Do it yourself: 2025

Thursday, September 25, 2025

Time to take out your umbrellas

A consistent rise in global equity prices, not accompanied by a matching earnings growth, has raised concerns about the sustainability of current valuations. In particular, the tech sector valuations in US technology have raised alarms. Several reports have highlighted that the market conditions and investors’ sentiments bear a stark resemblance to the dotcom exuberance (1999-2000) period, and as such markets may have already crossed the fairness redline and moved over to the realm of bubble.

In this context, I would like to draw readers’ attention towards two particular reports that I find representative of the analysis advising caution.

“Dotcom on Steroids” by GQG Partners.

First report, titled “Dotcom on Steroids” has been published by GQG Partners, USA. This report draws parallels between the current AI-driven tech boom and the dotcom bubble of the late 1990s, warning of similar risks ahead. The report postulates-

“Today's market, particularly in the tech sector, exhibits dotcom-era overvaluation, with lofty multiples, slower earnings growth, and a weaker macroeconomic backdrop, in our view

We believe today's technology sector no longer represents forward-looking quality due to decelerating revenue growth, collapsing free cash flow, and increasing competition.”

The S&P 500 today trades at 23x TMF EPS—nearly the same as in 2000, but with slower growth (10% vs. ~18% without any stimulus then). Most tech stocks already trade at 1999-like multiples, unlike 1999’s budget surplus, the U.S. now faces fiscal deficits, weakening the backdrop.

The key points analyzed in these reports are as follows:

Rising Capital Intensity

Big Tech’s capex now consumes 50–70% of EBITDA (similar to past telecom and energy bubbles). This undermines the old thesis of tech as “hyper-scalable” with minimal investment.

· Microsoft in 1999: traded at 60x earnings with 35% revenue growth, but took 15 years to recover from the crash.

· Cisco: once the largest company during the internet bubble, driven by over-optimistic growth projections—similar to Nvidia today.

· Today’s valuations (Nvidia, Palantir, ServiceNow) resemble bubble-era extremes.

Penetration driven growth hitting peak

“Most of today's Al capital expenditures are funded by advertising revenue. Digital advertising now accounts for more than 70% of all advertising, so the penetration-driven growth story could be approaching its peak. Morgan Stanley expects the US digital ad industry to grow at a 9% compound annual growth rate (CAGR) from 2025 to 2030-less than half of its 20% CAGR between 2014 to 2019.”

· Heavy dependence on AI-related capex funded by cyclical advertisement revenues makes growth fragile.

· Analysts fear AI giants may be this generation’s “Nifty Fifty”—dominant but overpriced.

Competition landscape changing

During the 2010s, big tech was dominated by monopolies, e.g., Amazon dominated e-commerce, and Google dominated search. This not valid today. All big companies directly compete against each other in the same space. Cloud market is a good example of the deteriorating competitive landscape. This was once a stable three-player market: Microsoft, Amazon, and Alphabet. However, a disruptive fourth player (Oracle) just entered in a big way and is explicitly undercutting peers on pricing by 40%. Adding to the shakeup, CoreWeave-a financially constrained fifth player with an arguably more cutting-edge product-has announced its intention to aggressively gain market share through pricing pressure.

Big tech is now incumbent not disrupter

In the 2010s, big tech were the disruptors. Today, big tech is the incumbent, while Al is emerging as a highly disruptive force. AI winners would be known only a decade or more later, just like the internet era winner (Meta, Google) was declared several years after the bubble burst.

Conclusion: Tech is no longer uniquely superior in growth; risks of poor investment outcomes are high if bought at inflated prices.

Voltage too high, be cautious, Ambit Capital

Second report titled, “Voltage too high, be cautious”, by Ambit Capital, India, cautions that near term growth in the electrification of India theme are more than priced in, but the mid-term risks like risks (slowing demand, BESS substitution, subsidy phase-outs, rising global competition) are not yet considered. It argues that better opportunities may exist outside the tech sector with lower risk and similar returns.

· Post-Covid electrification boom (driven by transmission & distribution demand) created supply-demand gaps and high margins for equipment makers. But these conditions are peaking. Risks are rising beyond FY28 as growth slows, competition intensifies, and margins normalize.

