Windmill Capital Investor Letter — August 2026 Edition
August was the month the macro took a back seat. Inflation stayed above target, the fiscal deficit widened, and industrial output slowed. None of that did the real damage. Two boardroom shocks did, landing in the same week and pulling the large-cap indices down while midcaps and smallcaps went the other way entirely.
Here’s what happened, and why it mattered.
Markets Last Month 🔦
1. The Month Two Home-Grown Shocks Outweighed the Macro
Indian stocks ended August lower, giving back July’s gains, as two separate stock-specific shocks accounted for most of the losses. The Nifty 50 dropped 1.24% for the month and the Sensex fell 1.46%. Smaller companies went their own way entirely: the Nifty Midcap 100 and Smallcap 100 both finished higher, beating the large-cap indices by a wide margin. Sentiment was also worth noting. The India VIX fell 4.95% during the month, suggesting investors did not panic even as the headline indices slipped.
The two shocks hit almost at the same time. N. Chandrasekaran resigned as Tata Sons Chairman, which led to a group-wide selloff; TCS fell 4–5%, wiping out about $4.6 billion. Separately, HDFC Bank’s securities-fraud class actions became a regular market concern for the rest of the month. That created an unusually persistent drag from a single stock, especially since HDFC Bank is one of the index’s largest components.
The broader economic situation did not help. July’s CPI was 4.45%, staying above the RBI’s target for the second month in a row, which led the central bank to warn that it might tighten policy if inflation remains high. The fiscal situation also worsened: by the end of June, India’s fiscal deficit was 18.2% of the full-year budget estimate, or ₹3.08 lakh crore, up from 17.9% a year earlier. The deficit had almost doubled from 9.6% at the end of May, mainly because government spending increased sharply near the end of the quarter even though revenue stayed mostly on track. Industrial output growth slowed to 6.7% in July from 7.3% in June, the clearest sign of weaker domestic growth during the month.
Ownership trends were an important underlying factor. Foreign institutional investors held a record low of about 17% in the Nifty 500, while domestic institutional investors reached a record high of about 21%. This ongoing tug-of-war throughout August likely helped the index absorb the bad news without falling further.
Markets rose in July despite rising geopolitical tensions, helped by strong first-quarter earnings and investors willing to overlook rising crude oil prices. In August, the boost from earnings faded, and two unexpected shocks hit: one at Tata Sons, one at HDFC Bank. Both hit in the same week as renewed Middle East tensions and higher-than-target inflation, the market had nothing left to cushion the blow. Geopolitical events and company-specific governance issues remain the biggest factors driving Indian markets, and India does not fully control either.
2. Tata Sons and Beyond: A Month of C-Suite Departures
Corporate India was shaken by the sudden exit at the top of the Tata Group. When N. Chandrasekaran resigned as Tata Sons Chairman on August 14, it triggered a sharp reaction across the group’s listed companies. TCS alone lost about 4–5% in value, erasing an estimated $4.6 billion from the market.
Tata was just the most prominent example of a wave of leadership changes this month. At Godrej Consumer Products, CEO Sudhir Sitapati resigned. Delhivery also made changes after reporting a 65% year-on-year drop in Q1 net profit, promoting Vani Venkatesh to Deputy CEO as COO Ajith Pai left. HEG Limited experienced a near-total leadership turnover, with its CEO, CFO, Chairman, and MD all stepping down at once.
Governance issues led to two further incidents. Rashi Peripherals shares fell nearly 19% after an independent director resigned over governance concerns, and Softtech Engineers lost both its company secretary and compliance officer.
The last major update came from HDFC Bank, which had already been in the spotlight due to securities-fraud lawsuits throughout August. On August 31, CEO Sashidhar Jagdishan said he would not seek reappointment when his term ends on October 26, stepping down after almost 30 years at the bank.
3. The Capex Supercycle: Coal India Leads, Metals and Power Follow
India’s capital expenditure boom was headlined by Coal India’s ₹1 lakh crore transformation plan, announced on August 27. This was the largest capex announcement of the month, with ₹48,000 crore set aside for rail connectivity and ₹50,000 crore for coal gasification. Coal India is also expanding into renewables, aiming for 3 GW by FY28 and 9.5 GW by FY30, including integrated battery storage. The company has set up a new Singapore subsidiary, CIL Global Pte Ltd, to secure critical mineral assets overseas.
