008 financial crisis, oil collapsed while gold held firm. The ratio surged.

During the 2022 energy shock, oil surged faster than gold. The ratio compressed.

In other words, the ratio answers a deeper question. Is the world facing an energy crisis or a confidence crisis?

Two Macro Paths From Here

The next phase of the cycle determines the winner.

Scenario 1: Energy Shock Dominates

If geopolitical conflict materially disrupts supply:

• Brent crude could move toward $120–$150
• global inflation reaccelerates
• central banks remain restrictive

In this regime, oil outperforms gold.

Scenario 2: Energy Shock Breaks Growth

If high energy prices suppress global demand:

• economic growth slows
• real rates eventually fall
• capital rotates into safe assets

In that regime, gold outperforms oil.

Historically commodity cycles follow a familiar sequence.

Oil spikes first.
Gold rallies later.

The Structural Shift Most Investors Are Missing

The most important change in this cycle is central bank behaviour. For decades central banks were passive participants in gold markets. That era is ending.

Reserve managers are increasingly accumulating gold as insurance against:

• Geopolitical fragmentation
• Sanctions risk
• Fiscal expansion
• Declining confidence in reserve currencies

This shift matters because it transforms gold from a cyclical hedge into a strategic reserve asset. That is a different demand curve entirely.

The Real Signal

The signal from commodity markets is increasingly pointing in one direction: gold is likely to outperform oil over the next phase of the cycle.

The data behind that view is structural. Central banks have purchased more than 3,000 tonnes of gold since 2022, the fastest accumulation in modern reserve history. At the same time, global public debt has crossed $315 trillion, roughly 330% of global GDP, limiting how aggressively central banks can keep real rates elevated if growth slows.

Energy markets, by contrast, are entering a more cyclical phase. Outside of geopolitical disruptions, global oil supply capacity continues to expand through US shale, Guyana, and Brazil, while demand growth is slowing as China’s industrial cycle matures. The IEA expects global oil demand growth to fall below 1 mb/d later this decade, roughly half the pace seen in the early 2010s.

That asymmetry matters. Oil spikes are typically sharp but temporary. Gold rallies tend to persist when they coincide with debt expansion, geopolitical fragmentation, and reserve diversification.

If those forces continue to build, the gold–oil ratio is likely to rise over the coming years. In practical terms, that would signal a macro regime defined less by energy scarcity and more by growing skepticism toward the stability of the global financial system

Key indicators of which being - GCCs are concentrated in dominant talent hubs, they span industries far beyond pure tech, they often have senior leadership and dedicated HR leadership, they range from specialist teams to massive centers, and many have existed for more than a decade. A growth in GCCs is essential to support the India-story in this AI age.

Bangalore remains the undisputed hub

It goes beyond IT services

Although, IT Services remains the largest employer

Amidst slowing globalisation and India-US skirmishes, the setup of new GCCs has slowed down. Although the ones who’re here have been expanding their footprint.

In the recent analyst briefings of Embassy Office Parks REIT, it was stated that -

The key demand driver continues to be global corporates who are setting up or expanding their GCCs in India. In the past 3 years, almost 70% of our leasing has been to GCC clients.

On the talent side, Quess Corp calls out GCC led revenue mix in its Professional Staffing business: “deeper engagements with global capability centers, which now contribute 73% of segment revenues.”

The same shows up in Mindspace Business Parks REIT earnings call commentary that synthesises broker research. Mindspace cites JLL estimates for 2025, noting that GCC led demand reached 31.4 million square feet and accounted for 38 percent of total leasing. It also cites a 2026 view from CBRE, which says GCCs are expected to drive 35 percent to 40 percent of total absorption in 2026.

The market signal is clear as day - GCCs are increasingly becoming the base load demand for specialised hiring in India’s top clusters. This is good for India. GCCs bring long duration problem statements, budgets, and leadership owned mandates into top talent clusters, and AI (being used increasingly) turns that proximity into measurable productivity gains, faster delivery, and a shift from executing tasks to owning platforms and products. This rise along the value chain creates spillovers - higher value jobs and wages, deeper upskilling, more founder and specialist talent leaving GCCs to build startups, and a stronger export engine that is less exposed to traditional services cycles.

It is common to hear about senior professionals from wealth management switching companies - Motilal to Nuvama, Barclays to UBS. It is a response to one core reality, wealth management is a relationship driven business and here, experienced wealth managers/bankers age like fine wine…higher the time spent in the business, deeper the relationships, and in turn more AUA(assets under advisory). Hiring these grey-haired or balding bankers is the fastest way to buy ‘growth’.

India’s wealth sector is heating up, with India now trailing only the US, China and Japan in terms of number of HNIs/UNHIs, according to a Knight Frank report. A long bull run in equities, repeated real estate upcycles, and a steady stream of liquidity events from technology and new age businesses have created a new cohort of affluent investors. They want more than products - they want advice, access, and a sense that someone is thinking about their full balance sheet.

Wealth firms are thriving off this shift, and the competitive set is widening. It is no longer only private banks and legacy wealth managers. Brokerages are building wealth arms. New age platforms are positioning themselves as private banking alternatives. Global firms want onshore scale, and domestic firms want offshore reach. As more platforms chase the same pool of wealthy families, demand for the top slice of relationship managers has spiked.

Experienced relationship managers are landing salary hikes of as much as 40%, while newer wealth management firms are offering bankers 50% or more of the revenue they generate, said Prateek Gupta, associate director, talent solutions for India, at consultancy Aon. ~ Bloomberg article (July 14, 2025)

There have been at least two high profile shuffles in the first half of this month alone. Lighthouse Canton appointed Gurjeet Sohi, formerly with Deutsche Bank, as Managing Director and Head of Wealth Management for India. Neo hired Puneet Matta, from UBS, as vice chairman to drive its private banking push. This trend is set to continue in 2026 and we’ll see more high-profile bankers moving places.

To understand the churn, it helps to separate job changes into two types.

The first is the traditional move, where a banker switches places to improve payouts, upgrade brand, or access a better product shelf. This has always existed in wealth.

The second is what has become more common in the last 18 to 24 months. These are builder roles. Firms are hiring senior people not just to manage a book, but to build a business. For senior bankers, these roles are appealing because they offer three things at once:

• Better economics, often with higher fixed pay and a more aggressive variable structure.

• More autonomy, especially in firms that are still scaling and need leaders who can make decisions quickly.

• More legacy, because building an institution is a different career milestone than simply running a larger book.

For firms, the decision is equally rational. Organic growth in wealth management is slow and fragile if you depend only on hiring juniors and waiting for books to mature. The learning curve is steep, and mistakes are expensive. One poor episode can break a relationship that took years to build.

A senior banker does not only bring a client book. They bring a working model for how to recruit and retain teams, how to segment clients, how to expand into new hubs, how to introduce investment governance, how to handle risk events without losing trust and how to sell higher value products such as discretionary mandates and alternatives without breaking client confidence. This is of incredible importance.

Lighthouse Canton, for example, has an ambition of doubling its AUM to $10 Billion by 2027. To bring in Gurjeet Sohi, is a ‘build’ role. It is a platform buildout, reinforced by additional leadership hires, Atin Kumar Saha (Vice Chairman, Wealth Management) and Sanjay Sharma (Executive Director, Wealth Management). Similarly, Neo’s hiring of Puneet Matta is also framed around expanding footprint in India.

At the same time, global private banks are deepening leadership benches city by city. Julius Baer, for example, appointed Guneet Singh as group head reporting to Umang Papneja, and named Mayur Bhat as team head in Mumbai, Deepak Chivukula as team head in Hyderabad, and Niloy Dey as team head in Kolkata. They’re building distribution depth.

And some firms are hiring to expand capability, not only coverage. Waterfield appointed Riddhiman Jain as Head of Investment Strategy and Solutions and Abhishek Damani as head of Alternative Investments, with CEO Soumya Rajan framing the hires as strengthening investment strategy and alternatives as demand rises.

This will intensify in 2026 because the structural forces are only getting stronger. The pool of wealthy families is expanding faster than the supply of seasoned advisors, competition between platforms is widening, and more firms are entering the wealth business with serious scale ambitions. At the same time, clients are demanding deeper advice, broader product access, and tighter risk management across their full balance sheet. In that environment, hiring experienced bankers becomes the fastest way to buy distribution, credibility, and operating maturity in one move. Expect more aggressive pay structures, more builder mandates, and more visible leadership churn as wealth firms race to secure the small cohort of people who can still move both money and institutions.

The UK wealth management sector has entered 2026 not just in a state of flux, but in a state of fundamental restructuring. The “buy-and-build” frenzy of the early 2020s has matured into a high-stakes race for technological dominance. As we kick off Q1, the narrative is clear: if you aren’t an aggregator, you are likely an acquisition target. Margin compression is the primary catalyst.

Between the FCA’s relentless focus on Consumer Duty and the rising margin compression, mid-tier firms (£5bn–£15bn AUM) are finding that “independence” is becoming an expensive luxury.

Dealflow & Valuations

Valuation benchmarks have remained remarkably resilient despite the cost of capital. We are seeing a bifurcation in pricing based on how a firm generates its revenue.

Current Valuation Benchmarks

• Recurring Revenue Multiples: For smaller, retirement-led IFA sales, the market is currently settling at 4.0x to 4.2x recurring income. This is near a seven-year high, driven by a shortage of “clean” high-quality firms.

• EBITDA Multiples: Larger, scalable platforms are commanding between 8x and 11x EBITDA.

• The “AI Premium”: Buyers may be willing to apply a 0.5x–1.0x multiple premium to firms that can demonstrate “AI-readiness”, specifically those with clean, structured data sets that can be easily integrated into with proprietary AI models.

Actively Hunting

Here are the 5 most active consolidators hunting for targets:

1. Perspective Financial Group

Backed by US-based private equity firm Charlesbank Capital Partners, Perspective is currently the most prolific “volume” buyer in the UK. They are targeting established regional IFAs with high-quality, long-term client relationships.

• Recent Momentum: Completed nearly 20 acquisitions in 2025 alone, pushing their AUM past £11 billion. Overall, they have done close to 120 acquisitions.

• Strategy: They prefer a “hub and spoke” model, acquiring mid-sized firms to act as regional offices and then bolting on smaller one-man bands nearby.

2. Titan Wealth

Titan is the industry’s “Vertical Integration” specialist. Backed by Parthenon Capital, they don’t just want to manage assets; they want to own the platform, the advice, and the custody.

• They are moving beyond traditional IFA firms and acquiring international advice groups (e.g., Blacktower Group) and DFM-heavy businesses.

• Unique Angle: They are actively looking for firms that can help them scale their Jersey and international offshore capabilities, positioning themselves for HNW clients who want global tax mobility.

3. Finli Group

Founded by former Quilter executives and backed by JC Flowers & Co, Finli has become a primary destination for advisors seeking a “safe pair of hands” for their succession. Specifically targeting “retirement-ready” principals who want a clean exit without abandoning their clients to a call-center model.

• Recent Momentum: Their “takeover drive” in late 2025 added over £2 billion in client assets in a single quarter.

• Strategy: They focus heavily on cultural alignment, often surveying a target’s planners before the deal closes to ensure a low-friction integration.

4. Söderberg & Partners

The Swedish giant has entered the UK market with a massive war chest and a different philosophy: Partial Equity.

• The Hunt: They are not always looking for 100% buyouts. They often take 25% to 50% stakes in successful, growing firms like Active Financial Planners.

• Strategy: This “partnership model” attracts younger principals who aren’t ready to retire but want capital to grow their own firms using Söderberg’s tech platform.

5. Radiant Financial Group

Backed by Apiary Capital, Radiant is the “Quality over Quantity” buyer, focusing on firms with deep expertise in complex financial planning. They are aggressively expanding into Scotland and Northern England.

• Recent Momentum: Their 2025 acquisition of Seven Bridges and two major Scottish IFAs signaled their intent to be a national powerhouse.

• Strategy: They prioritize firms with a high ratio of Chartered Financial Planners, aiming to position the group as a premium, high-advice boutique at a national scale.

Policy Headwinds Reshaping Capital Flows

Recent UK government policy changes have transformed fiscal headwinds into powerful drivers of behaviour, reshaping how capital is structured, allocated, and advised upon.

• The abolition of the non-dom regime in April 2025 has forced a shift from offshore deferral to complex onshoring and restructuring, fundamentally changing HNW advice.

• The Temporary Repatriation Facility (TRF) has triggered a multi-billion-pound liquidity event, pulling offshore capital into UK AUM via FICs and tax wrappers.

• The Autumn Budget 2025 has increased the tax cost of dividends, savings, property, and cash holdings, forcing advisors to prioritise tax-efficient structuring and asset location over simple investment selection.

• Higher dividend and savings taxes are driving flows into offshore funds and corporate structures, while property surcharges are accelerating gifting and incorporation.

• Cuts to Cash ISA allowances are creating a structural tailwind for Stocks & Shares ISAs and equity exposure.

Outlook & Predictions for 2026

As we look toward the rest of the year, expect three dominant themes to play out:

1. The Rise of the “Vertical Integrator”: We predict that 2026 will be the year of margin reclamation. Firms like Titan Wealth and Quilter will move to own the entire value chain- advice, platform, and asset management to eliminate third-party leakage.

2. The “Mass Affluent” Gold Rush: Following the FCA’s final rules on Targeted Support, major banks such as Lloyds, Barclays, JP Morgan and NatWest are moving to capture the UK’s underserved Mass Affluent segment. This demographic has been largely priced out of traditional wealth management, creating a substantial advice gap. Banks and new entrants are rushing to offer scaled, accessible advisory solutions to meet growing demand. The resulting “Mass Affluent gold rush” is driving rapid product innovation and competition in the UK advisory market.

3. Interest Rate Tailwinds: With the Bank of England expected to cut rates toward 3.25% by summer 2026, the cost of acquisition debt will fall. This could spark a “second wave” of mid-market M&A activity in H2 2026.

The Deal to Watch Out for in 2026

A high‑stakes takeover battle is unfolding for Evelyn Partners - one of the UK’s largest wealth managers with ~£64 billion in assets, with major banks including Barclays and NatWest Group advancing in the auction process alongside interest from Lloyds and Royal Bank of Canada for a deal potentially valuing the firm at around £2.5 billion.

This deal is a game changer because Evelyn Partners offers a rare combination of scale, fee‑based recurring revenue, and a strong presence across both affluent and mass affluent clients- something few UK wealth managers can match.

The winner will gain a significant foothold in the UK wealth market, unlocking immediate scale, recurring revenue, and cross-selling opportunities. This will intensify competition, forcing rivals to consolidate or innovate and accelerating the transformation of the advisory industry.

The Bottom Line

2026 is a turning point for UK wealth management. Scale, efficiency, and strategic acquisitions will define winners. Firms capturing the Mass Affluent, high-quality recurring revenue, and operational synergies will command premium valuations, while laggards face consolidation.

The future favors the bold, the fast, and the strategically integrated; a striking irony for an industry long seen as conservative and deliberate.

India, on every conventional metric like participation, execution efficiency, digital access, Indian markets have transformed. Retail ownership has crossed thresholds once considered aspirational. Trading volumes are at historic highs. Technology and settlement rails move capital with unprecedented speed.

And yet, if you step back, something feels… incomplete.

We have built incredibly high capacity highways for capital. But we still offer most investors only a couple of destinations: a vanilla long only exposure, or the high octane slopes of derivatives. That narrow product shelf is shaping investor behaviour in ways few policymakers have yet fully acknowledged.

SEBI’s recent tone on deepening cash markets, on derivative maturity, on regulated innovation isn’t just housekeeping. It’s a strategic nudge. India doesn’t lack participation. It lacks carefully designed participation options that convert “access” into durable wealth creation outcomes.

Participation Is Not the Problem, Product Depth Is

It’s worth distinguishing two separate dimensions:

1) Market Access & Infrastructure
Digital onboarding has lowered barriers. Broker apps bring retail into equity markets in their millions. Transaction costs and frictions have collapsed. SEBI and market infrastructure reforms have democratized entry like never before.
That’s a structural achievement.

2) Product Availability & Investor Outcomes
This is where the gap remains.

At present, listed equity products in India cluster at two poles:

• Passive beta exposure via index funds and ETFs

• Derivatives trading, often shorttenor and leveragecentric

For example, an investor who simply wants modest returns with some downside protection has no straightforward listed product to choose from. Instead, they often end up buying weekly options or experimenting with option strategies they don’t fully understand not out of speculation, but because the product shelf doesn’t offer a safer alternative.