Demand–Supply Outlook

· HV transmission equipment is currently undersupplied, but heavy capacity expansions (transformers, switchgear) will narrow the gap in 2–3 years.

· National Electricity Plan (NEP) targets show >30% decline in installations in FY27–32 vs FY22–27.

· Battery Energy Storage Systems (BESS) will reduce the need for fresh transmission infra post-2028.

· Private capex remains muted (capacity utilisation ~75%).

· PGCIL capex plan accelerates till FY28, then flattens.

Execution Risks

· Land and regulatory delays already caused FY26 targets to be cut.

· Order growth likely to peak in FY26–27, then plateau.

Policy Risks

· Gradual removal of ISTS waivers (inter-state transmission subsidies) will raise RE project costs and reduce transmission demand.

· Shift toward intra-state RE sourcing could hit long-distance transmission growth.

Competitive Landscape

· Local subsidiaries of MNCs like ABB, Siemens, Siemens Energy gained share recently, but global majors (Schneider, WEG, Nidec, Eaton, Delta) are scaling up aggressively. Schneider, in particular, is expanding 2.5–3x capacity in India.

· Export contribution shrinking for most domestic players.

Margins & Returns

· Margins peaked in FY24; price growth moderating.

· RoCE expected to decline.

· Multiples corrected from Sept/Oct 2024 but still downside risks persist.

These two are only representative reports. I find several such cautionary reports on the rising (and unsustainable) high valuations, slowing growth, rising household (retail) exposure to these high valuation stocks and sectors, elevated macro concerns and explosive geopolitical conditions.

As has been the case on every previous occasion, most market participants appear to be believing that they still have some distance to cover before this bubble burst, and they will be able to “exit’ well in time – regardless of the fact that it has never happened in the past.

In my view, the US market bubble is within striking distance of the needle. Obviously, every market in the world will feel the tremor, whenever the US tech bubble bursts. India may be no exception. However, India is much better placed this time compared to 2000, because the Indian markets have been underperforming the global markets for the past one year, FII holdings is now at lowest level since the global financial crisis, speculative activities have reduced materially due to consistent regulatory intervention, Indian markets have insignificant exposure to high-tech sectors like AI, Cloud, semi-conductors etc., and a large part of Indian markets is still reasonably valued (though not cheap).

More on strategy for the Indian markets, next week.

Wednesday, September 24, 2025

Dark clouds gathering on the horizon – 2

Continuing from yesterday...(see here)

Rising uncertainties

In the past one year, global economic uncertainties have intensified, contributing to a marked slowdown in growth projections—from around 3.2% in 2024 to 2.3–3.0% in 2025—amid persistent disruptions that have eroded investor confidence and trade flows. This volatility stems from a confluence of interconnected factors, including policy unpredictability, deteriorating fiscal positions worldwide, and escalating geopolitical tensions, which collectively amplify risks of financial instability and reduced productivity.

Economic policy uncertainty

Economic policy uncertainty (EPU) in the US has surged to levels roughly double its long-term average since 2008, exacerbated by the 2024 presidential election and subsequent shifts toward looser regulation, tax cuts, and aggressive tariffs. These US-centric changes have spiked trade policy uncertainty to record highs in early 2025, prompting front-loaded imports and market volatility, while hindering global investment as firms adopt a "wait-and-see" stance.

Globally, this unpredictability—compounded by inflation divergence and abrupt financial tightening—has led to capital outflows from emerging markets and a broader erosion of business confidence.

Worsening fiscal imbalances globally

Fiscal strains have deepened across both advanced and developing economies, driven by post-pandemic debt accumulation, demographic pressures from aging populations, and reduced fiscal buffers amid tepid growth.

In the US, expected fiscal expansion alongside tariffs has fueled concerns over sustainability, while in emerging markets, declining export revenues and aid flows heighten debt distress risks. Least developed countries face particular vulnerability, with growth slowing to 4.1% in 2025 and fiscal space shrinking due to high interest rates and social unrest from cost-of-living crises. These imbalances threaten medium-term growth, necessitating urgent buffer rebuilding and structural reforms.

Widening Geopolitical Conflicts

Ongoing conflicts in Ukraine, the Middle East, and heightened US-China tensions have fragmented global supply chains, elevated energy and food prices, and introduced unpredictable shocks, ranking state-based armed conflict as the third-highest global risk for 2025.

