A Potential Market Reform That Could Lead To $460 Billion In Long Term Inflows Into Indian Equities? "Our idea is to open India's market for the world" – this was the statement by a minister at the recent Bloomberg conference. In India, liberalising market access for overseas retail and high net-worth investors, along with a CGT (capital gains tax) exemption is, the ultimate policy prescription for a bold reforming government/regulator. Think about this: an overseas retail investor (who is not NRI), has little practical ability to trade or invest directly in the India market. It is unrealistic to expect an individual investor to go through the foreign investor (FPI) process, get a PAN card (tax ID) etc. It’s just not the reality in other markets: you can set up with any broking platform and trade Hong Kong and Australia at the touch of a button. The number show this. Right now, there is only around 536 crores (~$60 million) of foreign equity assets held by individuals (FPI Cat II), compared to roughly $697 billion held in total by FPIs in equity, per depository data. It’s as good as zero. To estimate, on the back of envelope, what the net long-term inflow into India could be, one can look at the ownership structure of the market. Indian individual investors own about 44 lakh crore (~$460 billion) of NSE stocks as of June end. Isn’t it reasonable to assume that foreign investors could own a similar amount? There are 100s of well governed, liquid and highly investible companies in India. For context that type of inflow is 3.5x the lauded USD/INR forex swap window (FCNR/B), which was introduced presumably to help to arrest rupee decline, among other things. When you combine this market reform with 0% CGT, you then do away with all the tax steps and impediments required during the FPI process. From a geopolitical point of view, broadening the investor base brings with it soft power, further market recognition and a small overseas retail base with a non-influencing stake in Indian development. It's also what other markets allow... Any pushback?

The sell side is often accused of kowtowing to corporates and chasing investment banking business at the expense of research quality. Yet, Macquarie India over the years has produced a few highly independent, outspoken voices in research and sales - Suresh Ganapathy is one of those, in my view. (See examples attached) My hope would be that he is able to drive the business forward with an impactful, fearlessly independent research agenda and inspire others. This is a tall order given the commercial pressures that exist, but if someone can do it, it is Suresh. The market would be better because of it.

The Indian closing auction system is an example of positive policy reform, but we must accept it will take time... Over the years, I had many conversations with academics studying closing auctions and looking at the weaknesses of VWAP30. There will be some wild prints at close over the next few days, as liquidity will take time to migrate into CAS and as participants behaviour changes. Overall, this is good policy development, and it's myopic to write it off after 2 days.

Here’s an industry secret that few publicly acknowledge in Indian markets. I’ll give you a *hypothetical* example today: 1. Large firang fund buys mid-cap stock in India. They’re of the AUM (size) where they can move stocks short term. 2. Employees of that firang fund call up all their institutional buddies in the market to buy the stock. 3. Employees of the fund speak to IR, IR then proceeds to tell other funds and brokers that foreign fund has bought or is buying. 4. Suddenly virtually all of the institutional market is talking about that fund buying; holders and brokers jump in to fuel the story. 5. Nothing has fundamentally changed at the company: no announcements, no earnings or major press. 6. Stock ramps up, maybe doubles in a short space of time(?), and the firang fund gets some exit liquidity from bagholders who want to buy. I’m observing this modus operandi for many years. Is it allowed?

Sure - a Tax & STT reduction will help, but where are the blue sky capital market reforms? We need policy mavericks out there willing to advocate for bold reform for the benefit of the whole market. Can't you be one of them @Nithin0dha A few of my personal ideas for whatever little it is worth: 1) Liberalised and streamlined regime for foreign retail investors? I'd love to invest, but no thanks to going through the lengthy FPI registration process to make retail size investments. Nothing would boost volumes or goodwill more than this. 2) Allow FPI/MF to intraday trade to promote cash market liquidity. Make cash great again. Why can you trade F&O intraday but not cash as an FPI, for example? 3) Create stock lending pools at FPI/ODI issuers, by allowing OTC stock borrowing/synthetic access. (Complex topic, DM me) 4) Allow gross custodian funding for FPIs and even broker funding for well capitalized intermediaries (...no, not just for failed DVP trades) in order to create capital efficiency for investors. 5) Create an after hours cash market to help overseas/domestics to manage overnight risk and spur round the clock trading? (To the 8-4pm brokers: a couple of hours a week on rotation will be good for you :)) 6) Futures - given the focus on the linear market, why not allow futures on every BSE 500 stock or more? (Look at the US, nearly every company has listed options) 7) Local Funds- I have friends running PMS/AIFs. The cost is attractive versus other jurisdictions, but they feel suffocated by the bureaucracy. So much to learn from some of the overseas fund jurisdictions, where private funds can be setup with minimal compliance burden and tax efficiency. 8) Allow unsponsored ADRs/GDRs (perhaps in a trusted jurisdiction, FTA countries?). This would helps create visibility for Indian companies and a wider audience. Full fungibility on all ADRs/GDRs would also help some current companies. I'll add more as I think of them. Frankly, fund managers, brokers, should take a lot more interest in these market reform topics: your livelihood depends on it...It seems like people are afraid to put their head about the parapet though.

