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

How the paradigm of power is shifting

For much of modern history, power was mostly measured by military strength. Borders shifted through conquest, and influence was enforced through force.

In the past couple of decades, there has been a gradual shift in this paradigm. While military capability still matters, the primary instruments of power today are economic and technology.

In the contemporary world, access to capital, technology, markets, and resources often determines outcomes more effectively than armies. Trade rules can shape behavior. Financial sanctions can immobilize economies. Control over technology standards can define the future of entire industries.

Unlike traditional warfare, economic power operates quietly. There are no declarations, no battlefields, and no formal endings. Yet its effects can be just as lasting. The latest events in Venezuela also need to be looked at from this Lense.

Export controls, tariffs, financial restrictions, and regulatory barriers are now routine tools of statecraft. They are justified as measures of national security or economic protection, but they also create dependencies and asymmetries. Countries that control key nodes—finance, energy, technology, or logistics—gain leverage over others.

This does not resemble old-style colonialism. There is no direct rule or occupation. Instead, influence is exercised through terms of access.

Who can trade? Who can borrow? Who can build?

From an economic perspective, intent matters less than outcomes. When countries or firms are forced to align behavior to retain access, power has been exercised—whether or not it is acknowledged as such.

The replacement of military power with economic power has not made the world more peaceful. It has made conflict less visible, more persistent, and harder to resolve.

Understanding this reality is essential for anyone trying to assess long-term risks in a changing global system.

For markets, this shift has important implications. Economic decisions are no longer evaluated purely on cost and efficiency. Political alignment, regulatory risk, and strategic sensitivity increasingly shape investment outcomes.

The conventional principles of economics that advocate efficient use of factors of production to maximize economic output are being overlooked for strategic reasons. The developed countries like the US, which outsourced manufacturing function to the more populous countries (lower wage cost) and resource rich countries (lower logistic cost) are aiming for relocating their industrial ecosystem onshore.

In view of this shift, India has two choices to make. One, to focus on fiscal discipline and compromise on capex or increase capex and let the deficit stay high. Two, carve out a space of its own in the emerging multipolar global order, or chose to become a vassal state of one of the major powers. These choices will define the investment opportunities available for the Indian investors.

India’s AI Moment: A ±5 million job swing by 2031

(Photo Credit IET)

AI (Artificial Intelligence) is no longer a future disruptor—it’s already reshaping how the world operates. For India, a country with 10–11 million tech and customer experience (CX) workers, the stakes are unusually high. AI is already reshaping how India codes, tests, designs, supports, and runs digital work. India’s millions of Tech and CX workers are at the threshold of a major transition to a future that is full of historic new opportunities and risks.

The latest report published by NITI Aayog “Roadmap for Job Creation in the AI Economy” (NITI Aayog–BCG–NASSCOM), delivers a clear message- AI can either shrink India’s tech workforce sharply by 2031—or expand it dramatically. The outcome depends entirely on what India does next.

Here are the key points highlighted in the report.

The Stakes: A ±5 Million Job Swing by 2031

India faces two sharply diverging paths:

If India does nothing:

Tech workforce drops from 7.5–8M → 6M

CX workforce drops from 2–2.5M → 1.8M

If India acts decisively:

Tech workforce grows to 10M

CX workforce grows to 3.1M

This is not about technology alone. It's about policy, skilling, and national coordination.

What AI Is Changing (Fast)

Work

AI boosts productivity across the tech value chain:

·         Code generation: +15–25%

·         Testing & documentation: +20–50%

·         Overall SDLC: +10–20%

·         CX automation: Handles majority of L1 queries

·         Routine, scalable tasks get automated first.

Worker

At risk

·         Junior QA engineers

·         L1 IT support

·         Basic CX representatives

Evolving

·         Full-stack developers

·         Data engineers

·         Cloud DevOps

·         Cybersecurity roles

·         New roles created:

·         Prompt engineers

·         AI architects

·         Ethical AI specialists

·         Quantum ML engineers

·         LLM researchers

Workforce

The pyramid compresses:

·         Fewer entry-level roles

·         Faster ramp-up

·         More judgement-led work

·         Leaner teams

·         Higher skill premium

India’s Three Big Vulnerabilities

Job Displacement Risk

·         60% of formal-sector jobs face automation risk.

·         Entry-level roles are most exposed.

Weak AI Talent Pipeline

·         Limited CS in schools

·         AI curriculum lags global benchmarks

·         Falling share of AI patents & citations

AI Talent Shortage

·         India meets only 50% of AI talent demand

·         Net negative migration of top AI researchers

·         Demand growing 25% CAGR

·         India is rich in talent, but not yet in AI-ready talent.

The Playbook: The India AI Talent Mission

A single, unified, all-of-government mission to make India the world’s AI talent capital.