Geopolitical risks, including cyber espionage, have spiked, disrupting trade (projected to halve to 1.6% growth in 2025), and adding risk premiums to commodities. This fragmentation fosters rival economic blocs, reduces supply capacity, and amplifies inflation, with escalation scenarios potentially driving oil prices 30% above baselines.

Overall, these dynamics signal a shift toward a more shock-prone, low-growth world, underscoring the need for multilateral cooperation to mitigate downside risks and foster resilience. Which unfortunately is not happening. In fact, recent events have highlighted that the global leadership might be progressing in the reverse direction.

The following are some of the noteworthy events giving rise to global uncertainties: Saudi Arab-Pakistan strategic agreement, Israel attacking targets in Qatar; the US demanding possession of Bagram airbase in Afghanistan; Russian jets and drones transgressing into neighboring countries; the US intensifying sanctions on India (penal tariff of 25%, extraordinary fee on H1B petitions; threat to leave Chabahar port in Iran); Iran and threatening other trade partners with sanctions over buying Russian oil; widespread civil unrest in several European countries against immigration policies

Conclusion

· Uncertainty remains elevated globally, though there is some modest easing in financial / macro uncertainty, but not enough to suggest a return to stable, low-uncertainty conditions.

· Inflation expectations are creeping up in the short to medium term, especially over 5-year horizons, though not exploding. Uncertainty about inflation is somewhat contained short-term but more diffuse long term.

· Fiscal deficits (especially in the US) are large and projected to remain so; that is feeding into risk premia and possibly inflation expectations.

· Market interest rates are sensitive to fiscal imbalance: higher debt projections / deficit forecasts are already pushing up yields / forward rates somewhat.

· Global asset prices might be diverging, a little too far, from the economic realities, and therefore, remain susceptible to a sudden and sharp correction.

Tuesday, September 23, 2025

Dark clouds gathering on the horizon

The events of the past two months clearly point towards deteriorating global growth prospects; rising economic uncertainties; and widening geopolitical and trade conflicts. Market participants ought to take note of these dark clouds gathering on the horizon.

Deteriorating global growth prospects

The US economy flirting with stagflation

The US Federal Reserve cut its target interest rate by 25bps to 4%-4.25% last week, after a pause of nine months. The fed officials now estimate two more cuts in the next three months. The Fed decided to continue reducing its securities holdings (Treasury, agency debt, agency mortgage-backed securities) as part of its balance sheet runoff.

· Economic growth has moderated in the first half of the year. Consumer spending is weaker; and housing remains weak.

· Core inflation is still above the Fed target. The Fed Chairman, Jerome Powell, described the rate cut decision as a risk management measure. He admitted that there is tension between the goals of maximum employment and stable prices; because inflation remains too high while employment risks are rising.

· In the Fed's opinion, downside risks to employment have increased. There is more concern about labor market weakness than before. Unemployment has edged up (around 4.3% in August). Job gains have slowed significantly. Reportedly, workers out of work for 27 weeks or longer – rose to 1.9mn in August 2025, up 385,000 from a year earlier. These workers now make up 25.7% of all unemployed people, the highest share since February 2022. Persistent long-term joblessness often signals deeper cracks forming in the labor market. Initial claims for unemployment insurance jumped by 27,000 to 263,000 for the week ending Sept. 6.

Most experts believe that under the current circumstances, the Fed may not venture into aggressive easing. QE may not be a viable option given the inflation concerns and aggressive rate cuts may also not help.

Chinese economy facing slow down amidst structural challenges

China has been a major growth engine for the global economy in the past couple of decades. The engine has been showing distinct signs of fatigues in the post Covid period. The Chinese economy grew 5.3% in the first half of 2025, with 5.4% in Q1 and 5.2% in Q2. Industrial output and fixed‐asset investment are weakening. Retail sales / consumer spendings are soft. Property sector continues to drag the economy. Deflationary pressures are mounting.

Growth is widely forecasted to continue slowing, especially in H2 2025, unless strong policy stimulus revives private spending. Some forecasts expect Q3 and Q4 growth to dip below 5%, possibly closer to 4%. Inflation (especially producer and export prices) being weak is threatening to turn into a wider deflation risk. Real estate sector remains a key risk area — both for financial stability and for overall growth.

