A perfect storm

Even before the Iran war erupted around late February 2026—now in its third week—Indian equities were already struggling. Over the past 12 months, the Nifty 50 has delivered negative returns in USD terms (around -4% to -13% depending on exact endpoints, with the Nifty 50 USD index showing clear underperformance). Global investors, facing a combination of high valuations earlier, slowing domestic momentum, and now geopolitical shocks, have been in full exit mode. FPI outflows have accelerated sharply this month alone.

For the average investor, the natural question is straightforward: What now? Keep SIPs running into equities? Pause fresh investments until the dust settles? Or actively trim exposure and wait for clearer skies?

The honest answer: It depends heavily on your time horizon, risk tolerance, liquidity needs, and overall portfolio construction. A young investor with a 10+ year view might see this as noise in a long bull cycle. Someone nearing retirement or with high leverage might need to act defensively right away.

That said, everyone should recognize the same reality: India appears headed into a genuine "perfect storm" this summer. Multiple headwinds are converging, and they could compound each other in painful ways.

1. Energy Shock from the Middle East Conflict

The ongoing war has kept crude above $100/barrel for extended periods, with Brent hovering in the $100–104 range amid Hormuz risks and supply disruptions. India, still importing ~85–88% of its oil needs (even with recent diversification), faces a direct hit. Higher energy costs feed straight into inflation, widen the current account deficit (potentially by 0.4–0.5% of GDP per $10/bbl sustained rise), pressure the rupee (now near record lows around ₹92.40–92.50), and squeeze corporate margins in fuel-sensitive sectors. Logistics costs rise, consumption softens, and government subsidies could balloon if retail fuel prices aren't fully passed through.

2. Monsoon Risk from Emerging El Niño

Weather agencies (IMD, NOAA, others) are signaling a high probability of El Niño developing by mid-2026, potentially in the first or second half of the monsoon season. El Niño years often bring deficient or erratic rainfall in India—sometimes 10%+ below normal. Coming on top of fertilizer and agro-chemical shortages triggered by Middle East disruptions, this could deliver a double blow to rural India: lower output and higher input costs. Rural incomes would suffer, food inflation could spike again, and overall consumption demand (which drives ~60% of GDP) would weaken further.

3. Growth Slowdown and Fiscal Strain

Consensus FY27 growth expectations have already softened from 7%+ pre-conflict to around 6.5–7% if oil stays elevated for quarters. Slower investment and consumption, combined with fiscal pressures (weaker tax buoyancy, higher subsidy outgo), limit the government's room to stimulate. Export growth faces headwinds from global slowdowns, tariffs, and logistics issues in the region.

4. Balance of Payments Vulnerabilities

This is perhaps the most underappreciated risk right now.

·         Import bill swells from energy inflation.

·         Remittances (~$50bn+ annually from the Gulf, ~3–3.5% of GDP) face downside if instability forces job losses or returns among the 9+ million Indian diaspora there.

·         Exports to the region slow.

·         Capital outflows continue as FPIs sell amid uncertainty.

A 2013-style BoP scare isn't the base case yet, but sustained high oil, remittance hit, and weak inflows could push the CAD toward 2.5–3% of GDP or worse, adding rupee depreciation and tighter liquidity.

Bottom Line for Investors

Caution is warranted—full stop.

This isn't the time for aggressive bets or leverage. Focus on these principles:

·         Avoid leverage entirely in this environment—margin calls and forced selling amplify downturns.

·         Prioritize sustainability and solvency when picking stocks: strong balance sheets, low/no debt, consistent cash flows, and pricing power to pass on costs. Growth at any price looks riskier now.

·         Diversify thoughtfully: Don't abandon equities, but consider tilting toward defensives (FMCG, pharma, utilities) or quality large-caps that can weather storms.

·         Build dry powder: If you're sitting on cash or fixed-income buffers, that's fine—opportunities often emerge after volatility peaks.