Or anyone who has seen SIP investors panic-sell during sharp corrections knows this problem well. Often, it isn’t lack of belief in equities, it’s the absence of products that help them emotionally and financially tolerate volatility.

This is not a criticism of derivative markets, they serve liquidity and risk transfer functions but derivative dominance channels much retail activity into instruments that demand sophistication, discipline, and risk control most investors don’t yet possess at scale.

Mutual funds in India do offer intermediate options, low volatility funds, quality and factor strategies, hybrid products, some covered call vehicles and that breadth has expanded investor choices inside the open-ended fund ecosystem. However mutual funds help investors allocate capital and listed products determine how the market itself evolves, through transparent price discovery, structural comparability, intraday liquidity, and clearly defined payoff profiles that become default choices on broker screens. When that shelf is thin, behaviour naturally concentrates around whatever is visible and easily accessible: short-tenor trading.

That gap matters. Because product availability, not access alone, determines how people stay invested. People don’t panic because they opened T+1 accounts faster than a generation ago. They panic because they don’t have structures that help them ride cycles with clarity.

Why Product Design Shapes Behaviour at Scale

When most available choices are either “full beta” or “DIY leverage,” investors will:

• Try to engineer their own payoffs

• Lean on familiar, easily accessible tools like short options

• Drift toward very short horizons and reactive trading

Regulatory messaging around derivative quality and longer maturity tenors should be read in that context. It’s not just about controlling risk in derivatives. It’s about nudging the market toward instruments that encourage healthier participation. Restrictions and warnings only influence marginal decisions. The suite of products available influences behaviour at scale.

In global markets where the equity product shelf is deeper, participation doesn’t just happen, it persists:

• In the US, defined outcome ETFs, covered call wrappers, direct indexing, fractional ownership, and factor strategies allow investors to express nuanced risk preferences in simple, transparent packages.

• Europe’s listed structured products market provides standardized payoff profiles with clear disclosures.

• Japan’s listed ETF and JREIT ecosystem integrates equity participation with long term household savings behavior.

• Hong Kong and Singapore complement cash markets with exchange traded structured products that are regulated and transparent.

Across these markets, investors can choose how they participate in growth, income, buffered, capped, low volatility without being forced toward speculation or daily expiry cycles.

What India Could Build, A Realistic Roadmap

India does not need derivatives like complexity masquerading as products. It needs clarity, structure, and choice that sit comfortably within a listed environment:

1) Outcome Oriented Index Products (Listed ETFs with Guardrails)
Products that define a payoff range over a fixed tenor: participate in most of the upside up to a cap, cushion some downside up to a limit. Not riskless, just clearer.

2) Income First Equity Products (Listed CoveredCall / BuyWrite Wrappers)
Equity exposure with explicit income focus and disclosure of upside caps, not designed to maximize speculative returns but to smooth participation.

3) Factor / LowVolatility Listed Products
Passive products that tilt toward lower drawdowns and smoother returns, ideal for systematic SIPstyle investing without the binary risk profile of pure beta.

4) Standardized Longer Tenor Equity Participation Structures
Products designed for meaningful horizons (six months, one year), nudging participants toward longer engagement and away from zeroDTE reflexivity.

5) Payoff Based Labelling and Transparency
Labels that reflect structure: “capped upside with buffered downside,” “income-oriented equity,” “low volatility tilt,” etc. Investors should be able to compare apples to apples, not wrestle with opaque marketing.

These are not foreign concepts. They are the next logical step for India’s listed markets.

Why Now Matters

Policy signals from SEBI and the Finance Ministry converge on one theme: stability through participation that lasts beyond the next expiry day.

Two policy signals stand out:

• SEBI Chair on priorities: deepen cash equities (capital formation) and raise the bar for innovation, lower friction, widen opportunity, manage risk.

• FM on participation and stability: retail investors acting as a stabilizing foreign implicit endorsement of broader, longer term equity ownership.

When investors can match their goals with products that embed risk boundaries and predictable payoff shapes, markets gain:

• Investor protection through structure

• Greater persistence of household ownership through cycles

• Healthier price discovery and durable liquidity

Participation is necessary. But participation that survives drawdowns and cycles now that’s durable.

The Bottom Line

India’s next frontier in equity markets isn’t more volume.
It’s better product design. By widening the listed equity product shelf, without sacrificing transparency or simplicity, India can turn its retail boom into sustainable wealth creation architecture.

And if SEBI’s recent signals are read in this light, they’re not just about regulation. They’re about design. They’re about shaping the “how” of participation, not just the “who.”

The next decade of India’s equity story will not be won by access alone. It will be won by products that make participation stick.

Popular daily, Gujarat Mirror surfaced that at least 44 trading firms have become insolvent by being on the wrong side of the trade with silver. They have accumulated losses exceeding rupees 3500 crores, as per sources.

Gujaratis do take big bets on their conviction.

To better understand the silver market, we recently met two Marwari brothers who have been running manufacturing plants for silver coins and utensils since a decade. Mid of 2024, both of them diverged paths and took two very different bets.

One of them doubled his production capacity, fully convinced that the retail demand will hold up despite rising prices.

The other one sold his manufacturing company and other assets, converted everything to physical gold and silver, and just held onto it. And, he has practically doubled his net worth in 2025 alone.

Both have been on the right side of the trade.

What did the Gujarati traders miss that these two brothers saw clearly? It’s worth having a look.

Popular narratives state that the demand for silver is rising due to its usage in electronics, cars, solar panels and jewellery, while the supply has been more or less stagnant. This explanation is broadly correct, but let’s throw some more light on the underlying mechanics.

Silver is not a commodity that responds cleanly to price signals, and that single fact explains more about the 2025 repricing than any chart pattern or macro narrative.

Most silver is not mined because someone wants silver…most of it (approx 60-80%) is produced as a byproduct of mining copper, zinc, lead, and gold. That means higher silver prices do not automatically bring new supply to market. Copper miners or zinc producers do not accelerate projects because silver looks tight, they simply accept better byproduct economics on what they were already producing.

This structural rigidity matters. It means that when demand rises or inventories fall, the market cannot rely on a quick supply response to restore balance. Adjustment happens through price, not volume. And when that adjustment finally arrives, it tends to be abrupt.

This is what has played out in 2025.

For several years, the silver market absorbed structural deficits quietly. Demand exceeded supply, but above-ground inventories acted as a buffer. Large users and financial participants could source metal from warehouses without forcing miners to respond. Thus, price stayed contained because it was drawing down stored supply.

Once that buffer thinned, prices started hitting new highs. .

The transition from surplus comfort to marginal scarcity is rarely gradual. Markets can appear stable right up to the point where availability becomes uncertain. That is when price starts reflecting urgency.

The first clear sign that silver had crossed that line came from London, the central hub for the global physical market. Liquidity tightened, borrowing costs rose and spot prices decoupled from futures. Critically, conditions eased only after significant quantities of metal were physically moved into London from other regions.

When a market needs metal shipped across borders to function smoothly, it is telling you that availability at the margin has become constrained. Headline vault numbers can obscure this reality. Large stockpiles may exist, but much of that metal is allocated, pledged, or structurally immobile. What matters is how much metal can be delivered quickly without disrupting the system. When that portion shrinks, the market feels tight even if total inventories look large.

While all this was playing out in London, visible inventories in China declined to multi-year lows. That removed another layer of shock absorption from the global system.

China is not just a consumer of silver, it is a critical node in the physical flow of metals. It dominates 60% to 70% of the world’s refined silver output. By allowing prices on the Shanghai exchange to rise significantly higher than Western exchanges (at one point an $8 per ounce difference), China incentivized traders to ship physical silver into the Chinese market. Once sufficient physical supply was pulled into the country, China introduced strict export licensing on January 1, 2026, to ensure the silver remains available for its domestic manufacturers.

“This is not good. Silver is needed in many industrial processes,” tweeted Elon Musk.

This sends a shock across the supply chain. Producers have reported aggressive buying behaviour from industrialists. What we saw in 2025 could be the initial leg of a longer scarcity cycle. Thus, it is important to keep an eye on the plumbing -

• Where the metal is: which vaults, which countries, and whether it is free or already allocated.

• How easily it moves: shipping times, export approvals, and whether metal can cross borders without friction.

• The cost of access: lease rates, borrowing costs, and location premiums between London, Shanghai, and other hubs.

• Who is holding it: industrial users, ETFs, traders, or strategic stockpiles.

• How fast shortages show up: whether buyers pay up immediately or wait, and how quickly inventory is rebuilt after draws.

We’ll keep on sharing our observations. Stay tuned!

This isn’t entirely new; the Tata Group set the precedent way back in 2008 with their widely famous acquisition Jaguar Land Rover (JLR) for $2.3 billion. At the time, critics scoffed at a truck maker running a luxury marquee. Yet, Tata turned JLR around, proving that Indian stewardship could revitalize distressed Western assets. But while the Tata-JLR deal was a play by a massive corporate house, the new wave is different. It is led by mid-sized family businesses, the “lions in the jungle” who are far smaller but hungrier. They are executing a sophisticated financial and operational arbitrage: buying distressed global assets at discounted (sometimes steeply discounted) valuations to acquire two things they cannot build overnight - a heritage brand and market access.

The Lion: Sudarshan Chemical Industries

To understand the magnitude of this trend, one must look at Sudarshan Chemical Industries Ltd. (SCIL). Founded in 1952 in Pune by the Rathi family, Sudarshan didn’t start as a global predator. For decades, it was a conservative player, manufacturing basic inorganic pigments to help a newly independent India reduce its reliance on expensive imports.

In 1990, Sudarshan formed a strategic 16-year joint venture with Japan’s Dainippon Ink & Chemicals (DIC). This partnership was a technological catalyst, providing the high-end R&D and manufacturing know-how needed to produce sophisticated organic pigments like phthalocyanines. It transitioned Sudarshan from a domestic supplier into a quality-driven manufacturer capable of meeting rigorous global standards.

However, under the third-generation leadership of Rajesh Rathi, the company pivoted. In 2007 Sudarshan and DIC mutually decided to end their joint venture. What makes it noteworthy is that Sudarshan had an exclusive global distribution agreement with DIC which contributed to almost 60% of their revenue at the time.

They realized that the domestic market was a safety net, not a ladder. In a bold move, Sudarshan shed unrelated businesses (like agrochemicals) to become a pure-play pigment manufacturer. They moved up the value chain, shifting from commodity-grade “azo” pigments (used in basic inks) to high-performance, complex pigments used in automotive coatings, cosmetics, and electronics.

This relentless focus on “color competence” (technical mastery of pigment chemistry) allowed them to quietly become the fourth-largest pigment player globally, commanding a 35% market share in India even before their defining move.

The Jungle: A Sector in Flux

The global pigment industry (estimated to be a $31.4 billion as of 2024) has historically been considered to be a fortress of European giants like BASF, Clariant, and Heubach, behemoths that color everything from your car to your eyeliner. These companies held the patents, the high-margin clients, and the prestige.

However, the last decade has fundamentally broken the “European Advantage,” creating a vulnerability that Indian firms were perfectly positioned to exploit.

This “perfect storm” was driven by three specific, compounding pressures:

• The Energy-Price Arbitrage: For 24/7 chemical plants, natural gas is both an energy source and a primary feedstock. Following the Russia-Ukraine war, German gas import prices at their 2022 peak reached nearly 10 times their 2021 average. While prices have since cooled, they remain structurally higher than in the US or Asia. This created a “margin bleed” where the cost of simply keeping a German kiln running often exceeded the market value of the pigment it produced.

• The Regulatory Squeeze: Europe’s REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals) framework is arguably the world’s strictest environmental regime. While it drives safety, it has imposed an “Innovation Tax.” Every new or existing pigment requires exhaustive, multi-million dollar dossiers for compliance. For European firms, this turned high-performance chemistry into a defensive battle of cost-management rather than offensive R&D.

• The “Hollowing Out” Theory: Industry analysts suggest a deeper trend: the de-industrialization of the European mid-market. As major chemical conglomerates (like BASF) pivot toward high-value specialties or move production to China and North America, mid-sized European champions like Heubach were left behind. Without the massive capital of a conglomerate or the low-cost base of a developing economy, these “heritage” players became trapped - holding world-class IP but possessing no profitable way to manufacture it.

While European firms were fighting for survival, Indian players like Sudarshan were refining their processes. They benefited from an “Emerging Market Premium” which was the ability to build state-of-the-art, REACH-compliant facilities at a fraction of the capital expenditure required to retro-fit a 100-year-old plant in Frankfurt. This created the ultimate opening for the Sudarshan-Heubach deal: a transfer of legendary German IP to a more viable, Indian-managed production ecosystem.

The Roar: Acquisition

The global industry was caught off guard in 2024 when Sudarshan Chemical announced it had signed a definitive agreement to acquire the Heubach Group. For a mid-cap Indian firm to shop for a 200-year-old German titan was not “inevitable” - it was an audacious move that few saw coming. The deal, which reached its final closing in March 2025, fundamentally reordered the global pigment hierarchy.

The opportunity arose from a spectacular fall from grace. Just two years prior, Heubach had teamed up with private equity firm SK Capital to acquire Clariant’s pigment business for approximately €800 million, a move intended to cement its position as the world’s second-largest player. However, this massive expansion was fueled by heavy debt. When the energy crisis spiked and interest rates climbed, Heubach found itself “over-leveraged and under-oxygenated.” By April 2024, the group’s German arm was forced into insolvency proceedings in the Braunschweig court.

This was the opening Sudarshan needed. While 14 other global entities (including top-tier strategic rivals and private equity firms) reportedly circled the carcass, Sudarshan emerged as the winner. The specific names of all 14 losing bidders remain shielded by the confidentiality of the German insolvency proceedings; industry reports confirm that Sudarshan outperformed a field of established international predators to secure the 200-year-old giant.

To truly understand the Sudarshan-Heubach acquisition, one must look past the sticker price. This wasn’t a standard corporate purchase; it was a surgical “rescue-and-rebuild” operation designed to bypass the debt that killed the German giant.

The Deal Specs: Arbitrage in Action

Sudarshan acquired Heubach for an upfront consideration of approximately €127.5 million (₹1,180 Cr). At first glance, this is a staggering bargain - buying a company with nearly €1 billion (₹9,000 Cr) in revenue for just 0.2x sales.

However, the “true” cost of the deal was nearly double that. To successfully restart the stalled German engine, Sudarshan committed to an additional €100 million (₹925 Cr) infusion for working capital and restructuring. Altogether, Sudarshan’s total commitment was closer to ₹2,100–₹2,400 Cr - nearly equal to its own entire balance sheet size at the time.

The transaction was a complex “asset-plus-share” deal: Sudarshan purchased the assets of the insolvent German entities through a court-appointed administrator while simultaneously acquiring the shares of Heubach’s solvent international subsidiaries. This structure allowed Sudarshan to “cherry-pick” the operations and the brand without inheriting the crippling legacy debt that had sunk the German major in the first place.

The Structure: Cherry-Picking the Future

The deal’s genius lay in its “Asset-plus-Share” hybrid structure, which acted as a legal firewall:

• Asset Purchase: In Germany, Sudarshan bought only the assets and operations from the insolvency administrator. This allowed them to leave Heubach’s crippling legacy debt, the “final nail in the coffin” from its own failed Clariant acquisition, behind in the bankruptcy estate.

• Share Purchase: Simultaneously, Sudarshan bought 100% of the shares of Heubach’s solvent international subsidiaries (like those in the USA and Luxembourg).

• The India Open Offer: Since Heubach owned a listed Indian entity (Heubach Colorants India), the deal triggered a mandatory open offer for an additional 26% stake, adding another ~₹350 Cr to the potential total outlay.

The War Chest: How a Mid-Cap Paid for a Giant

To fund this “Reverse Crusade,” Sudarshan didn’t just bank on debt; they executed a high-speed capital raise to keep their leverage in check:

1. Equity (QIP): Immediately after the announcement, Sudarshan launched a Qualified Institutional Placement (QIP), raising ₹1,000 Cr from major domestic institutions and mutual funds.

2. Promoter Skin in the Game: The Rathi family personally signaled their confidence by subscribing to ₹100 Cr in convertible warrants.

3. Strategic Debt: The remaining balance (approx. ₹1,600 Cr) was secured via new debt. Crucially, Sudarshan negotiated a 15-month moratorium with a “ballooning” repayment schedule starting only in September 2027.