Structural challenges

· China’s historical growth model that is heavily reliant on investment, exports, and property, is hitting diminishing returns. Slower labor force growth, aging population, and less efficiency gains also poses a serious structural challenge to the Chinese economy.

· Tightening financial regulations on developers, falling property prices, and declining real estate investment is feeding into weaker household wealth and local government revenues.

· After COVID-19 disruptions and regulatory uncertainty, households demand remains weak and not showing much sign of an imminent recovery.

· Trade tensions (tariffs etc.), shifting global demand, and competition. Export growth has helped in some months, but exports to certain markets have dropped sharply.

European economy showing no signs of improvement

The economic growth in Europe continues to be weak. The European Commission’s Spring 2025 forecast projects ~1.1% growth for the EU overall, and about 0.9% growth in the euro area for 2025 — roughly flat compared to 2024. The deflationary pressures are intensifying. Inflation is expected to drop from ~2.4% to ~2.1% in the euro area in 2025, and further in 2026. Business sentiment in the European economy is weakening, especially among firms exposed to export competition, global trade tensions, and supply chain disruption.

The factors impacting European growth are both cyclical and structural. Therefore, some rebound is expected in 2026, especially if investment picks up and disinflation completes, possibly helping consumer real incomes. However, there is less visibility about improvement in structural factors, in the near term.

Cyclical factors

· After the Russian invasion of Ukraine, energy supply disruptions (especially natural gas) plus high energy prices raised costs for both producers and consumers. Though prices have retraced somewhat, energy components of costs are still significantly higher than pre-pandemic in many places.

· To fight inflation, central banks have raised rates. That increases borrowing costs, weighs on investment (especially in manufacturing, construction), and slows demand.

· Tariffs and trade policy uncertainty (both with the U.S. and more broadly) are hurting export demand.

· Consumer confidence remains fragile: households are still dealing with high inflation (food, energy), rising living costs, and economic uncertainty. That reduces spending.

· Investment cycle is not picking up due to higher cost of capital, uncertain regulatory / policy environments, and energy & supply risks.

Structural factors

· Competition from Asia and China (especially low-cost manufacturers) is squeezing European exporters.

· Shifts in supply chains and demand patterns post-COVID are disrupting traditional trade flows.

· Productivity growth has been sluggish in many European countries, as demographics are worsening and investment in tech innovation has been lagging.

· Regulatory burdens, fragmented capital markets, and slower innovation are holding back private investment and scaling up.

· High energy costs and environmental transition costs also pose competitive disadvantages relative to regions with cheaper energy or more efficient infrastructures.

· Civil unrest in many major European economies is becoming more deep rooted with rising resentment against immigration policies and rising youth employment.

Japanese economy also facing specter of stagflation

Japan’s economy recently contracted (-0.2% in a recent quarter), largely driven by falling exports. Demand from major trade partners is weakening. U.S. tariffs on Japanese goods (especially autos and parts) are hurting its export-heavy industries. Inflation has remained above the Bank of Japan’s target (2%) for some time. Food, energy, and import costs (exacerbated by a weak yen) are contributing to higher consumer prices. Moreover, while inflation is persistent, wage growth has been slower, so real income gains are modest.

Growth is expected to remain modest. Most forecasts point to ~1.0-1.2% real GDP growth in FY2025, assuming global demand holds and domestic consumption strengthens. Fiscal pressures continue to mount as interest costs are rising; resulting in less fiscal space for stimulus or cushioning shocks. External risks (trade, global slowdown, currency fluctuations) also remain elevated. For example, stronger yen is hurting exports; and U.S./China trade policies are adversely impacting demand for Japanese goods.

Two major constraints for the Japanese economy are:

Demographics & labor constraints: Japan’s population has been aging fast, and the working-age population is shrinking. This means fewer workers, more spending on healthcare/pensions, and fewer taxpayers. Labor shortages in certain sectors are putting upward pressure on wages, but this comes with trade-offs (cost pressures for businesses, especially smaller firms).

