---
title: "Zooming Out: India’s Long-Term Opportunity Through the East Asian Growth Lens | Quarterly Newsletter - December 2024 / Q3 FY25"
period: "Q3 FY25"
published: 2025-01-31
modified: 2025-01-31
url: https://equitreecapital.com/insights/newsletters/december-2024
markdown: https://equitreecapital.com/insights/newsletters/december-2024.md
authors: ["Pawan Bharaddia", "Ssuneet Kabra"]
publisher: "Equitree Capital Advisors Private Limited"
language: en-IN
---

# Zooming Out: India’s Long-Term Opportunity Through the East Asian Growth Lens

Quarterly Newsletter, December 2024 / Q3 FY25. Published 31 January 2025 by Equitree Capital. About 12 minutes to read. Web version: https://equitreecapital.com/insights/newsletters/december-2024

> Quarterly Newsletter published 31 January 2025. Figures are as of the dates stated in the letter and are not updated after publication.
> Performance data has not been verified by SEBI. Past performance is not indicative of future returns.
> Current performance, with its as-of date and benchmark: https://equitreecapital.com/pms
> Performance relative to other portfolio managers in the same strategy: APMI, https://www.apmiindia.org/apmi/IaInsight.htm?IAID=407
> Not investment advice, an offer or a solicitation.

> The four most dangerous words in investing are: ‘This time it’s different.’
>
> Sir John Templeton

Dear Investors,

We’re pleased to share **Equitree Capital’s Q3 FY25 results and insights**. While the broader markets dipped in December 2024, Equitree Capital not only weathered the storm but emerged stronger than ever:

• We have also **surpassed ₹500 crore AUM**, staying purely focused on small and micro-cap opportunities, reinforcing our unwavering investment discipline.

This performance arrives at a time when **77% of the stock universe is trading at least 20% below their 52-week highs**[1].

## Our Performance

| Investment Period | 1 Month | 3 Months | 6 Months | 1 Year | 2 Year | 3 Year | 5 Year |
| --- | :---: | :---: | :---: | :---: | :---: | :---: | :---: |
| Emerging Opportunities | 7.20 | 6.65 | 18.39 | 51.17 | 64.77 | 41.26 | 43.09 |
| BSE 500 TRI | -1.50 | -7.79 | -0.74 | 15.81 | 21.04 | 15.36 | 19.06 |
| Outperformance | 8.70 | 14.44 | 19.13 | 35.36 | 43.73 | 25.90 | 24.03 |

As of December 31, 2024. Returns are computed on a TWRR basis, net of fees & expenses, and not verified by any regulatory authority/SEBI.  
Returns over one year are annualized. Source: Nuvama Custodian Services, Equitree Capital[1].

Since the end of December, markets have become increasingly volatile: **the BSE 500 benchmark Index has corrected 4.2%, while our Emerging Opportunities PMS saw only a 0.8% decline (as of January 21, 2025)**. Moreover, the BSE 500 Index is **down 13% from its 52-week high, whereas our fund has fallen just 6%** — showcasing the resilience of our portfolio companies even in the *micro-cap* space.

Our disciplined approach to **staggered buying** has proven beneficial. Investors who joined us in **H2 2024 initially held 30–40% cash**, which is now being **systematically deployed into high-conviction ideas**. As long-term investors, we remain patient for ideal entry points and methodically scale into both new and existing holdings.

We’ve also maintained a **cautious stance on valuations** for several quarters. In our **[Q4 FY24 newsletter (March 2024)](https://equitreecapital.com/insights/newsletters/march-2024)**, we warned about frothy pricing in select segments and **anticipated a market pullback**. Now that the correction is materialising, our cash position is being put to work in businesses that we believe offer **substantial upside over the next few years**.

Rather than reiterating the valuation narrative, we take this opportunity to **zoom out and explore India’s long-term growth story** — drawing parallels with nations that once stood where India does today and have since evolved into global powerhouses.

## India’s Long-Term Opportunity

> Study the past if you would define the future.
>
> Confucius

## 01. Zooming Out: India’s Long-Term Opportunity

History offers valuable lessons on how **emerging nations** can transform into economic juggernauts. **China, South Korea, and Japan** took distinct paths but shared key strategies — **manufacturing, exports, and infrastructure**. Their macroeconomic indicators provide a lens to assess India’s growth story.

