Next multi-baggers will come not from momentum or leverage, but from patient compounding in businesses that scale with India’s domestic demand, Siddharth Mehta, founder & chief allocator (CIO) of Bay Capital, tells Nesil Staney in an interview. He also speaks about regulatory reforms, FPI stance on India, fund flows, and emerging themes in Indian markets. Excerpts:
Is financial netting needed in Indian markets?
Absolutely. Allowing financial netting for FPIs is a natural next step in the maturation of Indian markets. It would enhance efficiency, reduce transaction costs, and improve liquidity — all of which ultimately deepen participation. As India integrates further with global capital markets, regulatory frameworks must evolve to reflect the sophistication of our investor base. FPIs, at present, are long-term allocators of capital, not just traders. By facilitating netting and risk management mechanisms, India signals confidence in its institutional framework and encourages more stable foreign participation.
Beyond currency value, what drives FPI flows? How does India compare now to other EMs?
Beyond currency, capital flows are driven by growth differentials, governance quality, policy stability, and institutional credibility. On all these fronts, India stands out. Our risk-reward profile – strong nominal GDP growth, fiscal prudence, a deepening domestic investor base, and credible monetary policy – now is among the most attractive globally. Many emerging markets are dependent on commodities or cheap exports, India’s growth is broad-based and consumption-led, giving it structural resilience. FPIs see India not as a tactical EM overweight, but as a core, strategic allocation — a place where capital compounds sustainably over time.
FPIs sold $18 billion and invested $5 billion in IPOs this year. How do you see this trend in 2026?
This dichotomy reflects a rotation, rather than a retreat. FPIs are exiting crowded, fully-valued segments of the secondary market and reallocating into new-age, primary market opportunities where India’s structural story is still unfolding. It also signals growing confidence in India’s entrepreneurial ecosystem — investors are backing founders and sectors that represent the next decade of growth. By 2026, as rates stabilise globally and earnings visibility improves, we expect FPI flows to broaden — not just into IPOs, but into quality listed businesses as well.
What are the emerging themes in the Indian economy, and how will Bay Capital capture them?
India is in the midst of a once-in-a-century formalisation of its economy — a generational shift driven by digital infrastructure, aspirational consumption, and the rise of domestic manufacturing. We’re most excited about digitisation of services, premiumisation and brand India, financialisation of savings and growth of domestic manufacturing. Bay Capital is positioned across these themes through long-term holdings in consumer, financial services, technology-enabled, and domestic manufacturing leaders — that reflect the new India in motion.
How are regulatory and structural reforms influencing your investment strategy?
Reforms are not noise for us — they are the foundation of our investment thesis. Over the past decade, measures such as GST, IBC, RERA, and digital public infrastructure (UPI, Aadhaar, ONDC) have created a cleaner, more transparent economy. We invest ahead of reform cycles — identifying the sectors and business models that will gain disproportionate advantage once the system resets. For example, financial inclusion reforms created opportunities in fintech; infrastructure reforms unlocked logistics and manufacturing efficiency; and governance reforms elevated the quality of corporate India.
How are current valuations; what are your top sector picks; and where would investors find multi-baggers at this level?
Valuations are mixed — headline indices look fair to rich, but dispersion beneath the surface is significant. Large-caps are priced for stability, mid-caps for growth, and small-caps often for dreams. We see real opportunity where earnings visibility and capital discipline coexist — particularly in consumer brands, niche manufacturing, and financial services that serve India’s expanding middle class.
In unlisted markets, quality private companies are commanding high valuations, but we still find selective opportunities in founder-led, capital-efficient platforms that are profitable or close to breakeven. The next multi-baggers will come not from momentum or leverage, but from patient compounding in businesses that scale with India’s domestic demand.
What is your vision for Bay Capital over the next decade? Are you exploring new opportunities within and beyond asset management?
Bay Capital’s vision is to be the most respected long-term owner of Indian businesses — a trusted partner to entrepreneurs, institutions, and investors globally. Over the next decade, we will expand across three dimensions:
- Deepening our India public equities platform, with an emphasis on enduring franchises.
- Building out our private investments capability, backing businesses at the intersection of India’s consumer and digital revolutions.
- Creating an ecosystem of thought leadership and intellectual capital around India — through research, writing, and partnerships — so that Bay Capital becomes not just an investment firm but a lens through which global investors understand India.
Beyond asset management, we’re exploring opportunities that align with our philosophy of long-term value creation — from education and sustainability to cultural ventures.
How do you assess the growing alignment between domestic and global investors when it comes to India?
The alignment has never been stronger. Domestic investors now provide a structural bid for Indian equities, reducing volatility and creating a stable base for foreign capital.
Global investors, on the other hand, increasingly view India through the same long-term lens that domestic investors have always held — as a growth story driven by demographics, productivity, and governance, not mere cycles. This confluence is healthy: it brings discipline, liquidity, and diversity of perspective to our markets.
Are you seeing a convergence in how both sets of investors evaluate Indian opportunities, or do you believe local insights still offer a meaningful edge in identifying value?
While global frameworks for valuation and governance are converging, local insight remains the ultimate edge. Understanding India requires an appreciation of its nuances — how policy, culture, and consumer behavior intertwine. Data alone doesn’t capture it. Experience, relationships, and context do. At Bay Capital, our advantage lies in that on-the-ground understanding of India’s structural shifts, combined with a global investment discipline. That duality — local insight with global standards — defines our success.
How do you balance short-term caution with long-term conviction in your portfolios?
Volatility is not risk; permanent loss of capital is. We view volatility as a friend to the long-term investor — a source of opportunity rather than anxiety. Our discipline is rooted in deep research, concentrated ownership, and patience. We invest with the mindset of owners, not renters of capital. When markets are euphoric, we lean on valuation discipline; when they are fearful, we rely on conviction built from years of understanding our businesses. In essence, we stay humble in the short term and steadfast in the long term — that’s how compounding works!