Monetary Normalization: The Bank of Japan has begun to shift away from ultra-loose monetary policy (e.g. raising short-term rates to ~0.5%, reducing purchases of government bonds / ETFs). This helps combat inflation, but carries risks: higher borrowing costs for companies and government, and stress for debtors.

These two are mostly structural and may keep the growth rate of the Japanese economy under check.

…to continue tomorrow.

Thursday, September 18, 2025

DXY vs USDINR

Since the beginning of the year 2025, the exchange rate of India Rupee (INR) has fallen against the currencies of most of our major partners. Though, USDINR (INR vs USD) is the most keenly watched exchange rate (since a majority of our forex reserves, external debt and external trades are USD denominated), INR has depreciated most against EURO (EUR). The extent of depreciation against Japanese Yen (JPY), Chinese Yuan and British Pound (GBP) is mostly similar.

Notwithstanding the views of the finance minister that “INR is not weakening, but the other currencies are appreciating”, the INR depreciation is a matter of concern to a large majority of Indian investors. Since we are traditionally a current account negative economy, on the net basis, INR depreciation adversely affects the economic fundamentals. Besides, eroding the confidence in the economy, —

· INR depreciation makes many things expensive for the Indian households – appliances, toys, lights, clothes, footwear, medicine, communication, travel, studies abroad, gold, silver, etc.

· A sharp depreciation discourages foreign investors from investing in INR assets.

· The cost of debt servicing rises for the corporates which have taken debt in foreign currencies, impacting the profitability adversely.

On the positive side, it helps the exporters (textiles, IT services, pharmaceuticals, automobile, etc.). In fact, as per various estimates, INR depreciation has overall positive impact on the Nifty50 earnings, as several large companies derive a substantial part of their revenue from export of goods and services. On a lighter note, INR strength might help household budgets of investors, but might not be good for the health of their equity portfolios.

DXY vs USDINR

One question that I am frequently asked, why the exchange rate of INR vs USD (USDINR) is depreciating, while the USD (DXY – a trade weighted index for USD) itself is depreciating?

In my view, it is not a fair comparison. USDINR is a bilateral exchange rate between the USD and INR. Whereas, the US dollar index (DXY) represents a trade weighted exchange rate of the USD against six major currencies, viz., EUR, JPY, GBP, CHF, CAD, and SEK.

Moreover, If USD falls -5% vs EUR/JPY, but INR falls -7% vs USD, then effectively INR is even weaker than USD → hence USDINR still rises.

It may also be pertinent to note that while the trade with the US forms almost one fourth of India's total external trade, India accounts for just 3% of the Us external trade. Hence, comparing USDINR with DXY might not be a good idea.

Why INR is relatively weaker

The rupee isn’t just about the dollar’s global strength — it reflects India’s external balance, capital flows, oil dependency, and RBI policy. So even if the USD is weakening broadly, INR can still depreciate if India-specific pressures are stronger.

Oil prices & trade deficit: India imports ~85% of its crude oil. Higher oil prices mean more dollar demand → rupee pressure.

Capital outflows: If foreign investors pull money from Indian equities or bonds, they convert INR to USD. Even modest outflows can weaken the rupee.

Interest rate differentials: If the Fed is cutting slower than RBI or US yields remain higher, the USD stays attractive for investors vs INR.

Safe-haven flows: During global uncertainty, funds flow into USD and US Treasuries, even if the dollar index is down — EM currencies including INR often suffer.

RBI intervention strategy: Sometimes the RBI allows gradual depreciation to maintain export competitiveness and conserve reserves.

Wednesday, September 17, 2025

Investors’ dilemma - 2

Continuing from yesterday… (see here)

Investors world over are currently faced by a common challenge, viz., divergence of asset prices from the underlying fundamentals. This is particularly true for the investors in equities, precious metals, and treasuries. Nonetheless, they are staying invested, or even increasing their exposure and/or leverage driven by greed or lack of alternatives.

If you take a note of the macroeconomic fundamentals of the top 10 global economies, you would notice that the growth trajectory of most economies is still lower than 2019 (pre-Covid) levels. Though, the growth rate of some emerging markets, like India and Brazil has recovered to the pre-Covid level, on several other parameters like unemployment, fiscal balance etc. these economies are also still struggling to regain even the pre-Covid momentum.