This financial engineering gave Sudarshan exactly what it needed: two years of breathing room to integrate the German IP and shift manufacturing to India before the first major debt checks came due.

The Beautiful Vision: Growing beyond India

‘Sudarshan’ is a word emerging from Sanskrit that translates loosely to ‘beautiful or good vision’. Sudarshan Chemicals has embodied the spirit indeed and displayed its beautiful vision through this deal.

The acquisition led Sudarshan to grow its topline from circa $285 Million to a staggering $1.4 Billion.

The Global Footprint: 19 Sites of Strategic Power

Post-acquisition, Sudarshan has transformed from a Pune-based manufacturer into a truly borderless entity with 19 manufacturing sites across the globe. This diversified asset footprint includes 17 inherited from Heubach and its previous Clariant integration, covering every major trade bloc from the Americas to APAC. Crucially, the deal included Heubach’s crown jewel: the Frankfurt Hoechst Industrial Park facility in Germany. While Sudarshan’s domestic plants in Roha and Mahad remain the high-volume engines, these European and American sites serve as high-tech “Solution Centers” positioned directly next to global automotive and cosmetic headquarters. This physical proximity allows Sudarshan to offer “just-in-time” supply chains to Western clients while insulating the company from the geopolitical and logistic risks that often plague purely Asian-based exporters.

The Integration: Shifting the Weight to Win

The “Masterstroke” of Sudarshan’s integration strategy is a ruthless optimization of the cost-per-kilogram. Under the leadership of Rajesh Rathi, the company is implementing a “Two-Track” manufacturing model.

Track one involves keeping the highly complex, IP-sensitive Specialty Pigments in the Frankfurt headquarters and other Western sites, leveraging the deep technical expertise of German technocrats.

Track two, however, is where the profit lies: shifting the labor-intensive production of commodity pigments and intermediates to Sudarshan’s cost-efficient Indian facilities. By moving approximately 70% of the volume to low-cost bases while maintaining the “Made in Germany” prestige for high-end applications, Sudarshan expects to reclaim Heubach’s lost margins within 24 months.

The Arbitrage: Why This is a Masterstroke

This deal is far more than a simple acquisition; it is a structural arbitrage play that allows Sudarshan to bypass decades of market-entry barriers through two specific levers:

• Bypassing the “Sticky” Client Barrier: In high-stakes industries like automotive coatings, pigments aren’t just supplies; they are mission-critical components. Global auto giants (OEMs) subject every new pigment to a 5-to-7-year qualification cycle to ensure “color permanence”—essentially proving the paint won’t fade or peel after a decade of exposure to sun, salt, and acid rain. By acquiring Heubach, Sudarshan didn’t just buy factories; it “inherited” a pre-qualified customer list of the world’s most demanding blue-chip manufacturers, instantly leapfrogging a half-decade waiting period.

• The “India-Made, German-Sold” Model: Sudarshan is implementing a classic production-arbitrage strategy. It plans to keep the prestigious Heubach and Clariant brand names and high-end sales offices in Europe to maintain Western pricing power. Meanwhile, it is aggressively shifting the “heavy lifting” - the high-volume manufacturing of commodity pigments and intermediates, to its technologically advanced, low-cost plants in Roha and Mahad (India). This captures the high margins of a German brand while running on the lean operational cost-base of an Indian mid-cap.

The Immediate Verdict: Q1 FY26 Financials

The stock market’s initial skepticism has been largely silenced by the first set of post-merger results. In September 2025, Sudarshan reported its Q1 FY26 consolidated financials, and the numbers are a testament to the “scale-up” effect:

• Revenue Explosion: Consolidated revenue skyrocketed by 295% year-on-year, jumping from ₹634 Cr to ₹2,507 Cr in a single quarter.

• Profit Resilience: Despite the massive costs of integrating 17 overseas plants, Profit After Tax (PAT) surged by 87% to ₹55 Cr (up from ₹29 Cr).

• Operational Scale: The “Others” segment remains a footnote, as the Pigments division now accounts for nearly ₹2,457 Cr of the quarterly topline, confirming Sudarshan’s status as a pure-play global giant

The New Era

The Sudarshan-Heubach deal signals the final expiration of the “low-cost supplier” tag that has long shadowed Indian manufacturing. For decades, Indian firms were the back-office or the factory floor - essential but invisible. Today, the script has flipped. Mid-cap companies are no longer content with a seat at the table; they are buying the table itself.

By leveraging clean balance sheets to absorb distressed Western icons, firms like Sudarshan are birthing a new breed: the “Micro-Multinational.” These are entities that combine the agility and cost-discipline of a family-run Indian business with the heritage, R&D, and market proximity of a Western legacy brand.

This”Reverse Trade Flow”is more than just a series of transactions; it is a structural realignment of global industrial power. As Indian firms integrate German engineering with Pune’s operational efficiency, they aren’t just participating in the global market - they are painting it in Indian colors.

Hexagon Nutrition is a 30+ year old nutrition company that has largely stayed out of the spotlight while supplying behind the scenes building blocks of nutrition, both for packaged foods and for large public health programmes. For years it has operated more like a supplier to the ecosystem than a consumer facing story, which is why many investors may not recognise the name even if they have consumed popular products from Coca Cola, Marico, Amul and Dabur that use its premixes.

Hexagon first tried to list in 2021, when market conditions were supportive and the offer included a fresh issue along with an offer for sale. That plan did not go through. Since then, the business has improved on profitability, reduced debt and built a more balanced mix across premixes, branded clinical nutrition and programme linked products. So the story on paper looks stronger today.

But the biggest change in its attempt to list this time around is the purpose of the issue. As per the recent DRHP filed, the offer is largely about providing an exit to existing shareholders i.e. one brother out of the two who own the company. The company is not raising new money for expansion or a large growth plan.

For investors, this sets the tone. You are not buying into a big fundraising event that will immediately change the balance sheet. You are evaluating an established, technical, niche company and deciding whether its current cash flows, operating improvements and long term demand drivers are strong enough to justify the valuation, even without a fresh capital push.

From micronutrient lab to full nutrition platform

Hexagon Nutrition started in 1993 as a micronutrient formulations company. Over the years, it has moved up the value chain. Today it operates across premixes, branded nutrition and therapeutic nutrition supplied into public health and programme led channels. It has three manufacturing facilities, two in house research and development centres and a presence across more than seventy countries.

The business now runs on three linked engines.

First, premix formulations. These are supplied to large FMCG, dairy and beverage companies in a B2B2C model. In simple terms, Hexagon’s vitamin and mineral blends go inside fortified foods and drinks that eventually reach consumers through retail shelves.

Second, branded clinical and wellness nutrition. Products such as Pentasure, Obesigo and Pediagold are sold through hospitals and pharmacies, focused on specialised therapy areas like diabetes, renal and hepatic care.

Third, programme linked nutrition. This vertical makes ready to use foods and micronutrient powders for multilateral agencies and government led malnutrition and food fortification programmes.

FY25 segment numbers show the business is still led by premix, but not as heavily as before. Premix contributed around ₹155 crore, or 47.6 percent of revenue from operations. Branded clinical and wellness products contributed about ₹92 crore, or 28.3 percent. Therapeutic nutrition for ESG and programme linked channels contributed roughly ₹78 crore, or 24.0 percent.

So while premix remains the anchor, the overall portfolio is now more balanced. The logic is clear. Premix brings steady volumes and long customer relationships. Branded products typically carry better margins and benefit from rising demand for clinical nutrition. Programme linked products keep the company close to donor funded and policy driven nutrition initiatives, which tend to be sticky over long periods.

The numbers behind the narrative

The cleanest way to read Hexagon’s recent performance is to look at FY23 to FY25. Net sales moved from ₹279 crore in FY23 to ₹325 crore in FY25. Over the same period, EBITDA improved from ₹17 crore to ₹40 crore, and net profit rose from ₹6 crore to ₹24 crore.

The bigger shift is in profitability and return ratios, not just the topline. Operating margin improved from 6.2 percent to 12.3 percent. Net profit margin moved up from 2.0 percent to 7.5 percent. Return on capital employed increased from 7.4 percent to 18.05 percent. Debt to equity also came down from 0.32 to 0.14, which shows the balance sheet has become lighter as earnings were retained and borrowings reduced.

FY25 growth was not flashy on revenue, but the profit jump was sharp. Revenue grew 9.1 percent year on year, while EBITDA grew nearly 61 percent, helped by margin expansion of roughly 400 basis points. For investors, this typically signals better cost control, better mix and better utilisation, not a business chasing growth at any cost.

There is still room to improve. Capacity utilisation has been low, which suggests meaningful operating leverage if demand scales without big new capex. At the same time, it also raises a basic question. In a competitive premix and nutrition market, how quickly and how profitably can Hexagon fill its plants.

A niche with real technical depth

The most distinctive part of the Hexagon story lies in its premix capabilities. Its research and development facilities are certified by the Department of Scientific and Industrial Research and focus on designing premixes that are stable, neutral in taste and tailored to each application and food matrix. This is a non-trivial exercise when multiple vitamins and minerals interact with different ingredients and processing conditions.

Independent industry consultants describe Hexagon as the largest customised premix player in India in terms of sales and capacity and one of the top ten globally. It is also identified as one of the largest licensed suppliers under United Nations programmes for micronutrient premixes.

This technical depth matters because premix is not a simple commodity blend. Formulating iron premixes alone can involve multiple salts and chemical forms that vary in colour and sensory properties and must be made compatible with the final food product. Companies that combine formulation skill with an understanding of client processes gain an advantage that is not easy to replicate.

On this axis Hexagon competes not just with domestic firms but with global ingredient majors. Its relative strength lies in being focused on premix and finished nutrition products, while for multinationals such as DSM or Glanbia this remains a smaller slice of a much larger portfolio.

Three decades of evolution and one private equity cycle

Overall, Hexagon’s journey looks like that of a typical promoter-led SME that has slowly become more organised over time. Key milestones include the launch of the Pentasure brand in 2009, setting up a second manufacturing unit in the Chennai SEZ in 2004, getting DSIR approval for the Chennai research centre in 2017 and receiving UNICEF approval for micronutrient powder production in 2018.

A major shift came in 2016 when healthcare focused private equity fund Somerset Indus invested through compulsorily convertible preference shares, along with the consolidation of group entities into one company. Somerset’s entry brought tighter board level oversight and a more formal capital structure.

The first IPO attempt in 2021 had both a fresh issue and an offer for sale and was meant to create an exit route for Somerset. That plan did not go through. In 2025, Somerset and co-investor Mayur Sirdesai exited through a secondary sale of their preference shares to Malani Ventures. Those securities were later sold onward to a wider set of high net worth and family office investors ahead of the new listing attempt. The company highlights this private equity exit alongside crossing ₹300 crore of annual turnover as an important milestone.

As a result, the shareholding coming to market is now cleaner. It is largely the Kelkar promoter family plus a spread of financial investors, without a large institutional sponsor acting as a governance anchor.

Offer structure and what it signals

The offer structure this time around is likely to be the biggest talking point in this listing. Unlike the 2021 listing attempt, which included a fresh issue, the current listing is fully an offer for sale. The company will not receive any proceeds. In simple terms, this is a liquidity event, not a fund raise.

The selling shareholders are all from the Kelkar promoter family. Subhash Purushottam Kelkar is the principal seller, with Arun Purushottam Kelkar, Nutan Subhash Kelkar and Aditya Kelkar also offering shares. Read plainly, this looks like one promoter branch taking a meaningful cash out, with smaller sell downs alongside.

The earlier private equity chapter is also largely behind the company now. With the institutional sponsor no longer on the cap table, public market investors will lean harder on governance and capital allocation discipline.

In this context, valuation becomes the make or break point. With a revenue base of about ₹325 crore, EBITDA of around ₹40 crore and net profit of roughly ₹24 crore, the cleaner way to look at pricing is through earnings multiples. A market capitalisation in the ₹250 to ₹300 crore range implies about 10 to 12 times FY25 earnings. In that band, the offer for sale structure is easier to accept because the pricing leaves room for normal business risks. But once the valuation moves to ₹350 crore and above, the same business starts getting priced in the mid teens on earnings, without any fresh capital coming into the company. At that level, the market is effectively paying upfront for sustained margins, higher utilisation and clean execution, and scrutiny naturally rises because there is less margin for error.

The risks

The company is more candid than many small and mid sized issuers in its discussion of risk factors. It acknowledges that revenue continues to rely substantially on the premix vertical and that any disruption in this segment would have a significant impact on performance. It also flags regulatory changes in food fortification standards, volatility in vitamin and mineral prices and the imported nature of key inputs as potential pressure points for margins and volumes.

Customer and geography concentration are visible in the disclosures. A small set of customers contributes a meaningful portion of sales and in some years revenue from a single export country has crossed ten percent of the total. The ESG oriented segment, which depends on multilateral tenders and government contracts, is inherently exposed to shifts in donor budgets and policy priorities.

Opportunity and valuation lens

On the opportunity side, Hexagon sits at the intersection of several durable themes. Public and regulatory attention on food fortification continues to rise. Dietary habits are changing, clinical nutrition is gaining ground in a country facing a growing burden of lifestyle disease and global funding for child and maternal nutrition remains a priority for many multilateral agencies.

The company’s recognised research capabilities, approvals for micronutrient powder production and position as a leading premix supplier into United Nations linked programmes give it credentials that are not easy for new entrants to copy quickly.

At the same time, this is not a consumption glamour story. Scale remains modest by listed consumer standards. The recent improvement in margins and returns has yet to be tested across a full cycle of donor budget cuts or sharp input price spikes. For investors, Hexagon is best viewed as a technically strong, improving franchise in a relevant niche that can reward them if bought at a sensible valuation.

As with many SME style listings, the real work will begin after the bell rings. How the company sustains its uplift in profitability, manages a working capital intensive model and uses its public equity as a strategic currency will determine whether this second attempt at the market finally turns a quiet nutrition specialist into a steady compounder on Dalal Street.

This optimism immediately collides with an acute challenge: the sheer volume and velocity of emerging wealth are overwhelming legacy operational systems. The country’s professionally managed assets have surged to an unprecedented ₹120 lakh crore. This includes the doubling of PMS AUM, from ₹19.2 lakh crore to ₹40 lakh crore in recent years.

The traditional model, reliant on linear headcount growth and manual oversight, is simply too costly and too fragile to support this scale. The industry is due for rapid innovation, and Artificial Intelligence (AI) provides that opportunity - beyond a chatbot.

The true potential of AI in Financial Services is not about marginal customer service gains; it is about infrastructure and systematic intelligence. For India’s wealth ecosystem, AI is not a technological luxury; it is an operational leverage required to turn this staggering growth into sustained, high-margin performance.

1. Customer Intelligence and Predictive Engagement Engines

Most clients leave before they complain. They stop adding funds, they stop reading emails, and then, six months later, they redeem. RMs managing 200+ families cannot spot these silent signals manually.

These systems examine historical behaviour across transactions, advisory notes, call transcripts and portfolio actions. The models learn patterns that hint at future intent, such as new investment flows, potential churn or risk sensitivity. Predictive Engagement Engines connect the dots between disconnected behaviors. Instead of a reactive “save team” calling a client who has already resigned, the AI flags the “silence” months in advance.

A practical application is where the system notices an HNI client hasn’t opened a report in three months and initiates a specific re-engagement workflow. Retaining a client is 5x cheaper than acquiring a new one. This technology secures that retention.

2. Generative Research and Investment Co-Pilots

As AIF strategies become more complex, human teams hit a cognitive ceiling. An analyst can deeply cover perhaps 20 companies. If you want to cover 100, you have to hire five times the staff. That destroys your operating leverage and can sometimes impact the quality of the coverage itself.

These tools read full annual reports, call transcripts, sector notes and regulatory filings. They build thesis drafts, risk maps, management quality assessments and scenario frameworks. Generative Investment Co-Pilots could decouple research coverage from headcount. Your existing team can cover a universe 10x larger without burnout.

For instance, during earnings season, the AI could instantly digest hundreds of transcripts to find specific “covenant risks” or “management tone shifts.” Your highly paid PMs stop doing grunt work and start making alpha-generating decisions.

3. Anomaly detection and a License to Scale

In a regulatory environment that is tightening, more assets usually mean more risk and more compliance officers. This bloat slows down decision-making and eats into profits.

Intelligent Risk Engines that replace sampling with 100% coverage. ML models can pull from trading data, client communications, claims documents and operational logs. They can identify concentration drift, behavioural anomalies and patterns linked to fraud or compliance concerns. You can scale AUM rapidly without fear of a regulatory gap (or a blow-up).