·         Stay invested if you can afford to wait: For long-term SIP investors with no near-term needs, systematic accumulation through dips has historically rewarded patience in India.

Markets hate uncertainty, and right now uncertainty is high. The storm may pass faster than feared if de-escalation happens, or it could linger and test resolve. Either way, protect capital first—preservation sets the stage for future compounding.

Stay sharp, review your allocations, and let’s see how the next few weeks unfold.

Where India stands in the Iran war

India's stance in the ongoing Middle East conflict is shaped by two core realities: acute economic exposure, particularly to energy supplies and markets, and the need for deft foreign policy maneuvering to maintain strong relations with the United States, Israel, and Iran without alienating any key partner.

Though not a direct participant, India has deep strategic and economic stakes that have drawn New Delhi into active diplomacy with all sides. The government has pursued a classic hedging strategy—balancing deepening security and technology ties with the US and Israel, while preserving longstanding energy and connectivity links with Iran and engaging Gulf allies such as the UAE, Saudi Arabia, and Oman.

New Delhi has avoided full alignment with any camp, consistently calling for de-escalation, dialogue, and the unimpeded flow of trade through critical routes like the Strait of Hormuz to safeguard its energy imports. This reflects India's broader evolution from strict non-alignment to flexible multi-alignment, forging partnerships with major powers while safeguarding strategic autonomy.

Economic Impact

The conflict is already imposing significant costs across several channels.

Energy Security Risks

India relies on imports for about 85–88% of its crude oil needs, with the Middle East traditionally accounting for roughly half (though recent diversification has routed ~70% of crude outside the Strait of Hormuz). For LPG, around 60% of consumption is imported, with ~90% of those volumes transiting Hormuz—primarily from Qatar and other Gulf states. Any prolonged disruption or blockade could sharply curtail supplies of crude, LPG, LNG, and key chemicals/aluminum/ feedstocks, threatening energy security.

Sustained high oil prices (currently above $100 per barrel, with Brent around $104) are fueling inflation, widening the current account deficit, and exerting downward pressure on the rupee. Industrial sectors dependent on imported raw materials—chemicals, fertilizers, and others—face production bottlenecks, while agriculture could suffer from higher input costs. LPG shortages would hit millions of households and small businesses that rely on it for daily cooking.

Financial Markets and Investor Confidence

Equity markets have declined amid the uncertainty, with foreign portfolio investors accelerating outflows that were already underway. The rupee has weakened to multi-year lows (around ₹92.50–92.60 per USD in mid-March), amplifying import costs and debt-servicing burdens.

Remittances and Employment

The Gulf hosts millions of Indian workers, whose remittances—exceeding $50 billion annually—bolster India's external accounts. Instability risks job losses, reduced flows, and safety concerns for the diaspora. Indian companies with substantial revenue from Gulf markets (goods, services, construction) are seeing contracts delayed or canceled.

Potential Role in Reconstruction

India's established presence in the region positions it well for post-conflict infrastructure and energy rebuilding projects, though it will face stiff competition from China.

Net Economic Impact

The combined pressures—inflation, currency depreciation, trade disruptions, and remittance risks—threaten to dampen growth. Rough estimates suggest that every $10 per barrel increase in crude prices widens the current account deficit and inflation by 40–50 basis points while shaving 30–40 basis points off GDP growth.

Foreign Policy Implications

India's strategic autonomy is under real test. Stronger security and technology cooperation with the US and Israel coexists with the need to protect historic ties with Iran—vital for energy diversification, Chabahar port access, and regional connectivity.

Stability remains paramount: safeguarding the diaspora, keeping sea lanes open, and preventing logistics breakdowns all require nuanced diplomacy rather than picking sides in a polarized conflict.

Which Outcome Serves India Best?

A diminished US role in the region could, in theory, foster greater autonomy among Gulf states, open East-West trade corridors, and reduce over-reliance on any single superpower.