### 1A. Laying the Groundwork: Bold Reforms & Vision

China, Japan, and South Korea each embarked on transformative policy overhauls to **catalyse long-term development**. While their contexts differed, they converged on **four essential pillars**:

| Major Reforms | China (Post-1980) | Korea (Post-1962) | Japan (Post-1952) |
| --- | --- | --- | --- |
| Foreign Trade & FDI | “Open Door Policy,” Special Economic Zones; JV incentives for MNCs | Export-driven approach; Joint ventures; Gradual FDI liberalisation | Trade pacts with US / EU; Technology licensing from Western firms; GATT membership |
| Domestic Manufacturing | State-led push in industrial hubs; Low-cost labour advantage driving scale | Chaebol-led heavy industry (steel, shipbuilding, semiconductors) | Centralised industrial strategy; Auto & electronics modernisation |
| Export Orientation | Electronics, apparel, consumer goods as key drivers; Export growth fuelling infra-investment | Shipbuilding, electronics, automotive as export engines; Aggressive global marketing | High-quality manufacturing; Rapid rise in consumer electronics |
| World-Class Infrastructure | Massive spending on ports, highways, high-speed rail; Over 40% of GDP on infra in some years | Highways and ports; 1988 Seoul Olympics spurred infrastructure upgrades | Post-war rebuild: bullet trains; extensive road/rail networks |

Major Reforms across China, Korea, and Japan. Source: Ministry of International Trade and Industry[2].

Through a blend of **government incentives, strategic capital allocation, and corporate alliances**, these economies laid robust foundations that supported years of growth. These strategic reforms also brought challenges — **rising inequality, environmental costs, and economic dependencies** that required continuous adaptation.

### 1B. Production-Driven Growth

Major economic powers achieved rapid growth by **opening up to global markets, prioritising exports, and supporting domestic manufacturing** with subsidies, tax incentives, and infrastructure investments. This strategy created a **virtuous cycle**:

[Diagram. Drawn on the web page: https://equitreecapital.com/insights/newsletters/december-2024#global-playbook]

Stages: Manufacturing Expansion → Job Creation → Rising Wages → Transition to High-Income Status

Engines of growth are built on manufacturing strength. Over decades, we’ve seen:

[Chart: Country Wise Output (% of the World). Share of global manufacturing output across the East Asian growth cycle, 1970 / 2000 / 2020. Drawn on the web page: https://equitreecapital.com/insights/newsletters/december-2024#global-playbook]

Series: 1970, 2000, 2020.

Source: CEPR.org; Foundation for Economic Education[3].

• **China** scaled from **3% to 35%** in five decades — an export-led manufacturing flywheel built on economies of scale.  
• **Japan** climbed from **9% to a peak of 18%** in under thirty years on precision engineering and high-value exports.  
• **South Korea** went from **near-zero to ~3%** through chaebol-driven industrial policy.  
• **India** has crept from **1% to 3%** — small in absolute terms, but the curve is just beginning to bend.

This production-led model also unlocks **technological advancement and workforce upskilling** — further improving global competitiveness.

### 1C. Export Engines: Amplifying Global Influence

By strategically aligning **domestic production with global market demands**, these economies leveraged exports as a **catalyst for rapid expansion**:

• **China:** Started with electronics and consumer goods leveraging cost advantages, then advanced to higher-value products, becoming a global manufacturing leader.  
• **South Korea:** Invested heavily in **R&D** and received strong policy tailwinds, leading in shipbuilding, semiconductors, and automotive industries.  
• **Japan:** Excelled in high-quality exports like automobiles and consumer electronics, dominating global markets by the 1970s through brand loyalty and tech innovation.

| Country | Period | Start → End | Growth Multiple | CAGR |
| --- | :---: | :---: | :---: | :---: |
| China | 1980 – 2000 | $19.41 → $253.09 | 13× | 13.70% |
| South Korea | 1965 – 1981 | $0.18 → $21.25 | 118× | 34.97% |
| Japan | 1952 – 1970 | $1.27 → $22.03 | 17× | 17.16% |

Exports trajectory across the high-growth phase ($Bn). Source: Kellogg Institute — *The Korean Miracle*; Macrotrends[4].

Export-driven growth not only boosted GDP but also facilitated **technology transfers, enhanced global brands, and large-scale inward FDI** — forming a **self-reinforcing loop** that expanded each country’s economic profile.

### 1D. Impact on Wealth Creation: Equity Markets & Beyond

Rapid increases in output and exports typically translate into **soaring corporate profits**, attracting both domestic and foreign investors. Not surprisingly, equity markets in these high-growth nations delivered impressive returns:

| Index | Growth Period | CAGR |
| --- | :---: | :---: |
| Shanghai Composite (China) | 1990 – 2010 | 16.71% |
| Kospi (South Korea) | 1980 – 2010 | 10.35% |
| Nikkei 225 (Japan) | 1950 – 1972 | 19.58% |
| Nifty 50 (India) | 2004 – 2007 / 2021 – 2024 | 34.43% / 14.14% |

Equity index growth across each nation’s high-growth phase. Source: Bloomberg[5].