Rather than randomly spot-checking trades, the model reviews 100% of RM communications and portfolio drifts in real-time. It allows the firm to run “hot” (efficient) while staying safe. This is the license to scale.

4. Narrative Intelligence

Generic market updates are spam. If you send the same “Quarterly Outlook” to a conservative retiree and an aggressive 30-year-old founder, you are demonstrating that you don’t know them.

Hyper-personalization at a reasonable marginal cost is now achievable by leveraging automated content generation. And this can be done within the bounds of compliance guardrails and aligning with your tone & philosophy.

The AI doesn’t just send a newsletter; it drafts a note explaining exactly how yesterday’s interest rate hike impacts the client’s bond portfolio. This level of service used to be reserved for the ultra-wealthy; AI can democratize it for the mass affluent. Trust drives the share of wallet. When a client feels understood, they consolidate their assets with you.

5. Governance Co-Pilots

As AUM scales and analytical models increase in complexity, the integration of trust becomes a fundamental competitive necessity. Governance is the new foundation of institutional credibility. Firms cannot rely on opaque systems; every recommendation and automation must be auditable and explainable.

This is the function of Ethical AI and Governance Co-Pilots: dedicated audit layers that monitor model behavior, check for bias, detect drift, and provide comprehensive explanations for compliance and risk teams.

For instance, before a PMS suitability engine executes a high-impact portfolio recommendation, the governance layer automatically verifies all concentration rules, leverage exposure, and disclosure requirements. Furthermore, generative tools used to draft market commentary or policy documents are continuously monitored for hallucination risk, flagging any suspect claim with a clear explanation of its origin and advising on the necessary revision.

This level of automated oversight ensures that the pursuit of efficiency never compromises the firm’s ethical obligations or regulatory standing.

The Arjun Test

To grasp the competitive shift, consider the client experience of Arjun, a 45-year-old entrepreneur in Mumbai holding a complex mix of business equity, real estate, and PMS mandates. In the legacy model, Arjun’s engagement is passive: he receives quarterly, generic PDFs from his advisor and often only glances through them.

In an AI-enabled environment, the workflow transforms from reactive reporting to proactive partnership.

• A behavioural model observes signals, perhaps a slowdown in business activity or a subtle shift in spending patterns and determines that his inherent risk tolerance is trending lower, triggering an immediate alert to the advisor.

• Simultaneously, an investment co-pilot processes his known financial context, summarizing three precisely suitable strategies: perhaps a move toward tax-efficient debt, a focus on defensive thematic growth, or legacy capital stability.

• This is coupled with a content engine that drafts a highly personalized investor update, detailing specific performance attribution and aligning upcoming opportunities to the inferred risk shift.

• Critical risk oversight is also automated: a risk model spots a growing concentration in a mid-cap position, triggering a soft, pre-emptive alert for rebalancing.

• Finally, a planning engine dynamically runs multi-scenario forecasts for his long-term goals.

When Arjun adds a future planned gift for 2030, the system instantly recalibrates the entire forecast, proposing a tailored hybrid savings and insurance construct.

AI fundamentally becomes the partner that supports clarity, anticipates risk, and ensures every client interaction drives measurable action.

Adoption of AI is subject to risks

Every innovation and integration, AI comes with its own challenges. Just like investments with significant upside are subject to various risks that must be managed, institutions leveraging AI must actively manage a portfolio of critical risks. This includes hallucination, data misuse, unfair pricing patterns, adversarial attacks, and inherent bias within models.

To navigate this, robust governance frameworks are essential. These require complete audit trails, strict version control, full model explainability (ensuring decisions aren’t black boxes), and rigorous human oversight embedded throughout the process.

Research across global financial institutions confirms this rising focus, with boards now actively demanding structured, auditable responses to these ethical challenges. The firms that ultimately excel will be those that successfully combine technical depth in AI deployment with strong, proactive governance, thereby forging a competitive advantage in an industry fundamentally anchored in trust.

Share Dealflow IQ

The evening brought together a focused group of Indian fund managers, CXOs and investors for an in-depth conversation on how the India UAE corridor is evolving and what this means for venture capital and high growth companies on both sides.

The delegation from Hub71 included Ahmad Ali Alwan (Chief Executive Officer), Mohammed Alkhoori (Head of Marketing and Communications), Helen Bachir (Head of Special Projects and Operations), and Aya Hamoodi (Value Creation Lead). Their participation was significant given Hub71’s growing role in the region’s technology landscape.

Established in 2019 within Abu Dhabi Global Market and backed by Mubadala and other Emirate institutions, Hub71 has developed into a leading technology ecosystem, supporting more than 300 startups that have collectively raised over 2 billion dollars and achieved commercial traction across sectors such as fintech, climate technology, enterprise software and digital assets. The platform now functions as a strategic entry point for companies that want access to the GCC, Africa and Europe.

Across the morning, a few consistent themes stood out.

• The corridor is no longer only about capital. The India UAE relationship is shifting from being just a capital bridge into a genuine two way innovation bridge, where talent, founders and ideas move in both directions. Indian founders are now using Abu Dhabi and Dubai as strategic bases for entering the Middle East, Africa and Europe, while UAE based investors and corporates are looking to India for technology, product depth and engineering scale. Hub71’s recent cohorts already include several Indian founded companies.

• Soft landing changes the economics of expansion. Entering a new market involves operational complexity that most early stage companies underestimate. Regulatory approvals, free zone decisions, sector specific licensing, banking, visas, compensation structures and customer acquisition cycles all add time and cost. Partners like Hub71 reduce this friction by providing a predictable landing environment, access to corporate partners, visibility with regulators, and practical support during the first six to twelve months of expansion. This transforms cross border growth from a high risk experiment into a repeatable, structured playbook. Companies can focus on validating their product and building revenue rather than navigating administrative barriers.

• There is clear white space in specific sectors. Deep tech, climate and energy transition, fintech infrastructure, supply chain technology and health tech stood out consistently as the most promising domains for India UAE collaboration. India brings research strength, engineering talent, digital public infrastructure and cost effective product development. Abu Dhabi brings patient capital, regulatory clarity, sector specific incentives and strong access to regional markets. Together, these strengths create an environment where companies can design solutions that are global from day one. The opportunity is not to build in India first and expand later, but to architect companies that are built for two markets at once, using the corridor as a strategic advantage rather than an afterthought.

We look forward to hosting more such closed-door meet-ups in the near future. Stay tuned to receive updates on this front.

India’s equity market has experienced one of the sharpest reversals in global investor sentiment in recent years. After spending much of the past decade as the consensus favourite in emerging markets, India is now the single largest underweight in global emerging-market portfolios. Only about a quarter of active GEM funds still allocate more than the benchmark weight of roughly 15 to 16 percent. The rest have pulled back.

This shift has been driven by two forces. One is local: a cyclical slowdown that weighed on earnings expectations just as valuations reached peak territory. The other is global: a powerful rotation into artificial intelligence linked stocks in Korea, Taiwan and China that drew capital away from almost every other emerging market.

Foreign portfolio investors sold more than 30 billion dollars of Indian equities over the last twelve to thirteen months. The pullback pushed foreign ownership to multi-year lows and pushed India’s MSCI EM weight to a two-year trough. The selloff also delivered India’s worst relative performance against the EM benchmark in roughly two decades.

Yet for all the gloom in global positioning, Indian markets have remained stable. The primary reason is domestic money. Systematic investment plan flows hit repeated monthly records. Domestic institutions deployed more than six trillion rupees through the year. Equity mutual funds absorbed foreign selling with little market disruption. India’s market structure is shifting from foreign-dependent to locally anchored, a trend that makes equity flows more predictable even as global sentiment swings.

This shift in ownership dynamics is one reason global strategists are rethinking their stance. HSBC argues that India now serves as a diversification hedge for investors who feel increasingly crowded in North Asia’s AI trade. Goldman’s upgrade to overweight is grounded in similar reasoning. Once valuations cool and positioning thins out, even modest improvements in earnings or policy visibility can trigger disproportionate inflows. Goldman has assigned a Nifty target of 29,000.

The macro backdrop gives this reassessment some support. India continues to grow at about 6 to 7 percent, maintaining its status as the fastest growing large economy. Formalisation, digitisation and infrastructure expansion remain intact. Corporate balance sheets are relatively healthy. None of these structural factors has weakened during the recent period of market underperformance.

Risks remain and should not be understated. The earnings cycle must deliver the recovery analysts are expecting. Domestic flows cannot slow abruptly without exposing market fragility. Higher oil prices or a global downturn would complicate the picture. And India’s valuation premium, although moderate relative to last year, remains significant by EM standards.

Even so, markets often move ahead of fundamentals. India’s underweight status means global investors are now carrying minimal exposure to one of the most liquid and structurally stable markets in the EM universe. If broader EM inflows return or if the AI-centric trade loses momentum, the rebalancing effect alone could drive meaningful foreign buying.

For now, India sits at an unusual intersection. It is the least favoured major emerging market at a time when its domestic investor base is stronger than ever. For long-term allocators, that combination has historically been a precursor to improved performance. Whether this cycle follows the same pattern will depend on how quickly the earnings narrative turns and how durable domestic support proves to be.

The first half of Fiscal Year 2025 has been defined by a significant divergence in the SME capital markets. While headline IPO volumes, particularly in high-growth regions like Asia, have demonstrated resilience and even set new records, the underlying merchant banking performance reveals a highly selective and risk-laden environment. The sector’s success hinges entirely on the credibility of the lead managers, who are navigating extreme market volatility and heightened regulatory scrutiny. The period is best characterized by a “flight to quality,” rewarding top-tier banks while exposing severe vulnerabilities among less rigorous market participants.

Is this sustainable thrust, or simply a sign of operational strain?

The Good, The Bad, and The Ugly

SME merchant bankers, serving as the bridge between small and medium enterprises and public markets, have experienced a half-year of extremes. Their performance is assessed across three critical dimensions: transaction volume, deal quality, and structural integrity.

1. The Two-Fold Premium of Credibility

The standout success of H1 FY2025 is the definitive value assigned to execution certainty and trust, transforming reputation into a hard, measurable financial asset.

• The Reputation Dividend: Based on analysis of merchant bank deal flow and subscription metrics, including data compiled from the IPO Platform (H1 FY2025 analysis), a clear reputation-based disparity emerges. IPOs managed by the top five BRLMs (by deal value) commanded an average subscription multiple of 18.5x, starkly contrasting with the 9.2x average secured by the remaining cohort. This two-fold ‘reputation premium’ confirms that institutional and High Net Worth (HNI) investors are decisively prioritizing the integrity of the intermediary over listing volatility.

• The Flight to Quality Phenomenon: Top firms have been highly selective, primarily channelling capital into national strategic priorities. Sectors such as Specialised Robotics, Defence Manufacturing, and Advanced Life Sciences secured 68% of the total funds raised by the top quartile of BRLMs. This strategic alignment insulates them from broader cyclical risk and positions them to command higher fee percentages, reinforcing their dominance through superior deal structuring and sector expertise. Their performance is less about volume and more about the profitable channelling of capital into resilient business models, securing robust aftermarket performance, and delivering a clear return on investor faith. They are the clear winners, thriving by leveraging their reputation as an arbiter of quality rather than just a transaction facilitator.

  ---

2. Macroeconomic Squeeze and Pricing Pressure

Beneath the successful headline figures, the majority of merchant bankers are contending with significant operational friction stemming from global macroeconomic realities and evolving regulatory demands.

• The BSE SME IPO Index performance which can be perceived as a report card for the merchant banking cohort tells a tale. While the index has shown remarkable long-term growth (with returns over the past 3 years soaring by over 400%), the FY26 performance so far signals a distinct slowdown and bifurcation in quality.

  • Average Listing Gains Decelerate: While listing gains remain attractive (averaging around $+15\%$ for the overall cohort year-to-date), the frequency of triple-digit listing gains - a hallmark of the FY24/25 boom, has sharply decreased.

  • The Post-Listing Plunge: The most critical data point is the post-listing value destruction. As of late FY26, a worrying 40% of the newly listed SME issues are trading below their issue price within 90 days of listing. Furthermore, the tail risk is significant: a small, but high-profile group of issues has plunged over 50% from their issue price. This rapid erosion of value points directly to a systematic failure in the merchant bankers’ core fiduciary duty: gatekeeping.
    
    More dangerously, it suggests a trend towards the misuse of the public listing mechanism. Merchant banking, in these instances, morphs from a growth engine into an exit strategy for private capital - often facilitating the offloading of equity from over-leveraged Private Equity-backed SMEs onto the unsuspecting public.

• The Valuation Crucible: The global inflationary and interest rate environment has forced investors to demand realistic, foundationally sound valuations. Merchant bankers must now confront SME owners with the reality that the buoyant, permissive valuations of past cycles are obsolete. This difficult dialogue puts direct pressure on fee structures and mandate retention, as issuers, perhaps overestimating their private market value, seek more accommodating, but often less rigorous, partners.

• The Regulatory Cost Barrier: In response to the high volume of listings, regulatory bodies have intensified scrutiny. New compliance requirements, including mandatory quarterly detailed risk disclosure and independent third-party market-making audits, have been introduced. For smaller or mid-tier merchant banks, the estimated increase in legal and compliance overheads for H1 is roughly 25%. This disproportionate cost acts as a structural barrier, limiting their capacity to execute rigorous due diligence and further entrenching the advantages of larger, more financially robust competitors.

  ---

3. Systemic Risk and Erosion of Investor Trust

The most concerning performance metrics relate not to fee generation, but to the long-term health and reputation of the capital market.

• Post-Listing Disarray: The most telling metric of poor performance is the aftermarket failure rate. Aggregated data reveals that 38% of all H1 SME listings were trading below their issue price within 90 days of listing - a significant deterioration from the 24% recorded in the previous fiscal year. This 14-percentage-point increase fundamentally compromises the market’s social contract with investors and directly implicates the pricing and risk assessment failures of the lead managers.

• The Moral Hazard of Exits: A growing concern is the transfer of credit risk. Tight private credit conditions are prompting over-leveraged, private equity-backed firms to seek public listing as a necessary exit liquidity event, rather than an organic capital infusion for growth. Should merchant bankers facilitate the offloading of financially stressed entities onto the public, they are effectively transferring private sector credit problems into the market, which constitutes a systemic failure of gatekeeping that endangers the retail investor base.

A Call for Institutional Discipline

This analysis leads to a singular, critical takeaway for senior finance professionals and corporate boards: The current SME IPO market is shifting from a retail-driven euphoria phase to an institutional-required discipline phase.

The extraordinary performance of the SME Merchant Bankers in FY26, driven by record volume and concentrated market share, is creating a systemic reputational risk for the Indian capital market. The high number of failed post-listing performance is a ticking clock for regulatory intervention.

• For Promoters and Corporates: Listing is no longer merely a quick capital raise but an endurance test. Companies must select BRLMs, not based on who promises the highest listing pop, but on those who can demonstrate a robust record of post-listing stock stability and institutional investor placement.

• For Merchant Bankers (The Stress Test): The next 12 months will separate the ‘distributors’ from the ‘advisors’. The leaders will be forced to shift their business model from an origination-and-execution factory (like the high-volume players) to a full-spectrum corporate advisory partnership that commands higher, justifiable fees based on fundamental corporate quality and long-term capital formation, not just transient retail hype.

What it all means?

SME merchant bankers have demonstrated an ability to generate strong revenue through transaction volume in H1 FY25, particularly by leveraging brand credibility. However, this success is balanced precariously against macroeconomic volatility and fundamental concerns over deal quality and investor protection. To maintain this momentum in H2, merchant banks must shift their focus from maximizing volume to shoring up quality and transparency. This involves strict internal due diligence protocols, realistic pricing models, and a renewed emphasis on selecting issuers with sustainable, resilient business models that can withstand persistent economic uncertainty. The future success of the SME listing segment depends on the intermediaries acting not just as brokers, but as genuine market guardians.

Share Dealflow IQ

Leave a comment

Ahead of Groww’s IPO, getting a visual of how the brokerage landscape has shaped so far feels like second nature. Groww has been a phenomenal story - venture capital’s answer to Zerodha, who refused to let them in their house. Tiger backed Upstox is also in the race, albeit a bit behind.

