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Here’s a piece of geography most people never really think about—until suddenly it starts showing up everywhere in the news: the Strait of Hormuz.

It’s a narrow stretch of water between Iran and Oman, barely 33 kilometres wide at its tightest point. But despite how small it looks on a map, it carries an enormous amount of the world’s energy. On a normal day, around 20 million barrels of oil pass through this corridor, along with roughly a fifth of global LNG supply. In other words, a huge share of global energy trade depends on a shipping lane that, in places, is narrower than many cities are wide.

That’s why the war that erupted at the end of February quickly became more than just a regional conflict. After coordinated US-Israeli strikes on Iran and Iranian retaliation across the Gulf, activity in the Strait of Hormuz—the main artery through which Gulf energy reaches the rest of the world—started to slow.

Ships stopped moving. Insurers pulled back. Tankers began waiting outside the strait instead of sailing through it. And that’s how a military conflict suddenly turned into a global economic story. When so much of the world’s energy moves through a single narrow passage, even a small disruption is enough to shake markets.

According to Goldman Sachs, nearly 20 million barrels of oil move through the Strait of Hormuz every single day. In 2025 alone, about 13.4 million barrels per day of crude exports passed through this route. Most of that came from three countries—Saudi Arabia, Iraq, and the UAE—which together accounted for roughly 13.1 million barrels per day of those flows.

In theory, some oil can bypass the strait through pipelines. In practice, the capacity is limited. The International Energy Agency estimates that only about 4.2 million barrels per day can be rerouted through alternative routes.

And oil isn’t the only commodity that moves through Hormuz.

Goldman Sachs estimates that roughly 80 million tonnes of LNG pass through the strait every year—about 19% of global supply—with most of it coming from Qatar.

The first thing to understand about a disruption in the Strait of Hormuz is that it starts as a logistics problem. The oil may still be produced — it just can’t move.

Allianz Research noted that in the early days of the conflict, more than 200 oil and LNG vessels were anchored outside the strait. Insurers and shipowners were simply unwilling to take on the risk of sending ships through an active conflict zone.

But logistics shocks can quickly turn into supply shocks. If ships stay stuck for long enough, export terminals start filling up, storage tanks overflow, and producers eventually have to slow or cut production.

According to Goldman Sachs, global visible oil inventories currently stand at around 7.8 billion barrels—roughly in line with historical levels relative to demand.

The bank also estimates about 3.7 million barrels per day of spare production capacity worldwide, most of it concentrated in Saudi Arabia and the UAE.

These buffers can help the market absorb a short disruption. They don’t last forever. If the Strait of Hormuz stays disrupted for long enough, those buffers begin to run out. And at that point, what started as a shipping problem turns into a real supply shortage.

One part of the Hormuz story that often gets overlooked is that the strait isn’t just an oil route.

The Gulf exports far more than crude. Petrochemicals, refined fuels, fertilizers, aluminium, plastics, and a range of other industrial products all move through the same corridor. So when tanker traffic slows, it’s not just oil shipments that get disrupted—many of these exports are affected as well.

ING notes that if the disruption drags on, the impact won’t be limited to oil prices alone. It can create a broader trade shock—higher energy costs, longer shipping routes, rising insurance premiums, and slower global trade.

Some Gulf producers do have limited ways to bypass the strait. Saudi Arabia and the UAE, for instance, operate pipelines that allow some oil to reach ports outside Hormuz.

But the capacity is limited. ING estimates these routes can divert roughly 5 million barrels per day. Even after that, around 15 million barrels per day of oil supply would remain exposed to the strait.

That’s why these bypass routes reduce the severity of the shock but don’t remove it entirely. In fact, there’s another complication. Much of the world’s spare oil production capacity also sits in the Gulf, as we saw earlier. So even if producers decide to pump more oil, it still has to move through the same vulnerable corridor.

And while oil usually dominates the headlines, gas markets could feel the sharper impact. Goldman Sachs estimates that the roughly 80 million tonnes of LNG that normally pass through Hormuz account for nearly one-fifth of global LNG supply.

The effects of a Hormuz disruption don’t stop with energy prices. They also ripple through global shipping.

Goldman notes that crude freight rates were already about 50% higher this year, even before the latest escalation, while some tanker routes have reportedly tripled in cost as war-risk insurance surged.

Allianz adds that fuel accounts for roughly 35% of a ship’s operating costs. So if fuel prices rise by 40–50%, freight rates could climb another 15–20%.

And because shipping costs feed directly into the price of traded goods, those increases eventually show up as inflation.