Market gains often spilled over into property, infrastructure, and household incomes, **culminating in broad-based wealth creation**. This underscores a **fundamental rule**: when GDP and corporate earnings grow in tandem, investors stand to benefit substantially.

## 02. Where Does India Fit In? A Familiar Strategy

### 2A. Major Reforms

Over the past decade, India has methodically implemented **structural reforms** inspired by the East Asian growth playbook. These reforms are now translating into tangible economic gains, **setting the stage for India’s rise as a top-three global economy by 2030**.

| Reform Area | Key Policy Moves (Post-2014) | Impact / Forward Momentum |
| --- | --- | --- |
| Foreign Trade & FDI | Increased FDI limits in defence, insurance, and critical sectors | Strategic tie-ups with global corporations; India emerging as preferred emerging market |
| Domestic Manufacturing | **Make in India** & **PLI schemes** targeting key industries — electronics, pharmaceuticals, EVs | Rising domestic production; India gaining market share in global supply chains |
| Export Focus | **RoDTEP, RoSCTL**, and deeper trade relationships with the U.S. & EU | Strong growth in high-value exports; increased global competitiveness |
| Infrastructure Boom | **5×** increase in capex on roads, railways, and logistics corridors | Improved connectivity, efficiency, and ease of doing business |

India’s post-2014 reform stack and forward momentum. Source: PIB; RBI[6].

### 2B. India’s GDP Growth

Economic history suggests that **emerging economies undergo sustained high-growth phases** when structural reforms align with global economic shifts. India is now in a similar phase:

| Country | High-Growth Period | Average GDP Growth Rate |
| --- | :---: | :---: |
| China | 1980 – 2000 | 7.75% |
| Korea | 1962 – 1981 | 8.27% |
| Japan | 1953 – 1970 | 9.86% |
| India | 2021 – 2024 / 2014 – 2021 | 8.28% / 5.00% |

High-growth periods compared with India today. Source: RBI; Kellogg Institute — *The Korean Miracle*; Yale University — *Postwar Economic History of Japan*; Bloomberg[7].

**India’s GDP growth in the post-COVID period has exceeded 8%, closely aligning with the historical growth trajectories of China, Japan, and South Korea during their formative years.** Prior to the pandemic’s disruption, India maintained a steady growth rate of over 7%.

### 2C. India’s Manufacturing Boom

**Since 1995, India has been the second-fastest-growing contributor to global production**, increasing its share by **2–3%**. As global supply chains look beyond China, India is positioning itself as a **key alternative**.

• **Gross Fixed Capital Formation** — a key indicator of investment in productive assets — has grown at a **CAGR of ~11% post-COVID**.  
• Companies are **raising capital aggressively for expansion**, signalling strong confidence in India’s long-term manufacturing potential.  
• **Global corporations** like *Apple, Samsung, Boeing, GE, Siemens, and Kia* have expanded manufacturing operations in India.

India’s manufacturing sector has **rebounded strongly after COVID-19**, despite temporary setbacks from global supply chain disruptions due to the Russia-Ukraine conflict. This recovery signals the dawn of a **new manufacturing era**, with India poised to become a **top-three global production hub**.

[Chart: India’s Manufacturing Growth (%). Year-on-year growth in manufacturing GVA, FY14 – FY24. Drawn on the web page: https://equitreecapital.com/insights/newsletters/december-2024#india-fit]

Series: YoY growth.

Source: RBI.

### 2D. Targeting Exports: The Next Growth Frontier

Global tensions with China and **declining manufacturing in parts of Europe** have positioned India as a **prime hub for new export-driven growth**.

Multinational industry giants have established **both greenfield and brownfield projects** in the country — bolstering India’s foothold across **electronics manufacturing, renewable energy, defense, textiles, chemicals, and automotive parts**.

Over the past few years, India’s merchandise exports have experienced a **sharp turnaround**:

| Year | 2020 ($Bn) | 2024 ($Bn) | CAGR (2021–2024) | CAGR (2015–2021) |
| --- | :---: | :---: | :---: | :---: |
| India | $314.40 | $437.00 | 14.42% | -1.02% |

India’s merchandise exports trajectory. Source: RBI[6].

**India’s exports are growing at a 14.4% CAGR, a sharp reversal from the -1.02% decline between 2015 and 2021.** This growth is driven by global supply chain shifts as companies reduce reliance on China, along with policy changes like *President Trump’s tariffs* on Chinese goods, which have boosted demand for Indian exports.