For all these megabrokers, the trajectory has been more or less similar - starting with discount broking or mutual fund distribution, then fund house and later, having ambitions of being a supermarket for financial products (manufactured by own or selected third parties). With all playing the same game in a commoditized but high-growth space and targeting the same users, the user acquisition cost is rising fast. I still remember the days Zerodha would pay a straightforward 1,000 rs referral fee and Upstox would be 1,500 or so. Don’t quote me on the figures but this is what I can recollect.

With this referral scheme, came a flush of influencers sharing their referral links to open an account with Zerodha (or Groww or Upstox). All brokerages sponsored influencer content left and right, placing themselves everywhere. Even Tanmay Bhat started a show on investing…and ofcourse, many influencers followed.

For brokerage firms, this was an easier way to get the reach needed at a lesser cost than alternative paid channels. But the growing tribe of these so called ‘financial influencers’ caused a menace amongst the retail investors and as a result, SEBI finally put a stop to this in 2024. Some influencers were also running live trading classes to maximize their cut out of the brokerage income. Thank god that the crazy of that era is past us.

To add to the woes, the stock exchanges also levelled the fee structure for brokerages. Previously, exchanges used to charge slab-wise fees from stock brokers based on their turnover. Higher the volume, lower the fees. This was an added advantage for those moving volumes. However, SEBI leveled the paying field mandating uniform fees. This has left a lower scope for competing based on pricing.

Now that everyone is on ground zero again, the race to user acquisition has become tougher. Can’t pull on pricing, can’t push via influencers. In addition to that, new players keep making space for themselves. The latest entry to the big leagues is Dhan.

Amongst all this, one brokerage firm is playing a different game. It is none other than Zerodha.

So what is Zerodha doing differently?

Let me take a quick detour to ask you a different question.

Do you remember LearnApp? The app that teaches you how to invest and trade? No? All traders born in the covid boom would surely know of it. LearnApp guys got top traders and investors such as Radhika Gupta, Ashish Chauhan, Vishal Kapoor, Mahesh Patil, etc to teach a course. Kamaths were their investors in the company.

LearnApp did well when the markets were booming, but once the market started going through the dry patch, so did LearnApp’s subscriptions. This is natural for this industry. They had a big team of production, editing, marketing etc. working for them. It did not make sense to hold on to the entire team, looking at the business numbers…BUT it didn’t even make sense to let go of all these talented folks who have acquired a good taste now in creating A+ financial content.

Enter the Kamaths…once again.

With SEBI’s new guard up, the influencer referral system was no longer a valid way to grow infinitely.

• Zerodha can’t incentivize influencers directly - SEBI won’t allow that.

• Zerodha can’t run ads, because Kamaths have done a fairly successful PR campaign around how they are against it.

• Zerodha can’t sponsor content either, because to the audience it feels just like advertising - like you’re trying to sell something.

So, Kamaths do the same thing aka sponsoring content but just by packaging it differently.

This is the genius of Zerodha!

Zero1 Media, a JV between Zerodha and LearnApp is born which becomes the vehicle to do exactly that.

It lets Zerodha continue renting eyeballs and at the same time acts as a saviour for the immensely talented folks at LearnApp. A brilliant move!

What is Zero1 Media and why is it so amazing?

The idea of ‘Zero1 by Zerodha’ - the way it is pronounced, is owning the entire narrative around topics such as personal finance, investing, trading, business, etc. It keeps Zerodha culturally relevant and forward looking.

Zero1 produces their own shows as well as sponsors authentic content creators with a decent following. This allows Zerodha to reach far and wide, and label themselves as supporters of creators rather than ‘sponsors,’ with the same incentives at play. Some of the best youtube content creators of today’s time will have ‘Zero1 by Zerodha Network’ plastered everywhere.

This is a part of their broader strategy, which aims to create awareness, educate, motivate people to open an account and then finally monetize through their transactions. It’s a long term bet which will inevitably pay off in a big way.

You can draw some parallels here to a16z - a venture fund which is heavy on content creation and distribution. Benedict Evans once called them a media company which monetizes through venture investments. Same can be said about Zerodha - it is transforming itself into a media company that monetizes through financial platforms and products.

This is what their content and media engine looks like:

Take a moment to think about this - while other brokers are competing for today’s customers, Zerodha is busy giving birth to tomorrow’s customers.

The Indian markets are still low on demat penetration ( < 12%) vs the US market ( > 50%). The market penetration will surely mature in the time to come. A company like Zerodha which is prioritizing financial education is bound to be culturally significant to drive this change.

It is the Nescafe in Japan, all over again. I will explain how, if you have the patience for it:

After World War II, Nestlé introduced coffee to Japan, expecting massive success. The product was well-tested, affordable, and supported by strong advertising. Yet, the Japanese simply didn’t buy it. No campaign worked. The issue wasn’t price or quality, it was culture. Japan was a tea-drinking nation with no emotional connection to coffee.

In 1975, Nestlé invited French psychoanalyst Clotaire Rapaille, known for studying emotional associations in consumer behaviour, to investigate. Through memory-based experiments, he discovered that the Japanese had no “coffee imprint” - no memories or emotions linked to it.

Rapaille advised Nestlé to stop trying to sell coffee to adults and instead introduce coffee-flavoured candies to children. If kids grew up loving the flavour, they’d carry that emotional imprint into adulthood. Nestlé followed his suggestion, flooding Japan with coffee-flavoured sweets that became a youth sensation. Parents tried them too, slowly developing a liking for the taste. The fact that Nestlé already manufactured candy, also helped.

A decade later, those candy-loving kids had grown up into working adults. When Nestlé reintroduced instant coffee, it resonated perfectly. Instant coffee sales exploded, and Nestlé became Japan’s coffee market leader.

Japan today imports 500,000 tons of coffee annually.

Barely 60 years earlier, it was a market that hardly sold a cup!

It is brilliant long-term brand building - teaching that before selling a product, you must first plant its memory.

This is something which is difficult to engineer for companies which run on quarterly timelines or have investor pressure to meet certain periodic benchmarks. Yes, I’m talking about the funded/publicly listed peers. Zerodha has none of this, and can afford to act with conviction…to see the other side of the tunnel with these long-term bets.

Zerodha afterall, is selling financial products to an FD and gold-loving nation.

To end, there are three ingredients of legendary companies:

• One is to be able to see what tomorrow will bring, and not just to create a company which fits in the frame of today.

• Second, is the ability to attract talented people, get them to buy into your vision, even in difficult times.

• And third, is the courage to survive until the market catches up to the reality you’re building for.

On all three, Zerodha looks stronger than others.

The hospital sector in India has long been viewed through a bifurcated lens: a critical, yet highly fragmented, social necessity. Today, in 2025, that narrative is being ruthlessly redrawn. We are witnessing not merely growth, but an institutional coup d’état. The traditional landscape of doctor-promoter-led, regional hospitals is rapidly ceding ground to a new cohort of corporatised, institutionally-backed behemoths, bankrolled by a potent combination of global Private Equity, Sovereign Wealth Funds, and aggressive domestic capital.

This transition is being catalysed by four forces converging in a moment of acute financial and demographic stress: 1) an aging population, 2) the relentless epidemiological shift towards high-cost, 3) chronic Non-Communicable Diseases (NCDs), and 4) the strategic deployment of billions in capital seeking inflation-resilient, secular returns.

The critical question is no longer if the market will consolidate, but how this convergence of capital and urgent societal need will reprice the very foundation of Indian healthcare.

This article goes beyond simple market sizing. It is crafted for the discerning investor, the strategic operator, and the policymaker navigating the turbulence of this transition. It will explore the new calculus of capacity, capital structure, and policy risk; diving deep into the strategic architecture that will determine who wins the coming decade of hospital expansion, and at what cost to the end consumer. The story of Indian healthcare is evolving from a humanitarian challenge into a high-alpha asset class. Understanding its dynamics is essential to anyone seeking to navigate one of Asia’s most compelling and critical growth frontiers.

Part I: The New Calculus of Capacity and Capital

The Market Scale: A Decade of Double-Digit Expansion

The Indian hospital market, valued at approximately $108.57 billion in 2024, is not just growing; it is fundamentally restructuring. Projections indicate a climb to $197.31 billion by 2030, reflecting a robust Compound Annual Growth Rate (CAGR) of 10.64%. This expansion is fuelled by an underlying epidemiological shift: the increasing contribution of Non-Communicable Diseases (NCDs) and injuries to the total disease burden, a trend that drives demand for complex, tertiary, and quaternary care.

The structural segmentation reveals a critical disconnect. While the overall healthcare market (including healthtech, pharma, etc.) is projected to reach $638 billion by FY2025, the hospital segment alone captures roughly 70% of this value. Capacity, however, remains skewed. Metro cities report a bed density of 2.7 to 3.0 per 1,000 people, a stark contrast to the 0.8–1.2 beds per 1,000 found in Tier-2 and Tier-3 cities. This capacity mismatch is the primary strategic vector for corporate expansion.

Financial Resilience and Private Capital Dominance

The narrative of institutionalisation is unequivocally driven by capital. Over the last five years, Private Equity (PE) and Venture Capital (VC) inflows into healthcare have exceeded $15.5 billion. Specifically, the hospital segment attracted $4.96 billion in PE and $6.74 billion in M&A deals between 2022 and 2024. This aggressive capital deployment is a wager on the sector’s financial resilience.

Listed corporate hospital chains are expected to maintain strong operational health, forecasting revenue growth of 15-17% and impressive Operating Profit Margins (OPM) of 23-24% for FY2025. This profitability underpins investor confidence, with hospital multiples growing to approximately 28x Enterprise Value/EBITDA, and high-Average Revenue Per Occupied Bed (ARPOB) facilities commanding up to 35x. The expected Return on Capital Employed (ROCE) is high, projected at 16–18% for FY2025.

A key indicator of pricing power and speciality mix is ARPOB. While sector leaders like Apollo Hospitals achieve an ARPOB in the range of ₹55,000–60,000 ($623-679) through high-value tertiary care in metros, volume-based models like Narayana Health maintain an ARPOB of ₹30,000–32,000 ($339-362), demonstrating differentiated but equally successful financial archetypes.

The Capacity Aggression Play

The industry is entering a definitive capacity expansion phase. Private hospitals are planning a cumulative capital expenditure (Capex) of approximately ₹25,000 crore ($2.83 billion) in FY2025 and FY2026. This aggressive, two-year capex cycle, estimated at ₹14,000–16,000 crore ($1.7 billion-1.81 billion), is a strategic response to both unmet demand and the availability of growth capital.

The preferred expansion strategy is shifting. The preference for quick scale-up is driving corporate chains, often bankrolled by private equity, to favour the “roll-up strategy” - the acquisition of existing regional hospitals, over complex greenfield developments. Concurrently, asset-light models, such as franchising and management contracts, are emerging as key strategies to improve capital efficiency and penetrate high-growth, lower-cost Tier-2 and Tier-3 markets. These non-metro regions are exhibiting superior growth, with compounding rates of 16-18%, outpacing the 12-14% growth seen in metros, driven by lower land costs and a critical deficit of high-quality care.

Part II: The So What: Structural Tensions and Investor Playbooks

The Economics of Profitability: ARPOB and the Speciality Mix

The core driver of profitability lies in the management of two variables: bed utilisation and speciality mix. ARPOB growth is consistently driven by three factors: improving payor mix, increasing the proportion of high-value tertiary care (e.g., oncology, organ transplant), and annual tariff hikes. The high-multiple valuations are not applied universally; they are reserved for hospitals that demonstrate superior capacity to execute on a premium speciality mix.

The trade-off between growth and cost is now manifest in the Tier-2 opportunity. While smaller hospitals in these regions exhibit higher revenue CAGRs (16–18%), cost metrics can be complex. In one analysis, the cost per bed day in In-Patient Departments (IPD) was found to be highest in Tier-2 city hospitals compared to Tier-1, suggesting that initial operational efficiencies can lag behind top-line growth.

The Policy-Market Interplay: The ‘Ayushman Bharat’ Constraint

The policy ecosystem, particularly the flagship public insurance scheme, Ayushman Bharat PM-JAY, presents a significant operational tension. While the scheme covers approximately 40% of India’s population (55 crore/ 550 million beneficiaries), engagement with publicly funded schemes remains challenging for many private operators. Only 13% of private hospitals were empanelled in a case study in Maharashtra, with key challenges cited as low reimbursement rates, complex claims processes, and administrative burden. There is also evidence suggesting that some private hospitals engage in “upcoding” following adjustments to reimbursement rates, indicating a fundamental friction between mandated affordability and institutional profitability.

Crucially, the absence of robust, standardised cost accounting systems in the private sector creates a vicious cycle. Without adequate cost data, policymakers struggle to set accurate and sustainable PM-JAY reimbursement rates, which in turn discourages private participation and complicates essential public-private collaboration.

The Human Capital Crisis: The Cost Headwind

The most persistent operational headwind is the human capital deficit. The cost structure of private hospitals is heavily weighted toward medical staff salaries, estimated at approximately 50% of total operational costs. India faces a persistent shortage of skilled personnel, with the doctor-to-population ratio estimated at either 1:834 or 1:1,500, depending on the availability metric used. The nursing ratio is acutely low at 2.10 per 1,000. This scarcity translates directly into high staff attrition (one major chain reported a nurse attrition rate of 25%) and upward wage pressure, acting as a structural constraint on margin expansion.

Subscribe now

Part III: Why Now: The Catalysts of Acceleration

Capital Innovation: REITs, Private Credit, and FDI

The current acceleration is deeply rooted in financial innovation. Foreign Direct Investment (FDI) inflows into the sector reached $3.2 billion between 2022 and 2024, leveraged by India’s policy permitting 100% FDI in hospitals under the automatic route.

Beyond traditional PE/VC, two novel funding mechanisms are gaining traction:

1. REIT-like Models: The surge in capital raising through hospital IPOs signals high investor appetite. The growth of India’s Real Estate Investment Trust (REIT) sector, with a 68% market cap increase since 2020, suggests a future path for separating the core real estate assets from hospital operations, freeing up capital for further expansion.

2. Private Credit: Private credit funds are increasingly active, particularly in addressing the working capital gap. A niche model is emerging to provide financing to small and mid-sized hospitals against cashless insurance receivables, tackling the multi-billion dollar gap created by delayed insurer payments and thereby improving the operational liquidity of smaller operators.

The Digital Imperative and the AI Dividend

Technology is shifting from an optional expense to a mandatory lever for efficiency and scalability.

• EHR Adoption: While only approximately 35% of Indian hospitals have implemented Electronic Medical Record (EHR) systems, the market size is projected to expand at an 8.18% CAGR. Adoption is highly concentrated in large urban facilities, underscoring a critical digital divide.

• AI for Efficiency: Artificial Intelligence (AI) and automation are crucial for combating high labour costs. AI-based scheduling systems have demonstrated up to a 25% increase in resource utilisation and annual savings of up to $750,000 in major chains. This deployment of AI to free up administrative time for clinical staff is a direct response to the human capital crisis.

• The Scalability Solution: Technology, particularly telemedicine, is the only scalable solution to the geographic and specialist divide, enabling early diagnosis and condition management in remote areas, thus easing the patient migration load on overburdened urban tertiary facilities.

Part IV: What Now: Strategic Imperatives for 2025–2030

Strategic Outlook: Growth and Sensitivity

Corporate hospital revenues are forecasted to grow at a healthy 10–12% year-on-year in fiscal 2025 and 2026. This outlook is fundamentally underpinned by long-term structural tailwinds such as the ageing population, NCD burden, and rising income, which mitigate severe downside risk in the base case. The most critical sensitivity, however, lies in Capex execution. The ambitious capacity expansion plans make the success rate of project delivery the primary determinant of achieving the high-end growth forecasts.

Stakeholder Playbooks

• For Investors: The focus is on Buyout deals for large, scalable assets that offer a platform for regional consolidation. Diligence must prioritise a hospital’s regional ‘moat’ (pricing power and patient loyalty), the execution risk of its capacity expansion pipeline (brownfield vs. greenfield), and its effective integration of digital technologies to manage the labour-cost headwind. High-growth, asset-light segments, such as specialised care verticals (oncology, IVF, nephrology), remain compelling for Growth Equity.

• For Operators: Survival and superior returns will depend on capital efficiency. This means prioritising expansion in Tier-2 and Tier-3 cities using asset-light models (management contracts/franchises) and deploying AI and automation tools aggressively to manage operating expenditure and combat high staff attrition. Pricing power must be continuously defended through differentiation in quaternary care.