Yet such a shift carries risks: a power vacuum might breed instability, empower non-state actors, and drive even higher energy prices—outcomes that would harm India's interests far more than any short-term geopolitical gain.

Iran remains important for India's long-term diversification (potential oil/LNG supplies, Chabahar linking to Central Asia). A fractured Middle East would likely compound economic setbacks through sustained high oil prices and supply volatility.

In essence, India is wisely maintaining a neutral, diplomatic posture to protect its energy security, economic stability, and strategic flexibility. Prolonged instability would impose net costs far outweighing any hypothetical benefits from a weakened US presence or an Iranian setback. 

The war and beyond

For the past 17 days, a significant and highly intense conflict has unfolded in the Middle East. This war is multifaceted, encompassing military strikes, counterattacks, intricate narratives, and propaganda from all sides. The aggressors in this war are the United States of America (U.S.) and the State of Israel, while the defender is the Islamic Republic of Iran. While the U.S. is a secular state, under President Donald Trump, there have been calls to promote a stronger Christian identity. Israel, as a Jewish state, and Iran, an Islamic state, have starkly different ideologies but share a long history of religious and political conflicts rooted in their common Abrahamic heritage.

The relationship between Israel, the U.S., and Iran has been contentious for decades. A key event in this ongoing tension was the 2025 military confrontation between Israel and Iran. On June 13, 2025, Israel bombed Iran’s military and nuclear sites, killing several military officers, scientists, and civilians. After 12 days of intense fighting, the U.S. mediated a ceasefire.

However, the current conflict cannot be reduced to religious differences, counter-terrorism, or self-defense. Instead, it appears to be part of a broader U.S. strategy to:

·         Control the global energy market and key trade routes,

·         Maintain geopolitical and economic supremacy over Russia and China, and

·         Prevent the rise of autonomous economic powers in the Middle East.

With Iraq’s military power decimated and Pakistan’s strategic assets severely weakened during Operation Sindoor, Iran remains the only truly independent and potent military power in the region. The ongoing Russia-Ukraine conflict has also highlighted Western Europe’s energy vulnerabilities, further underscoring the importance of controlling energy resources and strategic trade routes such as the Suez Canal, the Strait of Hormuz, and China’s Belt and Road Initiative (BRI). Achieving this would give the U.S. a decisive edge in global geopolitics.

Despite the theoretical strength of this strategy, its implementation has not been without complications. The first major setback came when coalition forces killed Iran’s Supreme Leader, Ayatollah Khamenei, on the first day of the conflict. This act, combined with the bombing of a school that killed 160 young girls, has galvanized Iran’s resolve and transformed the war into a religious struggle. The death of Khamenei has united the Iranian people under the banner of Islamic radicalism, while also making Arab support for the U.S.-Israel coalition increasingly uncertain. Meanwhile, the attack on the school has severely damaged international opinion, particularly in Europe, where anti-coalition sentiments are rising. Even President Trump faces mounting criticism domestically. Most NATO allies have so far refused to join the war despite repeated calls by President Trump.

The Current State of Affairs

As of now, the war shows no signs of de-escalating soon. While the intensity of attacks may subside as military resources dwindle, the broader conflict appears far from resolution. Additionally, several key trends are emerging:

·         Global Economic Crisis: The war threatens to spark a global economic crisis, driven by energy inflation and severe logistical bottlenecks reminiscent of the economic disruptions seen during the Covid-19 pandemic.

·         Middle Eastern Impact: Countries like Qatar, Bahrain, UAE, Kuwait, and Iraq, caught in the crossfire, are witnessing widespread infrastructure damage and suffering reputational harm as secure havens.

·         Israel’s Vulnerability: Israel, long considered militarily invincible, has reportedly sustained significant losses to both its infrastructure and military forces, leading to a reassessment of its invulnerability.