Goldman’s macro analysis gives a rough sense of the scale. In its baseline scenario, the shock adds about 0.2 percentage points to global inflation and reduces global growth by around 0.1 percentage points.

In a more severe scenario—where oil moves closer to $100 per barrel—inflation could rise by about 0.7 percentage points, while global growth slows by roughly 0.4 percentage points.

For India, the exposure is significant. The country imports around 85% of its crude oil, and roughly 40% of those imports pass through the Strait of Hormuz, as per ING.

That means higher oil prices can affect India through several channels at once: higher import bills, wider current account deficits, more inflation pressure, rupee volatility, and potentially tighter monetary policy.

Standard Chartered adds another dimension to this. According to the bank, roughly 20% of the Indian equity market is negatively exposed to higher oil prices, which makes this not just a macroeconomic issue but a market one as well.

That’s it for this edition. Thank you for reading. Do let us know your feedback in the comments.

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Despite the recent pullback, both gold and silver have seen sharp price increases over the past year. Gold prices are up about 105%, while silver has risen more than 175% since January 2025.

In comparison, Indian equity markets have gained just 6–8% over the same period.

When prices rise like this, it’s not surprising to see money follow.

In January, according to AMFI data, gold ETFs received inflows of ₹24,040 crore—more than what equity mutual funds attracted in the same month.

It was the first time that gold ETFs saw higher inflows than equity funds. Silver ETFs also saw strong interest, with inflows of around ₹9,000 crore in January.

Put together, gold and silver ETFs drew in about ₹33,500 crore, compared to roughly ₹24,000 crore in equity funds.

That raises a simple question:

Why are investors still putting money into gold and silver after such a strong rally?

To answer that, we need to step back from India’s monthly flows and look at what happened globally in 2025.

The World Gold Council’s Gold Demand Trends (Q4 & Full Year 2025) makes it clear that 2025 wasn’t just a price story. It was a demand story as well.

Total gold demand, including OTC and other categories, reached 5,002.3 tonnes in 2025—the first time it has crossed the 5,000-tonne mark. During the same year, gold hit 53 new all-time highs. The total value of demand rose to about US$555 billion, up roughly 45% year-on-year.

It’s rare to see record volumes and record prices at the same time. When that happens, it usually means the rally isn’t being driven by just one set of buyers.

But the numbers alone don’t tell us why investors are still adding gold after such a sharp move.

The World Gold Council’s outlook section gives some context. 2025 was marked by ongoing geopolitical tensions, volatility in bond markets, and uncertainty around the global rate cycle. Even though policy rates peaked in many economies, real yields remained unstable, and long-term bond yields moved sharply.

In that kind of environment, gold starts to look less like a commodity and more like portfolio insurance. For institutional investors, ETF flows often reflect diversification decisions. For central banks, continued buying signals an effort to reduce dependence on the US dollar and build reserves in a politically neutral asset.

The biggest shift came from gold ETFs and similar products. In 2024, ETF demand was slightly negative at –2.9 tonnes. In 2025, it swung sharply to +801.2 tonnes—making it one of the strongest years on record for ETF inflows.

ETF flows matter because they reflect a different mindset than jewelry buying. They usually represent portfolio decisions—investors reacting to uncertainty, adjusting diversification, or responding to price trends—rather than everyday consumption.

ETFs weren’t the only investment channel that grew. Bar and coin demand rose to 1,374.1 tonnes in 2025, up from 1,188.3 tonnes in 2024 — a 12-year high. This points to another type of buyer: households and individuals purchasing physical gold, often influenced by currency moves, affordability, and the comfort of holding something tangible.

Central banks continued to be a key source of demand. Net purchases in 2025 stood at 863.3 tonnes. That’s still high by historical standards, though lower than the 1,092.4 tonnes bought in 2024.

The report describes central bank buying as resilient and spread across regions. At the same time, it notes that purchases have slowed from the more than 1,000-tonne pace seen in each of the previous three years.

This is where the impact of higher prices becomes most visible. Jewelry demand fell in volume terms—global jewelry consumption dropped from 1,886.9 tonnes in 2024 to 1,542.3 tonnes in 2025. But spending didn’t fall. In fact, the report says the value of global jewelry demand rose 18% to a record US$172 billion.

In simple terms, people bought fewer grams because gold was expensive—but they still ended up spending record amounts because prices were much higher.