• For Policymakers: To effectively crowd-in private capital and align it with public health goals, reforms must focus on integrating cost accounting systems to set transparent, efficient, and sustainable reimbursement rates for public schemes. Furthermore, targeted subsidies (e.g., providing free land) and robust Public-Private Partnership (PPP) frameworks are essential levers to ensure private sector participation in underserved areas, enabling hospitals to accelerate breakeven while still serving PM-JAY patients.

Risks and The Road Ahead

The sector faces three primary risks:

1. Regulatory Risk: Stemming from potential downward pressure on pricing or rigid reimbursement structures under large public schemes.

2. Human Capital Risk: A critical shortage and high attrition rate for doctors and nurses act as a structural cap on scalability.

3. Macro Risk: While demand is inelastic, any severe economic slowdown could pressure Out-of-Pocket Expenditure (OOP) patients, which still accounts for a high 39.4% of Total Health Expenditure.

The necessary reforms for 2025–2030 are clear: a concerted effort to increase public spending towards the 2.5% of GDP target; a massive investment in medical education capacity to address human resource deficits; and a greater state-level focus on strengthening rural primary and secondary care to relieve the load on urban tertiary facilities.

To wrap up:

India’s hospital system is a dual asset - an economic engine generating high growth and employment, and a critical social necessity. Sustainable growth demands a careful balance of institutional profitability with the expansion of affordable access. The current phase of institutionalisation and aggressive capital deployment provides the resources for this growth. The ultimate success of the Indian hospital sector, however, will be measured not just by its EBITDA multiples, but by its capacity to solve the capacity and human resource deficit, transforming the calculus of care from a purely urban, elite service to a genuinely scalable, national asset.

We’ve all seen the endless flood of Linkedin clickbaits announcing the end of McKinseys and Bains of the world, TCS and Infosys, etc. Just alongside that, is another lot of - automate with n8n and vibe-code almost anything you can imagine. So what happens when everyone can build whatever they want to? Economic growth? But that’s not been the case until now. Well, you’ll say it is complicated and in turn, I would agree.

Take of myself - I have been wanting to write this article for so long. I compiled my thoughts in bullet points. Put it through ChatGPT and since the past one or two odd hours, I have been revising the prompts and generating versions…none to my satisfaction. I have been circling back and forth in the same window and then decided, let me write it by myself. Is ChatGPT not useful? Swearing on Sam Altman, it is very useful. But perhaps, just for writing mundane SEO blogs, but not YET for producing high quality stuff.

Before ‘consultant killers’ come at me for saying this, Sam Altman himself agrees to this -

He says AI is good at tasks, not at jobs.

Although this statement by him is a few years old (as far as I recollect) and the models have been refined to a good degree since then, the statement still holds true. AI is good for things you can define to a granular degree or set an SOP for but not good for running end-to-end jobs because that requires some high value decision making. And there are other problems too.

Such as this -

Same is true for vibe-coding or anything else that you can think of.

There’s a straight 15-min rant on AI coding for anyone who’d listen -

Now, my days are typically spent going back and forth with an LLM, and pretty often yelling at it, or telling it that it is doing the wrong thing and getting mad that it didn’t do what I asked it to do to begin with.

And from another post I came across -

Claude Code keeps me waiting. Here I am pressing return like a crack-addicted rodent in a lab. “Yes, I want to make this edit.” I watch as it works, glassy-eyed and bored as the code scrolls by, and on the edge of my seat because my ideas are about to become reality.

I’m guessing that part of why AI coding tools are so popular is the slot machine effect. Intermittent rewards, lots of waiting that fractures your attention, and inherent laziness keeping you trying with yet another prompt in hopes that you don’t have to actually turn on your brain after so many hours of being told not to.

The exhilarating power of creation. Just insert a few more cents, and you’ll get another shot at making your dreams a reality.

Researchers at Harvard and Stanford have come up with a term for this - ‘workslop’. They say people are using AI tools to create low-effort, passable looking work that ends up creating more work for their coworkers.

This comes after a report from MIT Media Lab concluded that despite $30 - 40 billion in enterprise investment into GenAI, 95% of organizations are getting zero return.

Mercor, working with outside experts including former Treasury Secretary Larry Summers, also released an independent benchmark (APEX-v1.0) focused on high-value knowledge jobs, such as investment banking, law, and consulting. “None of the models meet the production bar for automating real-world tasks,” emphasizing that substantial human oversight is still required for all models tested.

The word on the street is that companies which have fired employees in large numbers, hoping to replace them with AI are now bringing them back.

In response to this growing uncertainty, two of the foremost AI companies, OpenAI and Anthropic, have sought to validate AI’s economic promise by publicly releasing their own research and scorecards. This intends to mitigate skepticism that could make it harder for the companies to boost sales and offset their immense development costs.

In late September, OpenAI introduced GDPval, a new evaluation system developed with industry professionals. This benchmark explicitly measures how various AI models perform on “economically useful” work across 44 occupations in the top nine sectors contributing to U.S. GDP. Based on their findings, OpenAI stated that their leading AI models can rival the work of professionals and are capable of taking on some repetitive, well-specified tasks “faster and at lower cost than experts”.

At the same time, the fine print stated that these estimates of cost and time savings do not capture the human oversight, iteration, and integration steps required in real workplace settings.

OpenAI’s rival, Anthropic, published its own longitudinal study, the Anthropic Economic Index, which tracks how its Claude AI software is applied in practice among businesses. It reported that more than three quarters (77%) of companies’ usage of Claude involved automation patterns, frequently including “full task delegation”.

Despite the industry’s internal reports demonstrating capability and adoption, independent analysts continue to stress the gap between technical benchmarks and genuine economic transformation.

So, while AI companies are quantifying what their models can do, academics and independent testers are measuring what they actually deliver.

The key to bridging this gap lies in Sam Altman’s recent video which I saw on a16z’s page. He said -

If we’re right that the model capability is going to go where we think it is going to go, then the economic value that sits there can go very very far. We can see how much demand there is we can’t serve with today’s model, but we would not be going this aggressive (on infrastructure bets) if all we had was today’s model.

Meaning - there are capabilities, which once developed, will unlock massive economic gains.

Will that be in trillions? Will it be appropriate enough to justify the MASSIVE investments and costs? This is something to be checked.

Hardly a day goes by without OpenAI announcing plans to spend billions and billions. $300 billion for Oracle! $22.4 billion for CoreWeave! $10 billion for Broadcom!

And there are deals denominated in other (obscuring) currencies. They’re buying ten gigawatts from NVIDIA! Six gigawatts from AMD! 900,000 wafer starts a month from Korea! 230 Norwegian megawatts! 200 UAE megawatts!

The FT estimates they’ve “signed about $1tn in deals this year for computing power”.

What do you think?

A healthy venture market resembles a relay race. Capital flows smoothly from seed to Series A, from A to B, from B to C and beyond, until the baton is carried across the finish line through IPOs or strategic acquisitions. Lately, the baton is being dropped at the growth stage. Series C and later rounds, the critical layer of financing that allows young companies to scale into durable public firms or strategic assets, have slowed to a trickle. Financing is vibrant at the early stage and aspirational at the end, but dangerously thin in the middle where companies are supposed to prove their ability to scale.

This absence of growth capital is forcing founders into increasingly difficult choices. Expansion plans are being delayed, global ambitions shelved, and profitability drives accelerated long before businesses are actually ready. Insider rounds do buy time, but they are no substitute for genuine growth funding. They risk permanently being a ‘startup’.

The numbers illustrate the severity of this breakdown.

After the exuberant highs of 2021 and 2022, when Indian startups raised record sums, 2024 marked one of the weakest years in recent memory. In the first half of 2025, Indian tech startups raised just $4.8 billion, down about a quarter from the same period a year earlier. Within that, late-stage rounds contributed only $2.7 billion, a fall of 27% year on year. Early-stage funding has proved resilient, even buoyant in some verticals. It is the growth rounds i.e. Series C and beyond, have become hardest to sustain, precisely where the capital need is highest.

Much of this reflects the retreat of global crossover funds that once underpinned India’s late-stage momentum.

Tiger Global, Sequoia, and SoftBank used to provide the $50 - 100 million cheques that carried companies across the growth chasm. Today, all three have pulled back. Tiger, after a frenzied run in 2020 - 21, slashed its exposure during the 2022 - 23 funding winter and has since returned only selectively, focusing on defending its winners rather than backing new names. Sequoia’s restructuring in 2023, which spun off its India arm as Peak XV Partners, coincided with a deliberate downsizing of its growth fund by nearly half a billion dollars. And SoftBank, scarred by multi-billion-dollar losses in Oyo, Ola, and Paytm, has retreated even more decisively. In their absence, domestic funds have not yet developed the balance sheets or appetite to replace them.

The deeper issue, however, is not simply who provides the money, but why growth rounds have become so hard to price.

The exuberance of 2020 - 22 is the first culprit. Late-stage rounds in those years were priced for perfection, assuming tripling revenues every year and quick paths to profitability. When reality fell short, the markdowns were brutal. Byju’s and PharmEasy, once flag-bearers of Indian innovation, lost 70 - 80% of their peak value. Investors came to see overpricing at the growth stage as a systemic risk.

Public markets, meant to validate private optimism, have instead undermined it. The IPOs of Zomato, Nykaa, and Paytm were heralded as milestones, but their shares plunged 40 - 70% below issue prices within months of listing. A private valuation of $2 billion no longer looked credible when listed peers traded at half the multiple. Growth rounds, which depend on bridging the optimism of private markets with the discipline of public markets, thus became almost impossible to underwrite.

The exit pipeline has also narrowed to a dangerous degree. In 2024, India produced only three tech IPOs above $500 million, compared with more than twenty in 2021 and 2022. Billion-dollar mergers remain rare, with only a handful of domestic acquirers able or willing to absorb startups at scale. Without reliable exits, late-stage financing becomes bridge capital with no bridge, risk without liquidity. For global funds already under pressure from their own limited partners to return cash, that is not a risk worth taking.

Governance failures have compounded the problem. Scandals in edtech, layoffs across consumer internet firms, and accounting lapses in fintech have eroded confidence further. For investors already wary of valuations and exits, weak compliance and fragile governance are the final deterrent. The cumulative result is a missing middle in motion: Series C and beyond are harder to price, slower to close, and increasingly dependent on defensive insider rounds rather than fresh inflows.

Some have suggested that mergers and acquisitions could plug the gap.

In theory, this is true: a healthy acquisition market can serve as a substitute for late-stage funding, recycling capital back into the ecosystem. In practice, India’s M&A market is underdeveloped. The country recorded about $50 billion in total deal value in the first half of 2025, but less than 4% of that involved technology. By contrast, in the United States and Europe, technology typically accounts for a quarter to a third of annual M&A. The reasons are obvious: few Indian startups are profitable enough to attract strategic buyers; domestic corporates hesitate to acquire startups, fearing integration risk; and regulatory frictions around foreign investment and taxation add further complexity. Culturally, many founders still view acquisition as failure rather than strategy. The result is an acquisition market too thin to serve as a dependable exit channel.

Yet the ingredients for a stronger middle do exist.

India has deep entrepreneurial talent, rising pools of domestic capital, and corporates with expanding balance sheets. What it lacks is coordination and intent.

• Stage-specific growth vehicles, backed by sovereign wealth funds, pensions, and insurers, could help.

• Incentives for corporate India to acquire startups for technology, talent, and intellectual property, not just revenue, would deepen the acquisition pipeline.

• Simplifying regulations around share transfers and foreign investment would accelerate deal-making.

• Reforming IPO frameworks to accommodate high-growth companies, even before full profitability, would reopen the listing window.

The difficulty of growth rounds is that they straddle the most fragile part of the venture cycle: too late for narrative-driven optimism, too early for public-market validation. That fragility has been magnified by valuation collapses, IPO disappointments, governance lapses, and thin exit channels. Unless capital pools and exit pathways are rebuilt, India risks creating a startup ecosystem that begins strong but fails to deliver enduring enterprises.

Years will pass, and you will have visitings of despair and yet be tortured by hope.

- Mary Shelley, from Frankenstein

Across the ocean yet a stone-throw away, the allure of expanding in the GCC market emerges as a recurring thirst amongst Indian consumer brands. The reasoning is apparently simple: 1) among the highest per capita incomes globally 2) a large and growing expatriate base with strong affinity to Indian products and 3) modern retail infrastructure anchored by malls, e-commerce and organised trade setups. The slides in investor presentations practically write themselves with buzzwords like “Gateway to the Middle East”, “$390B retail market”, “growing at double digit CAGR,” etc. etc.

Despite this headline-grabbing opportunity, the region has proven to be more complex than anticipated. As easy as it is to enter the region…it is equally difficult to establish. What looks like an oasis from the shores of India has left behind a trail of multinationals and homegrown challengers who’ve discovered that margins here are devoured by slotting fees, logistics bottlenecks and price-sensitive customers.

Well, as a founder of a modern accessories brand (~INR 335 cr turnover) expressed his journey -

We haven’t had much action in the topline…it’s decent but not as much as we anticipated. I’ve settled here with (my) family for a short while just to get a better grip on what could work here. Constantly having feet on ground helps and has definitely expanded our understanding of the cultural nuances here on how to sell. It’s been humbling…to say the least. The region has so much to offer yet it’s a difficult market to penetrate. We’re trying to learn from other brands in the region. One learning has been to revise our product line as per European tastes here…which are also aspirational for other ethnicities including Emirates. It doesn’t work for the Russians but that is fine. The Southeast Asian population, even the high-earning part, is super price-sensitive…don’t know if that is a customer segment we want to actively go after here...We’re just getting started.

The latest one to launch in Dubai is Bonkers Corner. P.S. If you haven’t heard of this brand, you should ask a college-going teenager. Founded in 2020 as a digitally native streetwear label, they basically sell Korean pants, crop tops and styles that appeal to Gen Z. The brand is doing >₹100 crore in revenue, supported by ~15 domestic stores and a strong e-commerce presence.

We also spoke to a few other founders/CXOs/CMOs (in the consumer sector) who have been expanding in the region for a few years with varied degrees of success. What stays consistent is the way they narrate their experience - oscillating between hope and despair.

This article is our honest attempt to pass on insights from all these conversations:

• Dubai is for optics and Saudi is where the scale is

  • Dubai is often the first port of call in the Gulf. It’s easy to set up, English is everywhere and the Indian diaspora provides a familiar base. A storefront in Dubai Mall or a listing in Carrefour looks fantastic in investor decks; it's proof that you’ve “gone global.” There is PR value to it. But the actual market is much smaller than it looks. The UAE has just 11 million people(half of Mumbai), with maybe 1.5 million who have meaningful disposable income. Even capturing a slice of that won’t transform a brand’s topline. In fact, those who opt to open a storefront are most probably bearing a loss.

  • Saudi Arabia is a different story. With more than 32 million people and a growing economy, it holds true scale. By 2028, Saudi and the UAE together will account for nearly 78% of GCC retail but Saudi will drive the lion’s share of absolute volume. That’s why every brand that wants to move beyond optics has to crack Saudi. It means navigating tougher rules, slower approvals and powerful distributor networks.

  • Few founders treat Dubai as a pilot market, a place to test market fit before scaling across the Gulf. In reality, it functions very differently. Success in Dubai won’t automatically translate to having a PMF in the Gulf.

• Diaspora demand is limited

  • The large Indian community in the Gulf makes the market look like a natural extension of home. And for staples, that logic holds. Rice, atta, masalas, ready-to-cook mixes and idli batter move steadily because they serve a need no one else fills at scale. Brands like Britannia, Dabur, and ID Foods have built healthy businesses on this diaspora foundation.

  • But diaspora demand only goes so far. If you’re in aspirational categories such as fashion, beauty, personal care, or premium F&B, the scale comes from Emiratis, Arabs, Europeans, Russians, etc.

  • That’s where many Indian brands stumble. What looks premium in Mumbai feels ordinary in Dubai. Without upgrading design, packaging, and storytelling to global standards, the brand will find it difficult to hack growth.

• What is mid-market?

  • In India, “mass premium” is the sweet spot. A brand that positions itself above the cheapest options but below luxury often captures the fastest growth. But in the Gulf, that middle ground is where most brands die.

  • The region’s consumers are polarized. At the top end, Emiratis and wealthy expatriates lean heavily into luxury. They want European styling, global brands, and products that signal status. At the bottom end, a huge base of Asian and African expatriates is hyper price-sensitive - they shop for value, promotions, and bulk deals. You’ve got to choose a side.

