Do it yourself

Several readers have commented on my yesterday’s post (“USD, Gold, Crypto and a mountain of $38trn debt”). Some agree that the “debt manipulation” theory was far-fetched, others argued that I was underplaying the seriousness of America’s fiscal overhang. Both reactions are valid. My intent, however, was not to trivialize the US debt issue, but to put it in its proper context — and to focus attention on the much larger transitions now underway in the global financial order.

I would like to elaborate to convey my point in the right perspective.

The Debt Problem Is Real — but Not New

The US federal debt now stands around $38 trillion, or roughly 120% of GDP. That sounds alarming, but the ratio has hovered near that level for over a decade. The composition, though, has changed dramatically.

After the dotcom bust, debt piled up in corporate and household balance sheets. After Lehman, it migrated to banks. Post-Covid, it has firmly shifted to the sovereign. In essence, the debt hasn’t disappeared — it has just changed owners.

This doesn’t mean the US is immune to a confidence crisis. But it does mean that debt is a chronic structural feature of modern fiat economies — not an engineered plot to reset the system.

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1933, 1971 — and the temptation of simplistic parallels

Many commentators love to invoke 1933 or 1971 to suggest a looming “USD reset.”

But both those episodes happened in very different institutional and political contexts — gold standard rigidity, post-war reconstruction, and early Cold War dynamics.

Today’s world operates on a networked, digitalized, and politically fractured global economy. If history rhymes, it does so in free verse, not repetition.

The better historical analogy might not be 1933 or 1971, but the slow disintegration of older orders — Roman, British, Ottoman or Mughal — when economic dominance eroded gradually, not overnight.

What the real transition looks like

The true story of this decade isn’t gold manipulation or crypto suppression. It’s the slow-motion rebalancing of global power, as the post-WW2 order strains under its own contradictions:

·         Fiscal dominance is replacing monetary orthodoxy — politics increasingly dictates central bank balance sheets.

·         Fragmentation is replacing globalization — parallel payment systems (like China’s CIPS and India’s UPI stack) are nibbling at the dollar’s monopoly.

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Asset inflation remains the political lifeline of democracies — as long as homes, stocks, and jewellery rise in nominal value, grocery inflation can be tolerated.

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Digital money: Evolution, not Revolution

The tokenization of debt and the emergence of digital treasuries is definitely worth watching. But speculating that Crypto or stablecoins could “replace” outstanding treasuries may be a little far-fetched.

These aren’t part of a grand conspiracy to devalue debt — they are the next evolutionary stage of financial plumbing, blending liquidity, programmability, and regulatory control.

Think less “Nixon shock,” more “software upgrade.”

The real risk: A world without a coherent order

While investors debate gold and Bitcoin, the bigger risk is that the rules of the global system — trade, capital flows, reserve currency privileges — are eroding without a clear replacement.

This “interregnum” between the US-led order and an undefined multipolar system may prove far more destabilizing than any Fed balance sheet maneuver.

In such a world, volatility will not come from conspiracy or manipulation — it will come from institutional entropy.

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Investment implications: focus on what’s observable

Instead of gaming hypothetical resets, investors may be better served by tracking:

·         Real yields and the pace of balance-sheet normalization

·         Fiscal-monetary coordination trends in major economies

·         Shifts in global trade invoicing patterns (USD vs CNY vs others)

·         Political tolerance for inequality and asset inflation

The Takeaway

Markets thrive on stories, and conspiracy is a powerful story. But history suggests that disorder, not design, drives most turning points.

The bigger challenge ahead is navigating a world that’s losing its monetary anchor and political consensus at the same time.

The “debt conspiracy” may fade, but the era of permanent volatility is just beginning.

I returned to my desk after a 10-day Diwali break. As I opened my overflowing mailbox, I realized a lot might have changed in the meantime. Nifty50 is flirting with its all-time level. INR has regained some of its lost ground. Precious metal prices have cooled after a sharp upmove. There is a conspicuous thaw in the Indo-US and Sino-US relations. Prime Minister Modi, who hardly missed an opportunity to represent India at various global forums, has missed the ASEAN summit after missing the UNGA annual session, arguably to avoid a one-on-one meeting with President Trump.