Embed AI from school to university

·         Universal CS education

·         AI + X degrees

·         Scale AI PhDs

·         Faculty-industry exchanges

Make India a global AI talent magnet

·         AI Talent Visa

·         Competitive grants

·         Returnee researcher programme

·         Tier-1 AI Centres of Excellence

Build a national AI reskilling engine

·         AI Masters for working professionals

·         Sector-specific reskilling (IT, CX, BFSI, healthcare)

·         Large-scale AI literacy (PMKVY/NAPS)

Two Critical Enablers (with IndiaAI Mission)

·         Open-Source AI Commons

Public datasets, models, benchmarks

·         National Compute Grid

Affordable GPU access for students, startups, universities

Remember: Without compute + open data, talent simply migrates abroad.

The Bottom Line

AI can make India a global AI workforce hub or a net job loser

The difference rests on speed, scale, and strategic coordination.

India has the people. AI gives them leverage. A national mission gives direction.

The next 4–6 years will decide whether we ride the AI wave—or get swept under it.

Following the Custom: Balancing Faith and Fundamentals

Each Diwali, as lamps light up homes, optimism lights up Dalal Street too.

It’s that time of the year again. Business channels are abuzz with market commentators dressed in their festive best, sharing their annual outlooks on the economy and equities. Almost by ritual, hope dominates the narrative — and that’s not necessarily a bad thing.

This year, with investor sentiment subdued and global uncertainties still clouding the horizon, a measured dose of optimism may be just what the market needs. Continuing the custom, here’s a closer look at what could turn favorable for Indian markets over the next one year — and what investors should keep an eye on.

Domestic Drivers: The Spark Within

Consumption revival on the horizon

After three years of subdued consumption, several catalysts are now aligning. Rationalization of income tax and GST rates, material lending reforms by the RBI, a supportive rate environment, and a good monsoon could together revive private consumption demand. The upcoming pay-commission payouts may add further fuel, particularly in semi-urban and rural markets.

 ​

​

Capex momentum building up

The long-awaited private investment cycle seems to be stirring beyond government-led initiatives. In the past six months, Indian corporates have announced new projects worth ₹9.35–9.95 lakh crore, marking a 30–37% year-on-year increase — the second-highest level in 15 years for the April–September period.

The new investments span data centers, defense manufacturing, semiconductors, mining, power transmission, and battery storage — sectors that could structurally strengthen the domestic supply chain.

If these plans translate into execution, they could lift capacity utilization levels, spur employment, and improve corporate earnings visibility over FY27–FY28.​

​

Global Tailwinds: Winds Turning Favorable

Energy and trade outlook brightening

Global energy prices are projected to ease in 2026 as demand growth moderates and logistics costs normalize. An eventual increase in OPEC production could add downward pressure.

Simultaneously, the finalization of trade agreements with the EU, the U.S., and other major partners could stabilize India’s current account and lend support to the rupee.

Foreign flows stabilizing

After months of heavy selling, foreign investors’ outflows are slowing. Several global brokerages have highlighted that after underperforming global peers for a year, Indian equities are re-entering attractive valuation zones.

Structural Shifts: Productivity & Valuations

AI and efficiency gains

While still in early stages, AI-led productivity improvements may begin reflecting in corporate bottom lines from FY27 onward — particularly in IT services, logistics, and manufacturing automation. The initial phase could boost operating margins and asset utilization ratios.

Valuations moderating to reasonable levels

Indian equities have corrected modestly from their 2023 peaks. The Nifty 50 forward P/E now stands around 18.5×, roughly 10% below its five-year average.

With earnings expected to grow in double digits through FY27–FY28, select large-cap names look increasingly compelling from a risk-reward standpoint.​

​

Cautionary Note: Risks Beneath the Diyas

Every Diwali brings hope, but this year’s optimism must be tempered with realism. A few watchpoints remain:

Fiscal balance: Pre-election spending or subsidy pressures could test the fiscal glide path.

External vulnerabilities: A sudden oil price spike or renewed global conflict could alter India’s macro assumptions.

Execution gap: Investment announcements often lag actual implementation; sustained follow-through will be critical.

AI hype vs. reality: Productivity gains may take longer than expected to reflect at scale.

Geopolitics: Even as ceasefire talks progress in the Middle East, tensions between major powers remain fluid.

A balanced investor would acknowledge these risks even while celebrating the improving trends.

Conclusion: The Glow of Disciplined Optimism

Diwali has always symbolized renewal — of faith, fortune, and perspective. This year, as India stands on the cusp of a consumption revival and a capex upcycle, optimism has reason to exist.

Yet, faith alone does not light the path forward — fundamentals do. The coming year could reward investors who practice disciplined optimism: staying invested in quality, avoiding exuberance, and letting conviction — not celebration — drive portfolio choices.

From today, I am taking my Diwali break. My next post will be on Monday, the 27th October.

Wishing all the readers a very Enlightening, Blissful and Joyous Diwali. May the Mother Supreme destroy all the darkness and sorrow from our lives and guide us to the path of enlightenment and divine bliss.

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.

Also read

Dark clouds gathering on the horizon – 1

Dark clouds gathering on the horizon - 2