• Upfront burn is high

  • One of the biggest misconceptions founders carry into the Gulf is that they can replicate their playbook there. The “lean pilot” model is the DNA of India’s startup ecosystem. But in the GCC, the economics and the operating environment make that approach almost impossible.

  • Even a modest market entry demands a heavy upfront investment. Licenses and company formation costs are significant. Distributor contracts often involve minimum guarantees and lock-ins + shelf-slotting fees in major chains are steep and retailers expect you to fund mandatory promotions to drive footfall. Add logistics, compliance, and working capital tied up in inventory, and the cost of simply running a meaningful PMF test easily crosses ₹6 - 10 crore.

  • Digital isn’t the savior it looks like either. E-commerce is concentrated in a few large platforms such as Noon, Amazon.ae, Carrefour Online; and access to them sometimes requires going through distributors. Customer acquisition costs are inflated because you’re competing with global giants. And consumers themselves are skeptical of unproven D2C brands; they gravitate to established retailers or big marketplaces where trust and fulfillment are guaranteed.

  • The feedback loop is equally punishing. Retailers review performance quarterly, distributors resist frequent changes, and even minor packaging or labelling adjustments can trigger new regulatory approvals. That means it often takes 18-24 months before you know if a product is resonating. By then, most early-stage brands have already exhausted their capital. Success does depend on having the runway to survive long feedback cycles and heavy initial burn.

• Retailers are gatekeepers

  • A handful of retail conglomerates control most of the visibility: LuLu runs hypermarkets across the region, Carrefour (Majid Al Futtaim) dominates in the UAE and beyond, Landmark owns a vast fashion and lifestyle portfolio and Apparel Group manages over 75 global brands.

  • If you aren’t inside one of these ecosystems, you’re effectively invisible. Consumers may want your product but without a slot in LuLu or Carrefour, they won’t even know you exist. And these retailers look for proof of supply chain reliability, depth of SKUs and a willingness to fund promotions and discounts.

  • Additionally, almost every category is mediated by distributors. They control the supply chain, manage retailer relationships, handle compliance paperwork and in turn decide which products get shelf space. Building trust with B2B partners is critical.

• Country-by-country rules

  • A product registered and approved in Dubai can’t be sold in Saudi without fresh paperwork. Saudi Arabia, for example, requires dual date-labelling (Gregorian and Hijri), halal certifications and local representation for customs clearance. Oman and Kuwait have their own product registration portals, labelling formats, and distributor approval processes. Even Qatar, despite its size, insists on separate registration and packaging norms.

  • For founders, this means each new market is effectively a fresh project with new approvals, new distributors, and new burn.

• UAE is Easy to Enter, Hard to Win

  • Compared to the complexity of Saudi or the opacity of smaller Gulf states, Dubai in particular looks frictionless. It’s why so many startups begin their international journey here.

  • But the simplicity of entry often masks the difficulty of survival. Getting the paperwork done is the easy part; building a viable business is the real challenge. Consumers are spoiled for choice, they benchmark every purchase against international brands and are quick to switch if the product or price disappoints.

How companies are thinking around this:

Brand Studio Lifestyle, parent to labels like Tokyo Talkies, Highlander, Vishudh, Ketch, and Locomotive has recently debuted in UAE. It launched three flagship stores in the UAE - one at BurJuman (Dubai) and two in Sharjah (Sahara Centre at ~9,000 sq ft; Mega Mall ~5,000 sq ft) via a partnership with Rapheal Lifestyle. Its plan includes adding seven more ME stores by March 2026.

Highlander and Tokyo Talkies are well-known brands in India, and we expect them to also resonate with the vast Indian diaspora. The market leaders are legacy brands and have their own unique offering. Highlander and Tokyo Talkies stand differentiated in their pricing positioning above Max and below the European fast fashion giants. Further, the styles we have curated specially for the UAE are handpicked to give the consumer an experience of the fashion and quality that the brands are famous for…The market, as I said earlier, is growing rapidly and there is significant headroom for new brands like us to garner market share.

Shyam S Prasad (Co-founder & CEO)

On the other hand, amongst staples, the UAE is ID Fresh’s largest international market after India, accounting for a neat 30% of the company’s overall revenue per available reports. In the region, ID has been constantly innovating beyond its usual product lines of idli/dosa batter and filter coffee decoction.

At iD Fresh Food, we are constantly exploring new ways to address consumer needs using common sense. The product aims to solve the inconvenience of peeling/cutting fruits to make shakes/smoothies and solves the problem of round the year unavailability of some favourite fruits, without compromising on the nutritional aspects.

PC Musthafa & Rahul Gandhi, CEO & CMO (2023)

Ferns N Petals (FNP) had to change the entire product line, and introduce new verticals and catalogues to cater to UAE.

For example, the flowers popularly gifted in the region include tulips, sunflowers, and others in a pastel colour palette. Perfumes or attars are a popular choice of gifts among Emiratis. The Russians, meanwhile, believe in gifting flowers in odd numbers.

- Rajesh Kumar, CEO of FNP GCC and South East Asia

Every now and then, well-funded D2C startups from India beyond Series A keep launching their expedition to the region. Case in point - Mokobara. Among the mix are 100cr or sub 100cr revenue brands who try to jump the fence in aspirations of an oasis. Actress Chahatt Khanna-led luxury sleepwear brand Ammarzo is one of them with a recent launch on Noon and Namshi.

And then there are the bigwigs -

Titan Company Limited is set to acquire a 67% stake in Damas jewellery business in GCC countries at the enterprise value of AED 1,038 million. With this, Titan is on the path to acquire the balance 33% by the end of 2029. With a network presence of 146 stores across the 6 GCC countries, Damas today, houses a rich and curated portfolio of in-house collections alongside prestigious international labels. It is already well-established within the region.

C.K. Venkataraman, Managing Director of Titan, said:

"After successfully establishing Tanishq in the GCC countries and the USA, our ambition for a global jewellery play is moving to the next stage. With the Damas acquisition, Titan Company is stepping out from its diaspora focus into other nationalities and ethnicities.

Alongside, Reliance Consumer Products Limited (RCPL)-

Having acquired Campa Cola in 2022 and reintroducing it to the Indian market in 2023 is now expanding overseas. This cult favourite will be launched in the UAE in partnership with Agthia Group, a leading food and beverage company in the region.

I hope the pattern is visible, well-capitalised players partner with powerful distributors, localise and innovate for the market-tastes while smaller players try to crack the digital channel while having a bit of offline presence. While staples or Indian-oriented products get the leverage of diaspora, aspirational/luxury brands need to reinvent their product lines.

To sum it up

The GCC does have water in the desert although it lies much further away than it appears. The opportunity is real but the cost of accessing it often dwarfs the early-stage capacity of challenger brands. Without realistic GTM planning, what looks like an oasis can quickly become a mirage.

In the next post of this series, we’ll dig into how some of the consumer brands have fared in the region and how they have financed their expansion.

• a consolidated revenue of ₹10,71,174 cr (+7.1% yoy)

• EBITDA of ₹1,83,422 cr (2.9% yoy) and

• a PAT of ₹81,309 cr (+2.9% yoy)

If you’ve ever dealt with RIL, you’d just have one word to describe them and that is ‘ruthless’. They’re ruthless when it comes to cutting costs or killing competition. This might as well be the gene that has helped them succeed across multiple industries.

Notably, their consumer businesses contributed over 50% of total EBITDA this time. This transformation from hydrocarbons to retail and digital has been written about endlessly. What hasn’t been in the limelight is how RIL uses its excess cash to seed its expansion and broaden its capabilities.

Over the past decade, RIL’s exposure to Alternative Investment Funds (AIFs) have risen from ₹967 crore in FY15 to ₹6,764.63 crore in FY25 - a nearly 600% increase, compounding at 21.5% annually.

This exposure is spread across 18 funds, both domestic and offshore, and routed via four subsidiaries:

• Reliance Strategic Business Ventures Limited (RSBVL),

• Reliance Ventures Limited,

• Reliance Digital Health Limited, and

• Reliance Finance & Investments USA LLC.

These subsidiaries give Reliance flexibility in targeting different themes: early-stage venture, private equity, real estate, hedge funds and even offshore allocations. Reliance’s approach looks less like that of a family-run conglomerate and more like that of an institutional allocator.

The portfolio itself tells the story. Its single largest position is in the Nepean Focused Investment Fund - Class A, a small and mid-cap equity vehicle worth ₹2,556 crore as of March 2025. The second largest, at ₹1,213 crore, is in Kalaari Capital Partners India IV, a venture fund that Reliance anchored in 2021. That relationship has already produced synergies: Reliance has acquired multiple Kalaari portfolio companies, including Embibe, Zivame, Haptik, and Urban Ladder. AIF commitments, in other words, are doubling as an M&A pipeline.

Other pieces are at different stages of their cycles. Reliance’s investment in Multiples Private Equity Fund II has shrunk from ₹215 crore in FY24 to ₹122 crore in FY25, as the fund has been distributing capital. Multiples recently set up a USD 430 million continuation vehicle to hold its strongest assets such as Vastu Housing Finance, Quantiphi, and APAC Financial…giving LPs like Reliance the option to cash out. Reliance largely did. On the other end, commitments to PGP India Growth Fund I have been rising as capital calls come in, while a tiny stake in the LICHFL Urban Development Fund is in wind-down.

Put together, this is a portfolio that resembles a miniature endowment model. Venture for optionality, private equity for cash-on-cash returns, hedge-style equities for higher beta, and legacy real estate. It’s designed to deliver better yield on surplus capital and just as important, getting strategic visibility into India’s innovation pipeline.

Reliance uses its LP commitments as strategic radar.

Where most LPs wait years for distributions, Reliance can act earlier. As a preferred LP, it gains visibility into themes, founders, companies and technologies. It can then selectively pull them into its own orbit - either through acquisition, partnership, or integration. In other words, it outsources discovery while retaining the right to capture the upside when it matters.

Few paradoxes in the global economy are as striking as India’s growth story. Over the past three decades, our country has become closely associated with the rise of services. A nation of coders, consultants and call centers now powers the back offices and IT systems of companies around the world. From Infosys and TCS to the booming startup ecosystems in Bengaluru and Gurugram, India has earned a reputation as a global services powerhouse. Beneath this success, however, lies a persistent weakness: the country has struggled to build a strong manufacturing base.

This contrast is even more pronounced when compared to East Asia’s development trajectory. Japan, South Korea, and Taiwan in the postwar decades, followed by China and Vietnam. All experienced deep economic transformation through manufacturing-led growth. These countries built industrial ecosystems, created millions of stable jobs, and used export-driven factories as the foundation for broad-based prosperity. Manufacturing played a central role in their climb from poverty to middle-income and in some cases, high-income status.

India appears to have many of the same inputs. It has a large labour force, entrepreneurial energy, a growing domestic market and a policy framework that has supported liberalization since 1991. Despite this, the manufacturing sector’s share of GDP has remained flat, stuck between 15 and 20 percent. Exports have expanded slowly and the sector has made only a modest contribution to employment.

Why has India fallen short of its manufacturing potential? Why have services taken center stage while factories have remained on the sidelines? And in today’s shifting global, what is the path forward for us?

This long-form post examines these questions through the lens of East Asia’s industrial experience, India’s policy and institutional environment, and the global economic context that will shape the next phase of development.

The East Asian Playbook

When people talk about the “East Asian miracle,” it often sounds like a story of exceptionalism. It suggests the rapid industrialization and sustained economic growth achieved by countries like Japan, South Korea, Taiwan, China, and Vietnam through strategic policies. Some chalk it up to culture, others to timing…but if you strip away the clutter, what remains is a clear and replicable strategy. This strategy proved effective across a variety of political systems and historical periods. Japan, South Korea, Taiwan, China, and Vietnam all followed a version of the same three-step approach: fix agriculture, build competitive export manufacturing, and use finance to reward performance. Let’s understand this approach. 

Start with the land

The first move was deceptively basic: land reform. After WWII, Japan broke up large estates and handed land to tenant farmers. Productivity shot up because ownership tends to have that effect - people invest more when the returns are theirs to keep. South Korea and Taiwan did the same in the 1950s. These actions were not driven by ideology…they were all practical measures aimed at laying the groundwork for a stable and productive economy.

Higher rural incomes meant people could buy basic goods such as clothes, soap, radios…which gave early manufacturers a domestic market. More importantly, smallholders saved. Those savings became the early capital pool that helped fuel industrialization. The countries that skipped this step, like the Philippines, never really built that foundation. Rural inequality persisted and the move to a manufacturing economy never got out of second gear.

Export or die

Once the agricultural base was in place, the focus shifted to manufacturing - but with a twist. East Asia didn’t protect its firms forever behind high tariffs and closed markets. Instead, governments pushed companies into global markets fast and hard. In Korea, if a firm wanted cheap credit or tax breaks, it had to hit export targets. If it missed, the support disappeared. No second chances. Hyundai learned to build cars the hard way…by selling to Americans who didn’t care about excuses.

Japan’s Ministry of International Trade and Industry, also commonly referred to as MITI did something similar. It picked promising sectors, backed early movers, and kept reallocating resources until the best firms rose to the top. 

Taiwan built its industrial base through contract manufacturing. It started out assembling electronics for foreign brands and then climbed the ladder.

The message here was super straightforward. Compete globally, or don’t compete at all. International markets forced companies to improve or disappear. That pressure created muscle for scale, quality and productivity. The more they produced...the sharper they got.

Finance with a spine

This is where many developing countries fall apart. They make credit cheap, then hand it to politically connected firms that simply have no reason to improve. East Asian economies in focus took a harder route. Credit was cheap, yes, but only for companies that delivered.

In South Korea, banks were tools of industrial policy. They pushed capital into targeted sectors, but they also pulled it out quickly when companies missed targets. 

In Taiwan, lending was less centralized but just as conditional. 

Even China, in its own way, followed this principle. The state funneled resources into priority industries and didn’t hesitate to shift course when results fell short. 

The goal was to provide firms with opportunities to expand while ensuring they remain accountable. That’s how you get real industrial depth - by balancing pressure and support that comes with strings attached.

Systematic effort

None of this was intuitive. It was coordinated and enforced. And it worked across systems that ranged from postwar democracies to military regimes to single-party states. The model created the conditions for success. Where governments kept their nerve and stayed focused on results, manufacturing took off. Where they drifted, the story played out very differently.

India’s Divergent Path

India’s growth path looks very different from the East Asian template. It started industrialization without a strong rural base, shifted early into services, and left many core policy bottlenecks unresolved. The result has been a modern economy with impressive digital and financial services, but limited manufacturing depth.

Land reform remained incomplete

India attempted land reform in the decades after independence, but the results were uneven. Some states, like West Bengal and Kerala, managed to redistribute land and formalize tenancy. In most of the country, however, powerful local interests blocked real change. Laws capping landholdings were diluted, enforcement was weak and loopholes were used to retain control. Millions of farmers remained stuck in low-productivity agriculture. That continues even today.

Farmers with small plots and uncertain ownership had little reason to invest. Rural productivity stayed low. Incomes remained limited. This meant there was less demand for manufactured goods like clothing, tools, and appliances, the same kinds of goods that helped early factories grow in East Asia. Without that demand, India’s domestic market for basic manufacturing stayed shallow.

Services grew, manufacturing stalled

As the economy liberalized in the 1990s, services began to grow quickly. Sectors like software, finance, telecom, and professional services required relatively little land and could scale with limited physical infrastructure. These industries operated in clusters, attracted educated talent, and avoided many of the complications tied to state regulation.

Manufacturing, in contrast, struggled. It required land acquisition, power supply, transport logistics, and a stable regulatory environment. These dependencies made it far more vulnerable to bureaucratic hurdles and rent-seeking behavior. 

Policy choices closed off key avenues

India’s industrial strategy in the early decades focused heavily on self-reliance. The goal was to protect domestic producers and avoid foreign dependence. This led to a regime of high tariffs, import licensing, and restrictions on foreign capital. The market was fragmented, competition was limited, and scale remained elusive.

In the 1970s, controls became even more rigid. The license raj added layers of approvals for everything from capacity expansion to product lines. The MRTP Act placed restrictions on the size of firms. Labor-intensive industries were reserved for small-scale producers, which limited their ability to grow and compete. The entire system discouraged investment, innovation, and consolidation.

When reforms finally arrived in 1991, the focus was on trade and capital flows. Tariffs were reduced, foreign investment was welcomed in some sectors, and the private sector was given more autonomy. However, critical areas such as land acquisition, labour regulation, and contract enforcement were left largely untouched. These gaps made it difficult for manufacturing to scale, especially in export-oriented and labour-intensive segments.