However, what caught my attention was a large number of notes, reports, messages alluding to the unsustainable $38trn US government debt, and how the US government and the US Federal Reserve are conspiring to dissipate this mountain of debt by manipulating the prices of gold and cryptocurrencies (especially Bitcoins). Most messages are arguing that 2026 could be a 1933 and/or 1971 redux, when USD was devalued 69% (1933) and Richard Nixon abruptly ended Bretton Wood and turned USD into a fiat currency to sidestep a debt crisis (1971).

Several analysts(?) suspect that the US strategy is to—

(i)    Create an environment of extreme uncertainty through trade war and geopolitical volatility and coax the eastern economies to accumulate gold at an elevated price.

(ii)   Keep the USD weaker, rebuild the US manufacturing base, incentivize exports, discourage imports to minimize trade deficit and strengthen the core of the US economy.

(iii)  Gain control over blockchain economics - suppress the value of cryptocurrencies and accumulate large reserves. Today the crypto market cap is appx US$4 trn. “Experts” are estimating it to cross US$100 trn in the next 10-12 years.

(iv)  Make UST yields unattractive and gradually substitute stablecoins to devalue public debt. Manipulate the crypto prices higher and offer accumulated crypto-coins to settle the mammoth debt.

(v)   Engineer a crash in prices of precious metals, inflicting severe pain on the eastern economies, which will be facing pressure anyways due to the US export competitiveness, and thus extend the USD supremacy for many more decades.

In my view, this analysis suffers from various shortcomings. It selectively chooses historical context 1933 and 1971 while ignoring demise of Roman, Mughal, British, Mauryan empires etc. Analysts seem to have assumed central banking and electoral democracy as sicut datum est or a fait accompli, in their analysis, whereas there is evidence that the autonomy of the central banks is being politically undermined; and the present form of electoral democracy is facing challenges in several countries.

The analysis also conveniently ignores that The US (and European & Japanese) debt problem is not new, but decades old. The US has been running unsustainable debt ever since the dotcom burst. It is only after the Lehman Bros. collapse that the debt has shifted from banks and household balance sheets to the government's balance sheet. Post Covid, the inflation moved from assets to grocery. It is now coming back to assets.

I would rather file these analyses into the “conspiracy theories” folder, than take it seriously and make it a basis for any change in my investment strategy.

In my view, notwithstanding how much people may dislike grocery inflation, they love asset inflation more than anything. Most of them would vote for a rise in the nominal value of their home, jewellery, and stocks, but only a few would vote for a slower pace of rise in the grocery prices. If you take asset inflation away, the political system might collapse.

In my view, under the present circumstances, the world should be worrying about the potential collapse of the post WW2 world order, while the new order still remains a work in progress. The chaotic transition might hurt the investors much more than what they would expect to gain from a 10-20% rise or fall in gold prices, a couple of percentage points change in US treasury yields, or Dollar (DXY) Index.

I found the views of Mr. Lawrence Wong, Prime Minister of Singapore, as expressed in his recent interview with the Financial Times, most pertinent in this context. (see here)

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.

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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.​

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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.​

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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.

In recent times, one of the most extrapolated data by the market participants in India has been the household participation in the capital markets. Several research papers/reports have highlighted the relatively low deployment of the Indian household savings into the capital market, especially listed equity shares, to argue for a high growth potential in this area. In fact, capital market related stocks like brokerages, AMCs, depositories, exchanges and transfer agents & registrars, have been outperforming the broader markets for the past few years. Impressed by the trend, NSE has even launched an index (Nifty Capital Market index) to capture the performance of this sector.

Indubitably, the Indian capital markets are at the threshold of a major transition. Acceleration in institutionalization of household participation has been a major trend in the past five years. Access to banking and financial markets has improved materially with the advancement of technology and digitalization in the last one decade. The young demographic is looking to enhance their wealth through participation in the growth businesses. `The participation of small and medium sized entrepreneurs in the listed market is also increasing rapidly.

Nonetheless, extrapolating the current household participation data to the levels of the US and affording valuations based on 10-15yr forward earnings based on such lofty assumptions might not be appropriate in my view.

It may be pertinent to note the following in this context —

·         Household participation in capital markets in countries like UK, Australia, South Korea is about 7 to 8% of total household assets. China and Japan are higher at 11 to 12%. At present, Indian households’ allocation to shares, debentures and mutual funds is approximately 2.5% of their total assets.

