A Journey Through the Indian Tech Ecosystem

Rudra “Rudy” Khemani is the founder and chief investment officer of Fourier Capital, a $21 billion global technology hedge fund that is full of STEM-geniuses-turned-investment-analysts.

Kenneth Patel is a freshly minted college graduate and the newest in the 21-member team at Fourier Capital. He graduated this past Friday with honors with a double major in math and computational neuroscience from Yale. He spent the weekend hopping blackjack tables in Vegas; needless to say, he was counting cards together with his friends and they ended in the black.

A long time ago, in a galaxy far, far away, Rudy was also a math major at Yale. He sees something of himself in Ken — the raw processing power, the hunger to make it big in life, the glint in the eye. So, he’s taken him under his wing.

Ken’s first assignment is not an Excel model. It is a plane ticket.

“The world is pivoting,” Rudy tells him, spinning a Bloomberg terminal screen around. “And we are missing it. Our current India exposure is 0.8% of assets under management. That is a rounding error. Go figure out what is cooking.” 

Armed with a Kindle Paperwhite jam-packed with books – everything from Studwell’s How Asia Works to Naipaul’s India: A Million Mutinies Now – he courageously hops on a 16-hour flight from JFK to Abu Dhabi. A 2-hour layover, then another 4-hour flight to Bengaluru: India’s version of Silicon Valley. The mission: get up to speed on what’s going on in the Indian tech ecosystem, and report to the team.

Memo #1

Sub: I just met India’s Elon Musk and he lives up to the hype (mostly)

Until three months ago, India was a battery pack assembler. They imported the cells (the heart of the battery that contains the anode, cathode and electrolyte) from China – companies like CATL and BYD – and just wired them together to fit into EVs. On August 15, that changed: Ola Electric built India’s first factory for battery cells.

I met the founder, Bhavish Aggarwal (by the way, he has written this memo about India’s tech future). He started Ola as a ride-hailing app (think Uber for India), then set up a factory to make electric scooters, and is now backward integrating into cells. I visited their battery innovation center (R&D center), gigafactory (cell factory), and futurefactory (EV scooters and bikes factory).

Given our interest in TSLA, I found it noteworthy that Ola has cracked dry coating for both, anode and cathode (Tesla pioneered dry coating of anode but hasn’t been able to replicate this for the cathode).

Their scale is still tiny though. CATL, one of the largest Chinese battery companies with a 37% global market share in EV batteries, has an annual production capacity of ~400 GWh. Ola has just started 5 GWh.

P.S. Funnily enough for a company making batteries, the biggest risk they face is the ‘double-A risk’, i.e., the Adani-Ambani risk. As I discovered chatting with people across the ecosystem, probably the biggest risk for any technology company in India is the risk that either the Adani group or the Reliance group (owned by the Ambani family) – two of the largest conglomerates in India, often accused of crony capitalism – will enter that industry and obliterate the competition. They’ve done this time and again – Reliance launched Jio telecom and brought about a revolution in India’s mobile data usage.

Memo #2

Sub: The policymakers in Delhi really know their stuff

After visiting Ola, I realised that setting up a multi-hundred-acre factory in the middle of nowhere is not possible without close government interaction. So, curious to figure out how they got approvals and permissions to set up the factory, I headed to New Delhi to meet with policymakers.

I briefly met the “tech minister” Ashwini Vaishnaw, technically the Minister of Railways, Minister of Information and Broadcasting and Minister of Electronics and Information Technology. Phew. 

He’s a true technocrat: a masters in engineering from India’s famous IIT and an MBA from Wharton. He was classmates with Vinod Dham, the father of the Pentium chip, who now also advises the India AI Mission.

He spoke briefly about the government’s vision for making India self-reliant in all aspects of technology, from semiconductors and AI to high-tech railways. His team walked me through how they’re building the entire value chain of semiconductors, from chemicals to materials and chip design to packaging. I could tell that they really knew what they were talking about.

Memo #3

Sub: The sun shines bright in Gujarat

The solar industry in Ahmedabad and Surat (two cities in Gujarat) is quite a sight. Hundreds of factories of all sizes, from the giants like Waaree Solar and Adani Solar to a small MW-scale family business. All of them do the exact same thing: take solar cells made in China, put them onto stringer machines made in China, and place those onto solar glass made in China. The only reason they don’t just import the assembled solar modules directly from China is the import duties (effective burden on modules is ~44% v/s ~27% for cells).

Now, on one view, this is not really building any hardcore, “deep tech” capabilities in the country, since the solar cells themselves are being imported from China. But the government’s standard response – which Joe Studwell’s book How Asia Works corroborates – is that every country (Japan, South Korea, China, Taiwan) starts with low-tech, builds up industry at scale, then gradually moves towards more and more difficult technology.

For what it’s worth, Waaree and Adani have set up pilot factories for solar cells. But industry scuttlebutt says their quality simply doesn’t match that of the Chinese cells – because they still import the silicon from China!

I also went to Sanand, Gujarat, which is quickly becoming the semiconductor hub. CG Power recently inaugurated the pilot line for chip packaging (technically called OSAT – outsourced semiconductor assembly and testing). Like Ola’s battery cell factory, the entire factory is a clean room.

Fun fact: before becoming Prime Minister, Narendra Modi served as Chief Minister of Gujarat for 15 years (equivalent to the Governor of a state). He is often credited with making the state prosperous and business-friendly.

Memo #4

Sub: There is no dearth of funding

I took the Vande Bharat train from Surat to the financial capital Mumbai. It is 100% indigenous tech – aerodynamic nose cone, regenerative braking, collision avoidance systems. It feels like a European train, but it was built at a fraction of the cost.

A random walk down Dalal Street reveals that the financial markets are extremely vibrant. Remember the first chip factory built by CG Power? That company is listed, and it trades at 100 times trailing earnings. Crazy, right? But I guess it shows that markets are willing to pay a premium for the rate of change: not what is today, but what will be tomorrow. 

And the rich valuations afforded by such buoyancy of the capital markets might even incentivise more entrepreneurs to set up deep tech businesses.

Memo #5

Sub: This bootstrapped-unicorn founder-CEO-philosopher works from a village

In Tenkasi, a rural town in the deep south known for its paddy fields and waterfalls, a bootstrapped $1 billion-revenue SaaS company called Zoho is competing with Salesforce and Google.

I spoke to developers building Arattai (India’s homegrown competitor to WhatsApp). The code is world-class, but the cost base is rock-bottom. These engineers didn't migrate to Bengaluru or the Bay Area. They stayed home.

The moat is culture. They aren’t burning VC cash to acquire users; they are profitable. The founder, Sridhar Vembu, wears a ‘dhoti’ and sandals, and tweets about everything from deep tech to the economic models of Japan and South Korea.

Memo #6

Sub: It’s just getting started

As I fly back to NYC, I can’t help but think about how recent everything is – the government-sponsored $12 billion Research, Development & Innovation Fund announced in July (zero-interest loans for deep tech startups), India’s first battery cell factory in August, first semiconductor plant in October, first modular data center factory in November. 

Adani just announced a $15 billion partnership with Google for AI data centers in India. Reliance recently announced an AI partnership with Meta.

Whether this fad takes off structurally or not remains to be seen, but at least directionally, the trend is clear.

I realise that my memos have been mostly anecdotal in nature – a mish-mash of bottom-up case studies. But this is how John Naisbitt did it in his book Megatrends (many of whose predictions have come spectacularly true): by piecing together the micro to figure out the macro. Besides, once it becomes empirical, it will be out there for everyone to see on their Bloombergs, won’t it?