Liberalization lacked structural depth

The post-reform period has created space for growth and the private sector has responded. But the institutional foundation remains shaky. Land markets are fragmented and politically sensitive. Labor laws make it costly to hire or restructure workforces. Courts move slowly…making contract enforcement uncertain. These factors raise the cost of doing business in manufacturing, especially in sectors that depend on scale and reliability.

Investment, thus, flows into areas where these constraints matter less. Technology services, telecom, finance, and consumer goods all have expanded. But the industrial sector, particularly small and medium manufacturers, continues to face high entry barriers and low productivity traps. Despite policy programs and new initiatives, the structural roadblocks have never fully receded.

The 12 Structural Roadblocks

Labor - Rigid Rules, Limited Flexibility

India’s labor regulations discourage firms from scaling up. For instance, any factory with over 100 workers cannot lay off employees without government permission – a clearance that is “rarely granted”. Such rules drive up costs for midsized firms and encourage businesses to stay below the 100-worker threshold to avoid red tape. Multiple labor laws kick in at low employee counts (some as low as 10 or 20 employees), adding compliance burdens early. Furthermore, minimum wage rates differ by state and job type, creating a maze of rules that is cumbersome to administer. The net effect is a disincentive to scale – companies often deliberately remain small or rely on contract workers to sidestep rigid hiring and firing laws.

Land - Expensive, Fragmented, Badly Planned

Acquiring industrial land in India is costly and complex. Government land policies have unwittingly encourage[d] rampant land speculation, inflating prices so much that huge portions of project budgets go just to land acquisition. Land in India often costs far more than its productive value, and clear titles are hard to come by due to frequent disputes. Urban planning has failed to earmark enough land for industry in or near cities, so many factories end up in far-off locations. Companies increasingly avoid buying land altogether – instead leasing ready sites to circumvent land acquisition challenges and achieve faster operational timelines. Distant factory locations also mean longer supply lines and difficulty attracting skilled labor. In short, fragmented land markets and poor planning have made securing industrial land a major hurdle, driving up costs and reducing efficiency.

Electricity - Expensive and Unstable

Manufacturers in India face power costs and reliability issues that undermine competitiveness. Industrial users pay about ₹4.8 per kWh (approximately $0.11), a rate on par with OECD countries despite India’s far lower income levels. These high tariffs are partly due to cross-subsidization – industry bears higher charges so residential and agricultural users pay less. Even at such prices, supply quality is patchy. India ranks near the bottom globally for electricity reliability, placed 108th out of 141 countries in one survey of power supply quality. Frequent outages force firms to invest in generators and backup systems, further raising operating costs. Moreover, India’s grid is still predominantly coal-fired, making it hard for factories to meet rising global carbon standards. Inconsistent, pricey electricity is thus a double burden – it inflates costs and impedes the round-the-clock stability that modern production requires.

Infrastructure - Better, But Still Expensive

Despite improvements in highways, ports, and freight corridors, India’s logistical costs remain among the highest in the world. Moving goods across India costs an estimated 14%-18% of GDP, far above the 8%-10% typical in developed economies. Last-mile transport is often slow and roads congested, eroding the gains from new expressways. Port turn-around times, while improving, have lagged global benchmarks - ships in India’s ports are used to spend 2–3 days to turn around vs. 10–12 hours globally (though initiatives like the Gati Shakti plan are starting to address this). Cold storage and warehousing networks are highly fragmented; over 90% of India’s cold chain logistics sector is privately owned and lacks standardization. This patchwork leads to spoilage, delays, and inefficiencies in supply chains. In summary, infrastructure has come a long way, but fragmented logistics and high transport costs continue to act as a tax on Indian manufacturing.

Finance - Too Costly, Too Tight

Interest rates for business loans are high, often in the double digits, putting Indian firms at a cost disadvantage (rates of 14-16% for capital loans). Working capital is hard to come by at affordable rates. MSMEs especially face delayed payments from large buyers, tying up their funds for months. It’s common for MSMEs to wait well beyond 45 days for payment, which forces them to borrow at high interest just to stay afloat. These delays have become so chronic that new rules now sanction large companies for not paying small suppliers on time. While credit is available in the banking system, it seldom comes at the speed or cost manufacturers need. The result is frequent cash-flow crises. Companies must hold excess cash or rely on informal lending to bridge gaps, raising their operating costs and risk.

Trade - Protected Inputs, Weaker Outputs

India’s trade policy has often favoured import substitution, which means high tariffs on many inputs and intermediates. These duties raise the cost of crucial raw materials and components for domestic producers. Studies show that India’s tariffs on manufacturing inputs are much higher than those of competing nations, directly translating into costlier finished goods. For example, electronics manufacturers in India face steeper import duties on components than firms in China or Vietnam – undermining their export price competitiveness. The intent is to nurture domestic industries, but the flip side is that expensive inputs make Indian exports less competitive abroad. India’s reluctance to fully embrace free trade agreements (it notably stayed out of RCEP, a major Asia-Pacific trade pact) further limits access to cheaper inputs and larger markets.

Legal Enforcement - Unreliable and Slow

Contract enforcement in India is notoriously slow, which is a serious impediment to manufacturing and supply chain reliability. If a supplier fails to deliver or a partner breaches a contract, the legal resolution can take years. According to the World Bank, resolving a commercial dispute through an Indian court takes about 626 days on average. Such delays make just-in-time production and multi-party agreements risky, since there’s little recourse if things go wrong. Companies cannot count on timely remedies, so they often resort to informal arrangements or avoid complex contracts altogether. The unpredictability extends beyond contracts – enforcement of environmental and safety regulations can be equally uneven, with honest firms sometimes feeling penalized while violators go unchecked. It’s hard to build efficient, tightly coordinated supply chains without assurance that agreements and rights will be upheld promptly and fairly.

Scale - Too Small to Learn

Indian manufacturing is dominated by small, sub-scale operations. Most factories never reach the size where economies of scale and learning-curve efficiencies kick in. In labor-intensive sectors from apparel to toys, India has a “missing middle” – countless tiny workshops and very few giants. This fragmentation means each firm has limited capacity to invest in modern machines, R&D, or process improvements. They also don’t benefit from volume discounts on inputs or the productivity gains that come with repetition and refinement of large-scale production. In effect, many firms are stuck in a low-productivity trap, producing small quantities with cheap labor and outdated methods. Such firms find it hard to compete internationally or even against bigger domestic players. The lack of scale also stunts the development of robust supplier networks and industrial clusters. Everyone remains too small to significantly learn, innovate, or boost productivity over time.

Tax - GST Still Glitchy

The Goods and Services Tax (GST) was meant to unify India’s market, but implementation hiccups continue to plague manufacturers. One major pain point has been the refund of input tax credits, especially for exporters and firms in an inverted duty structure (where inputs are taxed more than outputs). In practice, companies often wait months for GST refunds, locking up their capital. Many businesses complain that legitimate credits get held up due to technical mismatches in return filings or overzealous fraud checks. These delays strain cash flow in crucial times. Although systems are improving – with the GST Council recently moving to fast-track 90% of certain refunds upfront – small manufacturers still find the tax compliance process complex and occasionally arbitrary. There have been cases of tax credits being denied because of minor clerical errors, or rule interpretations changing with little notice. While GST is a landmark reform, its “glitches” in execution mean that manufacturers spend undue time and resources on compliance and are wary of the tax regime’s unpredictability.

Global Integration - More Friction Than Flow

India’s manufacturing sector remains only partially integrated into global value chains. Policies and regulations add friction to cross-border flows of goods, capital, and talent. For example, strict visa rules and bureaucratic hurdles make it difficult to swiftly bring in foreign technical experts or managers for local plants (and similarly hinder Indian professionals from easily working abroad in manufacturing roles). Caps and approval requirements on external commercial borrowing and foreign direct investment in certain sectors also create hesitation for multinational supply chains to fully involve India. The country has taken a cautious stance on trade liberalization – it maintains higher tariffs than many peers and has been selective in free trade agreements. Cumbersome customs procedures and standards that differ from global norms further slow down integration. In essence, where India excelled in services globalization (like IT outsourcing), manufacturing has seen more protection and inward focus. This means less foreign investment in factories, less participation in multinational production networks, and missed opportunities to export at scale.

Skills - Plenty of Workers, Few Managers

India may have no shortage of labor in general, but there is a dearth of experienced manufacturing managers and technicians. Many firms struggle to find plant managers, production supervisors, and engineers with the right expertise in operations. Part of the issue is historical – for years, bright graduates have preferred careers in IT or finance over working in a factory setting. This talent diversion has left an aging pool of manufacturing managers nearing retirement, with too few trained replacements in the pipeline. Today, companies in core sectors (steel, chemicals, automotive, etc.) report an “acute shortage” of senior management talent as they expand operations. At the shop-floor level, manufacturers also face a skills mismatch – many workers and diploma-holders lack the practical training for modern machinery and quality control processes. Employers often have to invest in months of in-house training, or poach skilled staff from competitors, which again raises costs. The abundance of unskilled labor thus masks a real constraint: a shortage of skilled operators and capable managers who can drive productivity improvements.

Federal Structure - Uneven Terrain

India’s federal setup means business rules can vary greatly from one state to another, creating an uneven playing field for manufacturers. Important areas like land acquisition, electricity distribution, labor regulation, and local taxation are influenced by state policies. Some states have been reform-minded – each pursuing independent agendas – while others lag behind. This patchwork can be confusing and inefficient. A factory in Gujarat, for example, may deal with more investor-friendly labor laws and faster land approvals than one in, say, West Bengal or Uttar Pradesh. Incentives like tax breaks or easy permissions also differ by state. As a result, companies often “state-shop” for the most convenient location. Certain nationwide reforms get held up or diluted because they require consensus across states. The recent push for cooperative federalism aims to reduce these disparities. But until that happens, India offers not one business environment but many. For manufacturers operating across multiple states, this means adjusting to varying compliance regimes – a drain on time and resources.

The Sum of the Parts

The main issue you’ve already covered is that land is super expensive, but it’s not just inflation driving up prices. Corruption and middlemen play a big role too as they push up costs way beyond the actual value. On top of that, some land deals are politically sensitive. A change in government can mean approvals get reversed or renegotiated. Different states have their own rules, and when you mix that with central laws like the Land Acquisition Act, it just adds to the confusion.

If the land is near forests, tribal belts, or eco-sensitive areas, then you need a whole set of environmental, rehabilitation, and resettlement approvals. These can take years. Even converting farmland into industrial land isn’t easy and the approvals are long and costly.

Water is another big hurdle. Industries like steel, chemicals, and textiles need a ton of it, but with scarcity and local communities also depending on the same resources, it often becomes a flashpoint.

Environmental clearances are another headache. Pollution control approvals vary from state to state, and sudden changes in rules can delay or disrupt operations.

Law and order issues make things worse. Local protests by farmers, NGOs, or political groups can drag on and even force companies to put projects on hold.

Kusharg Katal (second generation entrepreneur currently setting up his factory)

Individually, none of these barriers would be a mortal blow to industrial growth. But together they form a systemic drag that keeps Indian manufacturing in a low-equilibrium trap. These issues feed on each other – costly land and power make large-scale production less viable; small firms then don’t invest in skills or innovation; weak infrastructure and legal enforcement deter big investments, and so on. It is thus not surprising that manufacturing’s share of the economy has stagnated despite India’s vast workforce and market. Breaking out of this trap requires tackling multiple constraints in concert. If India were to even partially fix a handful of these roadblocks – say, make electricity reliable, streamline land and labor laws, and improve logistics – the impact could be enormous. Investor confidence would rise and many firms currently content to stay small might rapidly scale up. In short, the whole is worse than the sum of the parts, but that also means removing several key hurdles at once could unlock a virtuous cycle of investment, scale, and competitiveness that has so far eluded India’s manufacturing sector. 

Why Services Succeeded Where Manufacturing Struggled

Current Global Realities

The world has entered a turbulent new phase of trade and geopolitics. For India, that means both risk and opportunity. Whether it seizes the moment depends on how it navigates the complexities.

Geopolitics and the "China‑plus‑1" gap

India briefly looked poised to capture the "China‑plus‑1" opportunity. Apple’s Q2 2025 data shows that 44 % of iPhones imported into the U.S. were assembled in India, compared with just 13% a year earlier, while China’s share plunged from 61% to 25%. That shift reflects global efforts to diversify supply chains.

Yet this window is narrowing fast. The U.S. imposed steep new tariffs-up to 50 %-on a wide range of Indian exports, including textiles, gems, and machinery, is a shock to the system. Many observers see this as the biggest trade hit facing India in decades. As a result, exporters are scrambling and some foreign firms are reevaluating their India investments. India's response includes emergency financial packages and redirecting exports toward markets like Latin America, China, and the Gulf.

Technology and automation leveling the playing field

The narrative that India’s advantage lies in low-cost labour is becoming outdated. Automation, robotics, and digital manufacturing systems now matter more than ever. These technologies favour economies that offer stability, infrastructure, and regulatory predictability. India must shift its pitch accordingly: it needs to sell reliability and systems capacity, not just wage competitiveness. 

…the manufacturing sector is held back by twelve barriers - from costly land and rigid labour rules to unreliable power, high logistics costs, and weak integration into global value chains. Each is solvable, but only if addressed in concert. This is where entrepreneurship matters: founders building in automation, clean energy, supply chains, and advanced materials are showing us how to bypass old bottlenecks and create new competitive advantages. Our conviction is that India’s next leap will come from scaling these solutions - not just to assemble, but to lead in global manufacturing.

Ankit K, founder of Capital A - India’s first manufacturing themes VC Fund and second generation entrepreneur (former promoter direct at Manjushree Technopack Ltd.)

Climate policy and carbon tariffs

Europe’s Carbon Border Adjustment Mechanism (CBAM) is moving from concept toward enforcement. Goods like steel, aluminum, cement, and chemicals will soon face carbon levies unless exporters can prove low-carbon production. For India, which still relies heavily on fossil-based power, this poses a growing cost disadvantage. The expectation is to remain competitive in green-tech or energy-intensive exports…India must accelerate its transition to cleaner grids and more transparent emissions reporting.

Shifts in domestic and regional strategy

And of course, India is not standing still. Under frameworks like "Make in India" and the “National Critical Minerals Mission,” policymakers are pushing both industrial diversification and raw material self-sufficiency. The electronics and semiconductor sectors are expanding rapidly - India now assembles Pixel smartphones and AirPods and is building multiple chip fabs and OSAT facilities. These moves help boost industrial resilience amid a more fractured global trade environment.

At the same time, initiatives like the Supply Chain Resilience Initiative (SCRI), involving India, Japan, and Australia, are creating new avenues for regional integration and supply‑chain diversification.

In Brief 

India cannot afford to rely on a single engine of growth any longer. It needs a second pillar, and that pillar must be manufacturing.

This will require serious reform. At the national level, India must reduce trade barriers that make inputs expensive and isolate the country from global supply chains. Financial policy needs to deliver affordable credit, especially for mid-sized industrial firms. Labor laws must be restructured to allow flexibility without weakening worker protections. Clean, reliable electricity is a core export competitiveness issue, especially with carbon tariffs becoming reality in major markets.

States must take responsibility for execution. Land use planning needs to support industrial development, with better integration between factories and urban infrastructure. Growing mid-sized cities into industrial hubs will create jobs where they are needed most. Law enforcement and local governance must ensure that contracts are respected and property rights protected. No investor builds for the long term in a low-trust environment.

Beyond institutional reform, India needs a shift in mindset. For too long, policy has treated smallness as a virtue. Industrial policy has protected fragmentation, often at the cost of productivity. This approach is no longer viable. Scale, specialization, and global competitiveness are what matter in today’s manufacturing world. Policymakers must enable firms to grow, compete, and lead in global markets.

Finally, India must lean into global integration. That means welcoming foreign capital in manufacturing, not just in consumer tech and finance. It means easing cross-border movement of talent, simplifying trade rules, and creating enforceable legal structures for international commercial relationships. Global investors are looking for alternatives to China. India has the scale and the ambition to be that alternative - but scale alone is not enough…trust, predictability, and execution are vital.

The window of opportunity is open, but it will not remain so indefinitely. 

Sources:

How Asia Works: Success and Failure in the World's Most Dynamic Region by Joe Studwell

What Ails Indian Manufacturing? | Episode 104 | Everything is Everything