·         U.S. Economic and Security Costs: The U.S. has sustained considerable losses, both in terms of military assets and economic costs. The long-term implications could be far-reaching, with the U.S. facing higher security risks for years to come, as Islamic radical groups seek to avenge Khamenei’s death.

·         Iran’s Dilemma: Iran has lost many key leaders, faced substantial infrastructure damage, and alienated long-time allies like India and Pakistan. Meanwhile, the Iranian prince in exile has called for a popular uprising in Iran, hoping to restore his regime.

·         Russia and China’s Restraint: Surprisingly, both Russia and China have refrained from directly entering the conflict on Iran’s side, although there are reports suggesting they may be providing covert support through ammunition and technology.

Potential Endgames: How Will the Conflict End?

Admittedly, I do not possess even basic qualifications to forecast the outcome of this war. Nonetheless, like any aware citizen, I find it relevant to stay aware of the current situation and make an assessment of the likely outcomes based on my understanding of the various contemporary issues and readings.

In general, wars can end in four main ways:

1.    Aggressor Victory: The aggressor achieves its objectives, replaces the existing regime with a puppet government, and extracts reparations from the defeated enemy. A historical example would be the U.S. victory in Iraq.

2.    Defender Victory: The defender manages to repel the aggressor’s forces, captures or kills key military leaders, and emerges with a strengthened position. Examples include World War II and the 1971 Indo-Pakistani War.

3.    Truce: Both sides agree to a ceasefire, with the aggressor retreating and both parties finding a negotiated resolution. An example of this would be Operation Sindoor.

4.    Stalemate: Neither side wins, but the fighting continues at low intensity, with no formal end to the conflict. The Russia-Ukraine conflict serves as an example.

U.S.-Israel Alliance Victory (Aggressor Wins)

A U.S.-Israel victory could lead to the following outcomes:

·         Regime Change in Iran: Iran’s Islamic regime is overthrown, and a new, U.S.-friendly government is installed.

·         Enhanced U.S. Control over Arab States: The U.S. solidifies its influence in the region, ensuring strategic dominance over vital energy resources and trade routes.

·         Expansion of Israel’s Borders: Israel may continue its aggressive policies in Palestine, potentially annexing more territory and solidifying its position as a regional superpower.

·         Strengthened Economic Sanctions on Russia: With enhanced energy security in Europe, the U.S. could ramp up its sanctions on Russia.

·         Shift in U.S.-China Relations: The U.S. could gain an advantage over China, particularly in the economic and trade spheres.

·         Stabilized Energy Markets: As the conflict subsides, energy prices may stabilize, albeit at a higher baseline.

Iranian Victory (Defender Wins)

An Iranian victory could result in:

·         Revenge for Khamenei’s Death: Iran avenges the death of its leader by targeting top figures in Israel and the U.S.

·         Iran’s Rise as a Regional Power: Iran assumes a dominant role in the Middle East, uniting other Islamic nations and taking control of energy resources and trade routes.

·         Peace with Palestine: Israel may be forced to negotiate with Palestine, leading to a resolution of the longstanding conflict.

·         Empowered Radical Groups: Groups like Hamas, Hezbollah, and the Houthis could gain territorial control in key areas such as Palestine, Lebanon, Yemen, and Syria, destabilizing the region further.

·         U.S. Withdrawal from Iraq: The U.S. could lose its influence in Iraq and be forced to pull its military out of the region.

·         China’s Rising Influence: China may step in as the new protector of the region, offering military and economic support to rebuild Iran and other conflict-ravaged nations.

·         Surging Energy Prices: Iran’s control over energy routes could send oil prices skyrocketing, triggering a global economic crisis.

·         Ukraine yields to Russia’s demands: The NATO funding of Ukraine defense comes under pressure. Ukraine is forced to strike a deal and yielding control of some territories to Russia.

Truce (Mutually Agreed Ceasefire)

A truce could result in:

Restoration of the Status Quo: The parties agree to a ceasefire, and the conflict ends without significant territorial changes.