The per capita income in these countries are much higher than India – the UK ($55000), Australia ($64,500), China ($13,700,), Japan ($34000), South Korea ($34600) as compared to India ($2880). As of this morning, there is nothing to suggest that India might reach $12000 (4x the current level) mean per capita income level in the next 10-12years, that might be needed to reach 7-8% allocation to capital markets (debt and equity).

​Indian households presently allocate about 29-30% of their assets to financial assets. Of this 30%, about 7-8% (2 to 2.5% of the total) is allocated to mutual funds, shares and debentures (public equity and debt). This allocation is almost the same as it was in the decade of 1990s. Not much has changed in the past three decades, since the first round of reforms and liberalization.

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·         The financial liabilities of the Indian households have been rising faster than the financial assets in the past couple of decades. The anecdotal evidence suggests that this trend is likely to sustain for the next decade also, as household savings continue to stay lower. This implies that the risk-taking ability of the Indian household would diminish further in the short to medium term. This does not augur well for a meaningful rise in the capital market participation.

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​·         Indian listed equities and mutual funds have consistently failed to generate meaningful alpha over physical assets like gold and real estate over a longer period. For example, over the past 15 years, Nifty 50 (+311%) has sharply underperformed even gold (464% in INR terms) returns. Over 50% fund managers have even failed to match the benchmark returns.

·         In the past three decades, the employment intensity of GDP has diminished materially. For 6.5% GDP growth, employment growth is less than 0.5% CAGR. This trend has pushed people towards self-employment. At present there are about 80 million self-owned enterprises, employing over 130 million people. The owner of these enterprises usually owns 100% of the equity. In many cases, the value of self-owned enterprises’ equity is more than the networth of the household. It could be a matter of debate whether households who fully own their enterprise do actually need to invest in listed equity. But no asset allocator would advise further equity exposure to a person who has 100% (or more in many cases) of his networth invested in the equity of his own business.

To conclude, I would say, the capital market in India is on a high growth path. The next couple of decades would see material jump in the level of activity; market capitalization; household ownership of listed equity and debt; and the people employed or engaged in the capital market activities. However, extrapolating it to matching earnings growth for all the participants might not be a great idea.

It is a normal practice of market analysts (especially buy side analysts) to extrapolate historical data for validating their pre-drawn conclusions. For example, there are numerous research reports and messages which rely on “low per capita consumption” and “moat” in India to make a strong case for buying a particular stock or sector. Based on this, many “new businesses” (and some established businesses) are given astronomical valuations. In this context, I find it pertinent to note the following:

·         In the early 1990s, the number of Indian citizens using air transport for travelling purposes was extremely low. There was only one civil airline, viz., Indian Airlines. Then the civil aviation business was opened to private competition. Within a span of 2yr several private airlines started business, e.g., Sahara, NEPC, Damania, East West, Modiluft etc. All these ended as bankrupt in less than a decade. In the second tranche, some more private airlines started business, e.g., Jet Airways, Kingfisher, Deccan Airlines etc. Soon they became very popular with Jet Airways acquiring more than 50% market share (“moat”). These also ended bankrupt, along with Indian Airlines (later Air India).

·         India was one of the worst countries in terms of financial inclusion in the early 1990s. Many first-generation private banks (Global Trust Bank, Time Bank, Bank of Punjab, Centurion Bank etc.)that were given license to start banking business in the 1990s, could not survive even for a decade.

·         Numerous telecom operators and ISPs that commenced operation in the 1990s and early 2000s, ended up shutting their shop in less than a decade. This all happened in spite of very low telecom density.

·         Steel and power sectors have been another anti-thesis for this “moat” and “low per capita consumption” argument. India still ranks amongst the lowest per capita consumers of steel and power. If we carefully analyze the banking sector crises during the 1990s and 2010s, these two sectors have been largely responsible for huge credit costs to the banks. There have been numerous bankruptcies and debt restructuring in these sectors in the past four decades. Even the sector leaders like SAIL and Tata Steel have been responsible for massive investors’ wealth destruction multiple times in these four decades. Several power producers like Lanco and GVK Power, ended bankrupt, while the leaders, like NTPC and Tata Power have underperformed the benchmark returns over the past two decades.