> **Takeaway:** Looking ahead, India’s blend of **policy reforms, expanding manufacturing capacity, and export demand** sets the stage for **another decade of robust economic growth**. Notwithstanding short-term setbacks, historical parallels suggest that **countries adopting well-timed economic reforms and leveraging geopolitical dynamics can rise as formidable global players** — offering ample opportunities for both investor wealth creation and industrial advancement.

## 03. Outlook for 2025: Market Dynamics and Portfolio Strategy

After a remarkable rally, the equity markets took a breather as **valuations soared and select Q2 FY25 earnings fell short of expectations**. Since December 31, 2024, the **NIFTY Small-Cap 100 index has corrected ~7%, yet our portfolio is down only 0.8%**, highlighting the benefits of a **staggered buying approach** and **cherry-picking businesses**.

Despite a “mixed bag” in recent earnings, our portfolio comfortably trades at **21.8× FY25E and 16× FY26E PAT**, suggesting room for growth as fundamentals catch up with prices. We have long maintained that **“returns eventually follow earnings,”** a stance reinforced by sharper corrections in high-valuation names lacking strong profit growth. We expect this trend of valuation resets to continue in pockets where earnings disappoint, making **2025 a “stock picker’s market”**.

> **In Focus:** In contrast, our portfolio companies collectively posted a **21% profit increase in the first half of FY25**, showcasing the fundamental strength of our businesses and investment philosophy.

Looking ahead, we are **well-positioned to capitalise on potential market dislocations** with our **16% cash position**. This quarter, we initiated a position in a **telecom EPC firm**, attracted by its compelling macro tailwinds and high entry barriers. Additionally, we have several companies on our watchlist that could be added to our portfolio should they align with our valuation criteria.

### Pulling It All Together

Short-term volatility and sector-specific earnings hiccups cannot obscure the **broader macro opportunity** that India’s evolving growth story presents. As we’ve highlighted, **structural reforms and rising exports have unlocked new drivers of sustainable economic expansion** — mirroring patterns seen in other global success stories. Although corrections are inevitable, **quality companies with healthy balance sheets and robust earnings potential should emerge stronger over the long run**.

We sincerely thank you for your continued trust in Equitree Capital. Our team remains dedicated to navigating market fluctuations with **discipline and conviction**, consistently aiming to **build lasting value** for all our investors.

Should you have any feedback or require further information, please feel free to [reach out to us](https://equitreecapital.com/contact).

Sincerely,

Team Equitree

- Pawan Bharaddia, Co-Founder & CIO (pawan.b@equitreecapital.com)
- Ssuneet Kabra, Co-Founder & CEO (skabra@equitreecapital.com)

## Sources

1. Nuvama Custodian Services; Equitree Capital internal performance and NAV records (December 31, 2024). Returns are TWRR, net of fees and expenses, and not verified by any regulatory authority/SEBI.
2. Ministry of International Trade and Industry — Reform timelines for China (post-1980), South Korea (post-1962), and Japan (post-1952).
3. CEPR.org; Foundation for Economic Education — Country-wise share of global manufacturing output, 1970–present.
4. Kellogg Institute — *The Korean Miracle*; Macrotrends — Country export trajectories during high-growth phases (China 1980–2000, South Korea 1965–1981, Japan 1952–1970).
5. Bloomberg — Equity index growth across China (Shanghai Composite), Korea (Kospi), Japan (Nikkei 225), and India (Nifty 50).
6. Reserve Bank of India (RBI) — Foreign trade, manufacturing, and merchandise export data (post-2014 reform era).
7. RBI; Kellogg Institute — *The Korean Miracle*; Yale University — *Postwar Economic History of Japan*; Bloomberg — Cross-country GDP growth comparisons.

## Disclaimer

This newsletter is prepared by Equitree Capital for informational purposes only and is directed at existing investors of its Portfolio Management Services. It does not constitute investment advice, an offer, or a solicitation to buy or sell any securities.

Past performance is not indicative of future results. Returns are computed on a TWRR basis, net of fees and expenses, and are not verified by any regulatory authority. Individual portfolio performances may vary. Forward-looking statements are subject to risks and assumptions that may not materialise.

Investments in small- and micro-cap equities carry higher volatility, liquidity, and business-specific risks, including the possible loss of principal. Equitree Capital is a SEBI-registered Portfolio Manager. Recipients should consult their independent financial, legal, and tax advisors before making any investment decisions.

This document is private and confidential. It may not be reproduced, redistributed, or published, in whole or in part, without the prior written consent of Equitree Capital.