Continued Tensions: While fighting ceases, the underlying tensions remain high, and the region faces ongoing risks of further conflicts.

Shift in U.S. Influence: U.S. influence in the region may diminish, while Israel faces increased diplomatic isolation.

Regional Reconstruction: Reconstruction efforts in Israel, the UAE, Bahrain, Qatar, Iran, and other affected countries would begin.

Stabilized, Yet Elevated, Energy Prices: Although energy prices may stabilize, they will likely remain elevated due to increased security risks.

Stalemate (Low-Intensity Conflict)

A stalemate would lead to:

Continued Uncertainty: The conflict would drag on at a low intensity, with no clear victor.

Weakened U.S. Alliances: U.S. allies in the Middle East may begin to distance themselves from Washington, seeking their own political and economic strategies.

U.S.-Russia Diplomacy: With the conflict unresolved, the U.S. could seek a diplomatic resolution with Russia, easing tensions in other areas.

Pressure on NATO: The U.S. and NATO’s support for Ukraine may dwindle, leading to concessions with Russia over disputed territories.

While it is impossible to predict the exact outcome of this war with certainty, the evolving situation requires close monitoring. This war could potentially be the most defining moment in post-WW2 history.

I encourage readers to share their predictions and continue to stay informed.

 

Tomorrow: Where does India stand in this conflict

 

Lessons from market cycles – Chapter 5

The years after the 2008 global financial crisis – from 2011 to now in 2026 – have been packed with big changes for financial markets worldwide.

The 2010s started on shaky ground:

·         The world was still recovering from the GFC. Globalization faced pushback. Europe's debt crisis worsened in countries like Greece (with “Grexit” talk), and the UK moved toward Brexit. Ultra-low interest rates and massive money printing (quantitative easing) in rich countries sparked fears of new asset bubbles and soaring commodity prices.

·         Gaps between rich and poor nations grew as aid dried up. The Arab Spring, Gaddafi's death, and Bin Laden's killing reshaped the Middle East. Immigration surged from poorer to richer countries. Protectionism and nationalism – forces that had faded after World War II – came roaring back. (Around 2011)

·         IBM's Watson won Jeopardy! in 2011, signaling the start of the AI revolution.

As the decade rolled on:

·         China overtook Japan as the world's second-largest economy in 2012 and helped launch the BRICS-backed Asian Infrastructure Investment Bank (AIIB) in 2013. Russia annexed Crimea in 2014. The UK voted for Brexit in 2016.

·         AI made huge leaps with deep learning and big neural networks (2013–14). AlphaGo beat a top human Go player in 2016.

·         Donald Trump became US President in 2016–17, sparking a US-China trade war from 2018 that slowed global growth.

·         Trust in traditional money wobbled a bit; cryptocurrencies caught on with everyday investors (2017–18).

·         The 2015 Paris Agreement kicked off serious climate action, boosting renewables fast.

Then came the end-of-decade shock:

·         COVID-19 hit in 2020, crashing economies and markets. Supply chains broke. Governments and central banks poured in record stimulus to avoid depression.

The post-COVID world looks different:

·         Inequality widened. Geopolitical fights grew fiercer and longer. Protectionism and nationalism shape policies more than ever.

·         Asset prices bounced back hard; stocks hit records. But central banks reversed course – hiking rates and tightening money.

·         Trust between countries eroded further. Russia invaded Ukraine in 2022, spiking energy and food prices. The Israel-Palestine conflict escalated in 2023. In 2025, India and Pakistan fought a short four-day conflict (May 7–10) after a terrorist attack in Kashmir triggered India's Operation Sindoor missile strikes. Then in early 2026 (starting February 28), the US and Israel launched major strikes on Iran (Operation Epic Fury / Roaring Lion), killing Supreme Leader Khamenei and others in a push for regime change, with Iran retaliating across the region – creating huge uncertainty in the Middle East.