No one should be surprised if many of the businesses currently in investors’ favor, also wind up in the next one decade, despite huge scope for growth in businesses like AI, semiconductors, renewable energy, ecommerce, fintech, etc.

The point is that arguments like “per capita consumption” and “moat” may not necessarily work in a country where about 60% of the population is dependent on government support for necessities like food, cooking fuel, primary healthcare, education, and transport; and government is constitutionally mandated to keep policy framework largely socialist.

Investors accordingly need to adjust the denominator (total population) appropriately to calculate a realistic per capita number. The “moat” premium should be assigned to a business only after applying appropriate policy risk discount (Remember online gaming companies).

On the positive side, per capita income for the total addressable market will also be much higher than the official number. In particular, the investors must consider the following while evaluating a company for investment:

·         It is not sufficient to only evaluate the debt servicing capabilities of the company. The ability to pay for the cost of other factors of production (e.g., wages, rent, plant and technology upgrade etc.) must also be evaluated.

·         It is important to assess the dependence of the company on the global economy. It would be useful, for example, to incorporate the risk emerging from policy and geopolitical stressed developed economy consumers, high risk African and Latin American government owned (or regulated) businesses, highly regulated Chinese businesses, and volatile policy environment in the US, in the valuation matrix.

·         Domestic policy risk, especially related to “sin consumption”; competition risk; perils of business with the government; and probability of economic offences, etc.

·         Risk of obsolescence of products, technology and IPRs.

 The India specific actions of President Trump in the past six months have evoked a varied response from various stakeholders.

·         The policymakers have been quite guarded in their response. Prime Minister Modi has rhetorically emphasized on the need to be self-reliant and adopt Swadeshi (Made in India products), but so far, we have not heard any specific policy or plan to counter the US aggression. Most of the concerned ministers and bureaucrats have repeatedly expressed hope that India will manage to finalize an “honorable” trade deal before the end of 2025. The only detail they have shared is that India shall not compromise on the interests of its farmers’ and energy security concerns. Prima facie, the bureaucratic and diplomatic effort is to “restore status quo ante”, to the extent possible.

·         Industry associations also seem to be preferring a “settlement” route, whereby the US administration withdraws punitive measures (tariff and non-tariff) and Indian exporters agree to bear some of the reciprocal tariffs.

·         The IT services industry seems to be adopting a “take whatever comes on the way and move on” approach; fast reconciling to a situation where the extant H1B visa does not exist. They are apparently working on a broad mitigation strategy, including increasing their US on ground presence, near-shoring, off-shoring to India, sharing the increased cost with clients, etc.

·         A handful of entrepreneurs and professionals have suggested that we “exploit this opportunity” to unleash a new round of economic and policy reforms in the country by beginning an “innovation revolution” in the country. Though, most of their views are available in the form of media posts and interviews, and not much specifics are available in public domain.

Overall, my impression is that a large majority of the stakeholders would be delighted if the pre–Liberation Day (02 April 2025) situation is restored by the Trump administration. They would be much relieved, even if reciprocal tariffs are retained and punitive measures like 25% penal tariffs, 100% tariff on branded & patented drugs, and US$1,00,000 fee on H1B applications are revoked. Regardless of all the rhetorics and social media proclamations, the enthusiasm for ushering Reforms 3.0 (after 1991-92 and 1998-99) is much less.

In my view, we should take this opportunity to reinforce the foundation of our economy, add new engines of growth, and make our economy more sustainable. This would require coordinated efforts by the government, entrepreneurs, innovators, local governments, civil society, academia, and industry.

I suggest two level effort to achieve these objectives – (1) Business level efforts and (2) Structural changes

Business level efforts

Trade & Manufacturing

Diversify markets: Reduce reliance on the US by deepening ties with ASEAN, EU, Africa, Latin America.

FTAs & supply-chain corridors: Accelerate trade agreements with EU and UK; expand India-Japan supply chain partnerships.

Technology & Capital

Domestic R&D: Incentivize AI, semiconductor, and biotech innovation through tax breaks and PPP models.

Ease of capital flows: Simplify compliance for foreign investors; fast-track dispute resolution.

Upskilling at scale: Invest in digital skills, advanced manufacturing training, and vocational education.

