Betteredge starts the story properly by consulting Penelope's journal (not that Penelope let her dad look through her private journal – she just looked up the dates for him).
Back on May 24, 1848, Betteredge is told by Lady Verinder that Franklin Blake is back in England and will come and stay with them for about a month, until Rachel's birthday party.
Franklin is Lady Verinder's nephew.
Betteredge is excited – he loved Franklin as a kid, and can't wait to see what kind of man he's become.
Franklin Blake's dad is a great lawyer, but has blown through most of his wealth by trying (unsuccessfully) to prove that he's the rightful heir of a dukedom. So now Franklin Blake is still well off, but not nearly as wealthy as he would have been.
The day that Franklin is due to arrive, Rachel and Lady Verinder go out for a drive while Betteredge makes sure everything is ready for their guest.
Then he goes outside for a nap.
He sees a group of three Indians with a little white boy out on the lawn.
He assures the readers that he's not racist, but he figured there shouldn't be wandering entertainers of any race on the property with Lady Verinder out. So he tells them off, and they leave.
A little while later, Penelope comes running up to her father.
She tells him that she was out by the main gate of the property, and she overheard the three Indians asking the little boy to look into a bowl of ink to tell the future.
They asked the boy where "the English gentleman" was, and whether he had "It" on him, and when he was due to arrive at the house.
Penelope assumes that they meant Franklin Blake, and she's worried that they mean to rob him on the road.
Betteredge figures that the Indians were just rehearsing for a magic show, and doesn't take it seriously.
Of course, when Franklin Blake arrives and Betteredge tells him Penelope's story, he takes it more seriously. Franklin believes that the Indians were talking about the Moonstone when they said "It."