·         AI large language models like GPT-3 went mainstream in 2022. Massive spending on AI data centers followed. Doubts grew about traditional IT services' future, and job losses sped up.

All these events reshaped markets, capital flows, policies, industries, and global power.

For Indian investors, this period brought its own ups and downs:

·         India handled the 2008 crisis fairly well thanks to earlier growth. But in 2013, a “taper tantrum” (US Fed signaling less QE) triggered capital outflows, plus high oil/gold imports and a weak rupee pushed the current account deficit to a record 6.7% of GDP. India was labeled a “fragile” economy – but RBI and government steps fixed it fast.

·         2014 brought a stable majority government after 25 years.

·         Demonetization in 2016 (scrapping high-value notes) hit small businesses hard and slowed growth.

·         GST rollout in 2017 added pressure on the unorganized sector.

·         COVID lockdowns in 2020 crushed SMEs and informal jobs again. Organized large firms gained market share. Government ramped up welfare support, straining the budget.

Stock market impacts:

·         These shocks weakened small/micro businesses. Bigger organized players took share. Many family businesses sold out to corporates or PE firms. Jobs got scarcer in some areas. Work-from-home spread. All this pulled millions of households – especially younger people – into regular stock investing.

·         Government boosted capex with big infra projects (roads, railways), plus incentives for manufacturing (chemicals, electronics, renewables) and defense amid global tensions. Theme stocks in these areas soared, often ignoring valuations.

·         New companies with unproven models launched IPOs at high prices.

·         Recently, geopolitical risks, sticky inflation, higher rates, and doubts about the financial system pushed gold and silver prices up sharply. Many investors shifted away from their planned mix to buy more metals.

·         But corporate capex and profits haven't met hopes. Government spending fell short too.

·         Higher US yields, a weakening rupee (hitting 89–92/USD range by early 2026), stretched valuations, and limited direct AI/semiconductor plays drove record foreign outflows (~$18 billion in 2025 alone).

·         After euphoric post-COVID years, markets disappointed newcomers. Many theme/momentum stocks corrected sharply. Gold/silver turned volatile below peaks. Even bonds underperformed.

·         The hardest hit were momentum-driven stocks popular with retail investors – when liquidity dried up, prices plunged with few buyers. This is classic: fast-rising assets on hype and easy money fall hardest when mood shifts. No single big event caused the recent correction – just stretched valuations, crowded trades, and a slow global macro change. When everything's priced for perfection, small letdowns cause big reactions.

My final lesson from all these cycles

Stick to a solid asset allocation plan. It's not about maxing returns every year – it's about matching your risk comfort, cash needs, and long-term goals through ups and downs.

Rebalance regularly and calmly. View equity dips (especially in good companies) as chances to allocate more for the long run, not panic signals. Keep fixed income and gold at planned levels – don't overload on fear.

Markets reward patience and discipline far more than chasing the latest hot theme or reacting to headlines. The best investors stay steady when others chase or flee.

This is the concluding part of the series. I will be happy to receive readers’ comments; especially if someone wants to share his/her experiences and lessons learnt from them.

Also read

Chapter 1

Chapter 2

Chapter 3

Chapter 4

Lessons from market cycles – Chapter 4

The first decade of the 21st century was one of the most remarkable periods since World War II.

It started with big shifts:

·         The internet was quickly becoming part of everyday life. Trade, commerce, payments, and settlements were moving online and getting much faster.

·         The 9/11 attacks on New York's World Trade Center in 2001 changed global security forever. NATO took a zero-tolerance stand on terrorism. Internal security rules tightened everywhere. In 2003, the US and allies invaded Iraq and toppled Saddam Hussein's regime after 24 years in power.

·         China joined the World Trade Organization (WTO) in 2001, opening global markets to its products. With huge scale, advanced tech, and low-cost labor, China built massive trade surpluses with almost every country. It exported low prices (deflation) worldwide and lent money cheaply to developed countries to cover their fiscal deficits. China's economy accelerated, driving a big chunk of global growth.