Geopolitics & Defense

Strategic diversification: Strengthen ties with EU, Japan, and ASEAN to counterbalance US unpredictability.

Defense indigenization: Fast-track Make-in-India defense projects, reducing dependency on US hardware.

Structural changes

While business level efforts improve resilience of the India economy, it may not enhance sustainability of the growth or catapult our growth to a much higher trajectory, that is much needed to attain the goal of “Viksit Bharat (Developed India)” in the next couple of decades. For this we need to implement some structural reforms through transformation of our growth paradigm. In particular, we need to-

·         Completely shed the colonial mindset and make our development plans aggressive, forward looking and large;

·         Bridge a variety of deficits prevalent in our country – especially growth capital deficit; skill deficit; trust deficit; and compliance deficit;

·         Develop a scientific temper as a society, eliminating superstitions, ostentatiousness, intolerance, and ignorance, from our daily life.

·         Transform governance structure to minimize corruption.

The following three examples of development initiatives emphasize my points.

·         Develop 6 new green field global cities of the size of one Singapore each. Locate these cities in each region (North, West, South, East, central and North East) of the country. Invite top global businesses, infra builders and universities to build these world class fully integrated sustainable and self-sufficient cities in the next 10-15 yrs. These cities should have the best infrastructure; dedicated campuses for top global businesses, especially technology, and research; campuses of top global universities where Indian and foreign students could study. These cities should become global hubs of trade, finance, innovation and model living.

These cities may be managed by a board elected by the representatives of investors, institutions and residents. The board may be fully empowered to formulate rules and regulations regarding labor, property, indirect taxes, and other matters of governance and maintenance of these cities. Once successfully established, states may be encouraged to model their metropolises on these cities.

·         Develop 6 new green field global standard recreation and tourism centers, similar to Las Vegas, Macau, Phuket etc. on build operate (BO) basis. These centers must have best in class hospitality, retail and mobility infrastructure. Apply exceptional rules for these centers with regard to alcohol consumption, gambling, hotel management, prostitution etc. The objective should be to divert outbound tourism from India to these centers and encourage inbound international tourist flow. A special armed force may be raised for maintaining law & order in these centers.

Simultaneously, the existing places of tourist interest in the country may be developed in terms of cleanliness, hospitality, accessibility, law & order, etc. The tourists arriving in the special centers may be encouraged to visit these places of historical and cultural importance.

·         Religion has always been at the core Indian ethos. Traditionally, it has been the influence of religion that brought the concepts of scientific inquisition, righteousness, moral rectitude, social responsibility, environmental sustainability, debt management, HR management, and just & fair taxation, etc. in the society.

Post Independence the State has been over focusing on micromanaging businesses and ignoring key social issues. This has weakened the core fabric of Indian society. Consequently, places of worship have degenerated from being centers of learning & spiritual evolution to shelters for hatemongers, fearmongers, power seekers, and wealth hoarders. Many of these promote superstitions and block scientific inquiry to the detriment of society at large.

In my view, if we want to make this century belong to India, then Indian State—

o    should leave business completely to private enterprise;

o    play a much larger role in social awakening and create an enabling environment of mutual trust, self-motivation, empathy and compassion;

o    make the Temple (of course including Mosques, Churches, Monasteries, Gurudwaras, Mutts, Agiyaris, Derasars and others) play a larger evolutionary role in progress of the society, rather than continuing to de-generate further and stay a stumbling block in the path to socio-economic progress.

The State must realize and accept that politicians and bureaucrats are mostly handicapped insofar as their capability to run businesses is concerned. They should therefore focus on securing borders, developing social & physical infrastructure, maintaining law & order and promoting social harmony.

The 1998 US sanctions on India, imposed after the Pokhran-II nuclear tests in May 1998, were a pivotal moment that reshaped India's economic, strategic, and technological trajectory. Triggered by India’s nuclear tests under the Vajpayee government, these sanctions aimed to penalize India for violating non-proliferation norms. Sanctions included restrictions on technology transfers, suspension of US aid (except humanitarian), bans on defense sales, and multilateral lending curbs by institutions like the World Bank. While the immediate impact was disruptive, the long-term effects catalyzed India's self-reliance, economic reforms, and global repositioning.