GDP Growth: Most of the top 10 global economies have recovered from the 2020 contraction, but rates remain below 2019 levels in advanced economies due to higher interest rates and geopolitical tensions. Emerging markets like India and Brazil show stronger rebounds.

Inflation: Global inflation has cooled from post-pandemic peaks but remains above 2019 lows in most cases, influenced by energy prices and supply chain issues.

Unemployment: Rates are generally higher than 2019 peaks in many countries, despite labor market resilience. Unemployment issue is becoming structural in several developed European economies, leading to widespread civil unrest.

Fiscal Deficit: Deficits widened dramatically post-2019 due to pandemic related stimulus spending. The current levels are only slightly improved but remain elevated in all economies except China.

Public Debt-to-GDP: Ratios surged across the board due to stimulus; while some stabilization is underway, levels are 20-50% higher than 2019 in most cases, raising sustainability concerns.

If you compare the macro fundamentals to pre-Covid (2019) levels, you would notice that-

· GDP growth rate in Japan, India, Italy, and Brazil exceeds 2019, driven by post-pandemic recovery and some structural reforms. Unemployment has fallen in France, Italy, and Brazil but still remains elevated. Fiscal positions in China show modest improvement from consolidation efforts.

· Advanced economies (e.g., US, Germany, UK) face slower growth and higher inflation than 2019, amid tighter monetary policy. Deficits have widened across nearly all (average +2.5% of GDP), fueled by pandemic legacies and energy shocks. Debt ratios have risen sharply (average +16%), with China and Canada seeing the largest jumps, raising risks of higher interest costs and reduced fiscal space.

· The world economy has grown cumulatively ~25% since 2019, but unevenly—emerging markets like India lead recovery, while advanced ones grapple with aging populations and high debt. Projections suggest stabilization by 2026 if inflation eases further, but geopolitical risks (e.g., trade tensions) could exacerbate deficits.

The challenge for investors’, therefore, is whether and how to align their portfolios and asset allocation with the underlying fundamentals, in order to (i) hedge against a sudden convergence of asset prices and macroeconomic & corporate fundamentals (crash); (ii) preserve their wealth and (iii) manage to earn a positive rate of return.

Given the euphoric market conditions and FOMO pandemic, it is not an easy challenge to meet. Nonetheless, I am working on my strategy to meet this challenge. Would be happy to receive suggestions from my readers.

Tuesday, September 16, 2025

Investors’ dilemma

The behavior of Global markets has always been perplexing for the participants. The past 8-9 months have been no different in that sense. Stock prices, commodities, cryptos, bonds, and precious metals have all moved higher; in many cases without a fundamental case for such an upmove.

Investors who typically manage their risk through diversification, hedging and alignment of their portfolios with economic fundamentals and corporate earnings, usually underperform in this kind of market and have reasons to be disappointed. Some of them, who usually invest on borrowed conviction, surrender to the fear of missing out (FOMO) and indulge in unnecessary churning of their portfolios resulting in violation of their standard asset allocation, and accumulation of momentum assets at high prices, only to regret later.

Traders, on the other hand, ought to love this kind of markets, when most asset classes are moving in one direction, with low implied volatility. Theoretically, in the current state of markets, traders would be limited only by their upfront margin they could afford to put for taking trading positions.

However, this does not appear to be the case, at least in case of Indian investors and traders. Anecdotal evidence suggests, several investors who yielded to FOMO have taken unplanned exposure in international equities, precious metals, and small cap stocks. Traders have also either lost money or made less than par returns due to high realized volatility (though implied volatility remains close to lowest ever levels), erratic sector churning, frequent large move at the market opening (gap up or gap down), and multidimensional news flow, often cancelling each other, e.g., strong GDP number and penal tariff by the US.

Incrementally deteriorating economic conditions, worsening fiscal profiles, elevated stress on financial system, provocative geopolitical shenanigans, worsening demographics, debasement of major currencies, and rising civil unrest and violence in most part of the word, do not augur well for the risk assets (e.g., equities), commodities, and bonds (especially treasuries).

Adding to the persisting geopolitical tensions, anti-immigration protests are taking violent turn in many of the European countries, besides Australia, and the US. A Gen Z coup in Nepal has added a new dimension to the civil unrest by introducing a new template for revolution/anarchy.