·         Meanwhile, the global economy slowed sharply. World GDP growth dropped from 4.5% in 2000 to about 2% in 2001 and 2002. Stock markets crashed, and house prices fell in many places. To fight the slowdown, central banks and governments cut interest rates hard, made borrowing easier, and ran bigger deficits.

By mid-decade, all that cheap money created a huge credit bubble, especially in the US and parts of Europe:

·         Banks had plenty of cash and lent aggressively. Asset prices – especially homes – shot up.

·         Lenders invented ways to hide risky loans. They gave "subprime" mortgages to people with bad credit histories – often with teaser rates that later jumped, and little paperwork. Banks bundled these risky loans into mortgage-backed securities (MBS) and sold them to investors, offloading the danger while making more loans. They created even more complex products like collateralized debt obligations (CDOs) to spread risk further – without anyone fully understanding the dangers.

·         Rating agencies gave many of these high safety ratings anyway, misleading buyers.

·         In a low-interest world, investors chased higher returns and bought in, assuming house prices would keep rising forever.

·         Stock and bond prices soared. People borrowed heavily to invest. The painful lessons from the dot-com bust were quickly forgotten.

Toward the end of the decade, cracks appeared:

·         Early 2007 saw defaults at smaller US banks. By mid-2007, "subprime" was headline news, but traders kept betting big.

·         In September 2008, Lehman Brothers, a large US based investment bank, collapsed, triggering panic selling worldwide. Over the next 18 months, stock markets crashed globally. Banks failed or needed massive bailouts.

·         Several European countries (especially, Portugal, Italy, Greece, Spain – infamously nicknamed PIGS) teetered on sovereign default; some got IMF rescues.

·         The global financial system froze for weeks. Many compared it to the 1929 Great Depression.

·         Major economies coordinated to restart lending. Emerging markets gained respect – the old G-7 expanded to G-20. The world recognized China's manufacturing power, India's IT strength, Russia's energy, and Brazil's commodities. The "BRIC" idea (coined by Goldman Sachs in 2001) became a popular investment theme. Stocks bottomed in March 2009, but Europe's debt crisis dragged on until around 2013.

In India, the story had its own twist:

After the 1998 nuclear tests and sanctions, the government pushed big infrastructure projects like the National Highways Development Program (NHDP) and opened up more sectors to private and foreign investment.

·         Global cheap money flowed in. Rules relaxed for FDI in roads, steel, oil & gas, mining, telecom, aviation, power, cement, and real estate.

·         Companies borrowed abroad cheaply, often without hedging currency risk (assuming the rupee would stay strong or rates low forever).

·         Many big firms jumped into unrelated businesses: telecom, roads, power plants, metro rails, even windmills for tax breaks.

·         Smaller and midsized steel companies grabbed mining leases for coal and iron ore. Banks lent enthusiastically.

·         New “valuation” buzzwords appeared: “land bank,” “order book,” “MW under construction,” “road kilometers,” “proven reserves”, etc.

·         “Projects were built assuming decades of demand growth – ignoring near-term reality. Banks didn't worry much about cash flow to repay loans.

·         Then reality hit. Demand fell short. Courts cracked down on shady allocations (spectrum in telecom, coal/mining rights canceled). Cash dried up. Many road, power, steel, mining, telecom, and cement projects defaulted. Bank bad loans (NPAs) exploded, especially at public-sector banks. Credit and new investment froze. Growth slowed sharply. Several of the top-100 companies lost 80-100% of their value, wiping out investors.

The lesson I took away:

“Growth potential” matters in valuing a company, but it's not enough on its own. Survival comes first. Cash flows and the ability to stay solvent cannot be ignored in the rush to grow.

That episode reminded me once more: When money is too easy and everyone chases the next big thing, the cleanup is painful. Real progress needs discipline, not just dreams.

Also read

Chapter 1

Chapter 2

Chapter 3