2bps cap on commissions, is it “anti-local”? I was asked by a few about SEBI’s proposal to cap local mutual fund cash equity trading commissions at 2bps in India (barely above the cost of execution in the market and almost half that of rack commission rates in Europe). Here are my thoughts: At a high level, there’s a lot of clapping and applauding that this is a move good for investors in mutual funds - it isn’t. There is still value that the “sell side” (brokerages), including sales and sales traders *can* bring. Sure, there are many awful brokers that add precisely zero value, or maybe even negative value in some cases (refer front running cases and leakage discussion). Yet there are sales people and sales traders out there who add value: finding difficult liquidity with minimal impact (sometimes even reducing market impact by 5-10%), better execution, excellent market colour and analysis, algo selection, and trade timing, to name a few. I can say this with confidence after having dealt with nearly the entire breadth of the institutional sell side in India. Let me give you one clear example of why a local fund paying 2bps or less will probably end up costing investors a lot more and be counterproductive: Let's say you are an investment bank (broker) working on a large investor sell-down, looking for buyers. This could be 5, 10, 20, even 100x daily trading volume in the stock. Are those sales traders/salespeople at an investment bank really going to give the first call / preference to [Insert Local Mutual Fund] versus a host of other local and foreign clients paying between 5 to 15bps for execution (maybe even 7-8 times more)? It's just basic commercial sense. In this proposed state of the world, local mutual funds become the "last call", or maybe brokerages simple just say send your flow down the DMA pipe, you'll get zero high touch coverage (including block liquidity) and zero value-add from our trading/sales desks. Bizarrely, this is probably a great thing for foreign investors (hedge funds and long onlys etc). Offshore investors are going to see all the best liquidity from the sell side, get the best allocations in secondary market block deals, be first to hear interesting market colour and analysis etc. The impact on brokerages and research is going to be significant (we have a historical precedent in Europe after MIFID). I would be surprised if local mutual funds compensate an 80% cut in the commission cap with spend on research. Ultimately, “you get what you pay for”.

On the occasion of Diwali, I wanted to share my firm (Augurium) has made a small investment in micro-cap CakeBox (CBOX LN, £89 Million market cap) – the eggless and vegan cake franchiser in the UK after a long time tracking it. Here's my thesis: -The biz has averaged 10% underlying/adjusted EPS growth, 20% revenue growth over the last 5 years. -In March 205, CBOX acquired one of the most well-known mithai (South-Asian sweet) retailers in the UK called Ambala. This could add another £15-20m to revenue next year, £2-3m EBIT in my eyes. - The company seems to have stabilized/cleaned up from previous internal control/accounting issues in 2022 (new CFO, accounting review & restatements). Definitely worth monitoring and a risk factor. - CBOX has grown stores consistently, from 133 in 2020 to 251 in 2025, with a medium term target of 400 stores - Personally I’m looking out for: 1) New franchises (does Ambala have international potential like CBOX?) 2) Commentary on the Ambala/Cake Box fusion products (Gulab Jamun Cupcakes anyone?) 3) Scale-up of home delivery (they don’t break this out anymore and its included in online sales, but it still looks to be early innings with the delivery aggregators) - At 20x FY26 estimated earnings, the stock would trade at 286p, implying ~60% upside from current levels Happy Diwali to all!

Was yesterday's fact finger block trade and subsequent volatility avoidable...? Fat finger trades like the Clean Science & Technology trade in India, can happen and do happen across all markets but there is nuance here around blocks... In India, large discounted block transactions like yesterday's error have to be transacted "live" on the market. Apart from the fact that this gives other market participants the opportunity (and incentive) to interfere in the order book, the process is always going to be chaotic and fraught with risk as the broker is trying to execute while prices are moving and sending orders directly to the exchange. I have seen the risks because I have had to do it. In my mind, it's absurd that 24% of the company has to be executed through a live order book. Like the CLEAN block yesterday, this can not be done in the current block window: - The block was priced more than 1% discount (currently the limit for India's block window) - The two block window sessions last for 15 minutes and don't cover the whole trading day. Arranging blocks is a dynamic process. This was done after the open. It would be better to allow participants to trade blocks away from the order book in India without the current restrictions, like nearly every single other major market.

Nice to see my earlier tweet mentioned in a Bloomberg article on the Jane Street order by @matt_levine From a market development perspective, there are many blue-sky reforms that can transform cash equity volumes in India and restore much needed balance between cash and options. bloomberg.com/opinion/newsle…

From a policy perspective, the Jane Street saga in India brings many questions to the fore about market development. Participants in India have moved into convex (read options) products at the expense of a deeper and more liquid cash market The reason Jane’s Street strategy was ostensibly so effective is due to the discrepancy between cash market and options volume. In essence, the alleged manipulation is facilitated by the volume mismatch between the two markets. You may ask, why is that the case? 1) In 2018, SEBI mandated physical settlement in futures. Remember futures are linear in pay-off without the convexity of options. Previously futures were trading multiples of the cash market. Most retailers have long been familiar with the simplicity of the pay-off here (re: the old badla system) 2) As SEBI acknowledges, intra-day cash trading is not allowed by foreign institutions. In other markets, there are many family offices, prop shops and hedge funds that trade intra-day with non HFT strategies. They can bridge (arbitrage) inefficiency. 3) The SLB (Securities Lending & Borrowing) market is not deep, and there are several hurdles to creating a deep borrow pool. This would add to the counterbalance to deliberate stock market ramps in the cash market. 4) Intra-day cash leverage was significantly curtailed after SEBI’s 2019 circular, which limited intra-day leverage in cash markets on transactions. This again is a deterrent to such manipulation discussed. 5) In 2020, SEBI reduced margin requirements on options spreads. This was not a bad thing per se, but crimping cash volume in favour of options seems an interesting policy choice. Of course, High Frequency Trading (HFT) manipulation is a problem and enforcement action should proceed whether it goes, but this saga should also be a wake-up call for promoting, both in absolute and relative terms, a deeper and more diverse cash market.

Infollion is obviously tiny by comparison, $6m topline in FY 2024 and Profit After Tax of just over $1m. -5-

There are number of large expert networks globally including GLG, Thirdbridge & Guidepoint, however these are not publicly listed. In fact there are very few publicly traded expert networks, which makes Infollion's decision to IPO in 2023 quite unique. -4-