Traditional and strong alliances like the US and European Union and the US and Japan, are showing distinct signs of weakening. The probability of a paradigm shift in the global balance of power is becoming even stronger, by the day.

Under the given circumstances, assets totally unrelated to economic conditions and neutral to geopolitical jurisdictions, especially gold and crypto, should ideally be the safe haven refuge. Accordingly, neutral safe havens (gold and crypto) have done exceedingly well YTD2025.

Investor’s dilemma

· Allocation to these apparently safe haven assets, like gold and bitcoin, could not be meaningfully high (say more than 10-15%), in tandem with assets like equities and bonds. At best these can be used as partial hedge, till the issues bothering the global economy and markets get settled. At the end these assets derive value purely from wide acceptance, and not from any intrinsic economic value of their own. This acceptance can diminish in due course, as the global issues driving safe haven demand get settled. It has been the case many times in the past.

· These assets are still priced in USD terms, a benchmark which is under a serious threat itself, and a primary reason for the investors to take refuge in these safe haven assets.

· The equities of countries like Germany and South Korea, which are struggling to avoid recession and facing domestic political crises, are the best performing equities YTD2025. How do investors manage their portfolios based on economic fundamentals?

· There are indications that the US equities (especially tech sector) and private credit may be flirting with the boundaries of the bubble/sub-prime realm. Under these circumstances, a prudent view would be to expect a sudden crash like 2000 or 2008. How an investor incorporates this view in his/her investment strategy is a challenge.

…to continue

Thursday, September 11, 2025

End of demographic dividend approaching fast

The latest Sample Registration System (SRS) report confirms what has been feared for the past few years – Indian population is peaking and Indians are getting older much ahead of the original estimates.

The birth rate (number of new births in a year per 1000 population) has been declining consistently for the past many years, and the trend has accelerated post Covid (2021). The death rate (number of deaths per year for every 1000 population) has slowed down. In fact, the urban death rate has climbed after Covid. The infant mortality rate (number of new born children dying within a year, per 1000 live births) has improved materially in the past one decade, but still remains much below the global standards. Sex ratio also stays adverse for all larger states/UTs.

India's total fertility rate (average number of children that are born to a woman over her lifetime), or TFR, slipped from 2.1 in 2019 to 1.9 in 2023, below the replacement level (ratio required to keep the population level stable) of 2.1. The decline is sharper in cities, where fertility has fallen to just 1.5, compared with 2.1 in villages in 2023.

Declining birth rate, stagnating death rate, high infant mortality and TFR below replacement ratio, and persistent adverse sex ratio, implies that (i) India’s population would begin to decline much before earlier estimated 2050-2055; (ii) the average population age would begin to rise in the next one decade; and consequently (iii) the much talked about demographic dividend might begin to wane the next few years.

Key highlights of the report are as follows:

· The Birth Rate (BR) at the National level during 2023 was 18.4, a decline of 1.6 points over 2018. The BR in urban areas declined by 1.8 points while in rural areas decline was less at 1.3 points. Among the bigger States/UTs, the maximum BR has been reported in Bihar (25.8) and the minimum in Tamil Nadu (12.0).

· The Death Rate (DR) for the Country was 6.4 in 2023. Among the bigger States/UTs, the maximum DR has been reported for Chhattisgarh (8.3) and the minimum for Delhi (4.5).

· The Infant Mortality Rate (IMR) for India was 25 in 2023, down from 32 in 2018. The corresponding decline in rural IMR has been to the tune of 8 points (36 in 2018 to 28 in 2023) against a decline of 5 points in urban IMR (23 in 2018 to 18 in 2023). This implies that one in every 36 infants in rural areas and one in every 56 infants in urban areas still die within one year of the birth.

Among the bigger States/UTs, the maximum IMR was observed in Chhattisgarh, Madhya Pradesh and Uttar Pradesh (37) and the minimum in Kerala (5). For comparison, China has an IMR of 5, Germany 3, Bangladesh 24, Cambodia 20, Congo 28, Iraq 21, and Pakistan 50. The global average for IMR is 27.