Other metals companies are expanding rapidly too. JSW Steel is targeting 80 million tonnes per year of capacity by 2031 through partnerships with JFE and POSCO. Adani Enterprises announced an $11.5 billion aluminium project in Odisha, and Hindalco added ₹768 crore of capacity at Kuppam.
In the power sector, JSW Energy has added 1,166MW of renewable and 300MW of thermal capacity since April, and has raised over ₹4,000 crore in long-term loans to support its 32.1 GW renewables portfolio. The government is supporting this momentum with a ₹10,000 crore investment plan for power and green energy, and the Cabinet has approved ₹13,041 crore for rail and highway projects.
4. From Orders to Execution: India’s Defence Manufacturers Widen the Field
India’s defence manufacturing sector continued to grow in August, building on the momentum we covered in June (Guns, Orders, and Outperformance: Indian Defence’s Breakout Month).
Garden Reach Shipbuilders announced a ₹2,670 crore expansion to increase its capacity for building warships up to 200 metres and commercial vessels up to 60,000 tonnes, preparing the company for upcoming bids on next-generation destroyers and electric ferries. Cochin Shipyard secured an order from CMA CGM to build six LNG-powered containerships for delivery between 2029 and 2031, and delivered its third locally made Anti-Submarine Warfare craft to the Navy, with 80% of its components sourced in India.
Bharat Electronics signed an agreement with Ananth Technologies to jointly develop electronics for missiles, radars, and satellites. BEML received a ₹184 crore order for Light Combat Helicopter fuselage structures, Zen Technologies won a ₹295 crore order from the Ministry of Defence for simulators, Yantra India committed ₹750 crore to new forging plants aiming for ₹69 crore in annual profit, and Bharat Forge added ₹681 crore in defence orders, raising its order book to ₹11,200 crore.
HAL did not keep pace with the sector and was publicly criticised by a former Air Force Vice Chief for delays in delivering the Tejas Mk-2 and Mk1A. As the sector’s order book grows, the main challenge is shifting from winning orders to delivering on them.
5. India’s EV Makers Kept Their Foot on the Gas
India’s local EV companies had one of their best months in a while.
Hero MotoCorp saw a 22.7% rise in Q1 volumes, with EV sales jumping 151% year-on-year. The company also confirmed plans to triple its EV capacity to 45,000 units a month by the end of FY27. Ola Electric, often criticised for its losses, reduced its Q1 loss to ₹336 crore on August 8, even though revenue fell by 45%. Two days later, Ola signed an MoU with Axis Energy to build up to 20GWh of grid-scale battery storage by 2032, and introduced its “Ola Mahashakti” platform on August 15. TVS Motor expanded internationally, launching its iQube electric scooter in Kenya on August 14. Mahindra Last Mile announced plans to double production capacity with eight new EV models, with an IPO possible within the next 12 to 18 months.
The picture abroad is harder. AESC, a Chinese-owned battery maker that operates the UK’s largest gigafactory in Sunderland, has paused its expansion plans after talks to supply Jaguar Land Rover fell through and demand from Nissan came in lower than expected. That setback underlines the tougher EV market conditions for JLR in developed countries, even as Tata Motors’ mass-market EV business in India continues to grow.
🦉 Windmill Wisdom
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📚 Bookmarked By Windmill
🎙️ Podcast: State Equity in AI Companies
In this episode of All Things Policy, the daily podcast from the Takshashila Institution, host Arindam Goswami and Bharath Reddy discuss the Indian government’s small equity stake in Sarvam AI, which it received in return for a compute subsidy through the IndiaAI mission. Reddy compares this to Sam Altman’s idea of giving the US government a stake in OpenAI, but says the Indian situation is riskier. The same ministry, MeitY, sets the AI rules, decides who gets subsidised compute, and now also owns equity.
He explains why the idea of AI as a “strategic sector” does not work the same way as it does for banking or refining, and how early-stage deep tech is better supported by repayable advances or milestone-linked grants rather than equity. They also cover how much of the compute mission’s budget is actually being used, which is much less than the headline ₹10,000 crore, and whether the focus on AI is taking funding away from other important new sectors.
Worth listening to for anyone interested in how India’s industrial policy can be helpful, and where it might create conflicts of interest as the government gets more involved in venture-style investments.
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