· Sex ratio (Female per 1000 male) in the country stood at 917 in 2023. Amongst the larger states, Chhattisgarh and Kerala have reported the highest Sex Ratio at Birth at 974 and 971 respectively, while Uttarakhand has the lowest (868). Sex Ratio at Birth for Rural and Urban areas was 914 and 925 respectively.

· The life expectancy at birth for India has been estimated at 70.3 years for the period 2019-23, an increase of 0.4 years from 2018-22. The life expectancy at birth varies from 64.6 in Chhattisgarh to 75.1 in Kerala. The life expectancy at birth is 69.1 years in rural areas and 73.1 years in urban areas for 2019-23. The life expectancy has increased by 0.5 years for rural and by 0.2 years in urban areas as compared to 2018-22

· The Total Fertility Rate (TFR) for the Country stood at 1.9 in 2023. Bihar reported the highest TFR at 2.8, while Delhi recorded the lowest at 1.2. States like Tamil Nadu (1.3), West Bengal (1.3), Kerala (1.5), Punjab (1.5), Himachal Pradesh (1.6), Maharashtra (1.4), Andhra Pradesh (1.5), Jammu & Kashmir (1.5), Karnataka (1.5), Telangana (1.5), Odisha (1.7), Uttarakhand (1.7), Gujarat (1.8), Haryana (1.9), Assam (2.0) recorded TFR below replacement rate of 2.1.

At present, a rural woman (having a TFR of 2.1) at the National level would have about one child more than an urban woman (having a TFR of 1.5), on average.

Wednesday, September 10, 2025

…and the big one

Continuing from yesterday (Two short stories, and a big one)

As a common Indian household, I face three key issues in my daily life. From my discussions with several other common people, and observations during my travels across the country, I understand that I may not be alone in facing these issues. In fact, a large number of common households may be facing similar issues. These issues are –

1. A conspicuous lack of the “service orientation” in our public servants. A large proportion of public servants usually act like entitled feudal lords and treat the common people as their underprivileged subjects. Even where a public servant is not extracting a fee (bribe) for his/her services, he/she ensures that the recipient of service feels deeply obliged to get, which was his/her right in the first place. The elected representatives put on hoarding (many times at public expense) to thank themselves for basic services done by civic authorities (like cleaning a choked drain, repairing potholes etc.), as if they have done some task extraordinaire. There is inexplicable contempt for accountability, transparency, and empathy – traditionally considered quintessential for any public service institution.

2. Constant struggle in daily life, notwithstanding the convenience of 10-minute delivery and cashless payments (UPI). Poor roads; encroached pavements; garbage littered around; traffic jams; parking challenges; road rage by aggressive but untrained drivers; poor civic service standards; inadequate public health and education infrastructure; total disregard for public safety, especially women and children; stray animals; lack of empathy in the fellow citizens; overburdened and complex justice delivery system – virtually much of the things that affect the daily life of a common household are either wrong or inadequate.

3. Constant or diminishing living standards. Real wages for a large majority of common households are either stagnant or diminishing. Notwithstanding the low CPI inflation numbers flashed on media screens frequently, the lifestyle inflation for common households is much higher. The average real wage growth in India during the past decade has been almost zero or negative. Consequently, the living standards of these households are either stagnant or gradually diminishing. Their houses are getting smaller and weaker. Education and skill quality of their children is deteriorating, making wealth and income disparity more permanent. Average health of a common household is deteriorating, even though the average life expectancy is rising, causing a significant rise in healthcare expenses over lifetime. They are being driven to fraudulent people masquerading as saints or religious preachers, in search of solutions to their routine problems, only to be fleeced. This is damaging the scientific temperament of the society, promoting superstitions and quackery and materially straining household finances as more money is being spent on fake rituals and unnecessary journeys.

Unfortunately, the governments are functioning more like shopkeepers in a flea market. They do not mind fleecing unsuspecting citizens in the name of service charge, toll tax, and other taxes; disregarding whether service standards are congruent with the charges/taxes. Even elections have become like a trade, buying votes for free ration etc.

In my view, this strategy to make the relationship between the government and citizens purely transactional, rather than based on mutual trust and accountability is the biggest problem our country is facing presently. “Unless this trust-contract is rebuilt, India risks remaining a nation where citizens endure services rather than receive them.”