There was another subtle but important shift on the supply side. Recycling increased only slightly, even though prices had risen sharply. Historically, higher prices usually bring more recycled gold into the market. But in 2025, that response was limited. As a result, the market depended more on mine supply and investor demand instead of recycling easing the pressure.

Recycled supply rose by just about 3% to roughly 1,404 tonnes. The report describes this as a “muted response,” especially considering the US dollar gold price had risen by around 67%.

India reflects this shift in buying behavior quite clearly. Jewelry demand fell sharply from 563.4 tonnes in 2024 to 430.5 tonnes in 2025, a decline of about 24%. At the same time, bar and coin demand rose from 239.4 tonnes to 280.4 tonnes, up roughly 17%.

When prices are high, the festival and wedding-driven demand usually slows in terms of volume. But the store-of-value instinct often remains strong—and sometimes even strengthens. India doesn’t stop buying gold; it simply changes the way it buys it.

There’s another interesting layer here. As gold prices surged, loans backed by gold jewelry also rose sharply. The report notes that retail loans against gold jewelry in India reached record levels in 2025.

That tells us something important. High prices don’t just shift demand—they change how gold is used within the financial system. Gold becomes collateral. It becomes a source of liquidity. It becomes part of the credit cycle.

In other words, gold’s role expands when uncertainty rises.

If gold is largely a “money and confidence” metal, silver is more of a hybrid. It behaves like a precious metal during periods of stress, but it’s also a key industrial input.

That dual nature is one reason silver tends to move more sharply than gold—both on the way up and on the way down.

But there’s another factor behind the sharper moves: market tightness.

The Silver Institute report points to a liquidity squeeze in parts of the London market during 2025, along with unusually high lease rates. There was also a surge in futures deliveries on the CME and a spike in exchange-for-physical activity levels not seen since the COVID disruptions.

When a market has been running structural deficits for several years and inventories have already been drawn down, even a modest increase in investment demand can push prices higher quite quickly.

Silver isn’t rising only because investors are buying it. It’s rising in a market where supply is tighter than it may seem at first glance.

According to the Silver Institute’s Interim 2025 Review, 2025 marked the fifth straight year of a sizeable supply deficit. Global demand is estimated at around 1,117 million ounces, while supply is projected at about 1,022 million ounces—leaving a gap of roughly 95 million ounces.

This wasn’t a one-off imbalance. When deficits persist for several years, inventories gradually get drawn down. That leaves the market tighter even before any new wave of investment demand shows up.

And in 2025, investment demand did show up.

Silver ETP holdings reached record levels during the year, both in terms of volume and overall valuation. That mirrors the resurgence we saw in gold ETFs—but in silver’s case, it happened in a market that was already structurally tight.

Unlike gold, silver also has a strong industrial driver—solar photovoltaics.

A decade ago, solar made up a much smaller share of industrial silver demand. Today, photovoltaics are one of the largest and fastest-growing uses of silver. The report shows that solar demand has increased sharply over the past decade and remains a key structural driver of consumption, even as manufacturers work to reduce the amount of silver used in each cell.

At the same time, electric vehicles and data centre infrastructure are adding to demand. EVs use more silver than traditional internal combustion engine vehicles. Data centers—which support AI and cloud computing—rely on silver in connectors, circuit boards, and cooling systems.

That means silver’s rally isn’t just about fear or safe-haven buying. A meaningful part of its demand is linked to electrification, digitalisation, and renewable energy.

Meanwhile, mine production hasn’t surged despite higher prices. Supply growth has been relatively flat, which makes repeated deficits more significant.

At the same time, manufacturers are working to reduce silver usage in solar panels by lowering loadings and exploring substitution with copper. So while industrial demand has been strong, the longer-term outlook will depend on how quickly these efficiency gains scale.

That creates an interesting tension. Structural demand is rising—but so is the incentive to design silver out of the system.

There are risks here as well. Changes in solar policy in the US and Europe, tariffs on modules, and continued efforts to replace silver with copper in photovoltaic cells could slow future demand growth.

India has also played an important role in the silver story. The Silver Institute notes that India became the largest retail investment market for silver in 2025. Bullion imports were strong during parts of the year, reflecting both investor interest and steady physical demand.

So when we step back and look at the bigger picture, January’s inflows in India don’t seem like a one-off.

Globally, gold saw broad-based demand—from ETFs, central banks, and retail investors. Silver, meanwhile, faced tight supply conditions alongside strong industrial demand.

Money isn’t moving into these metals just because prices have risen. It’s moving because investors are repositioning portfolios in an environment that still feels uncertain—geopolitically, financially, and structurally.

That’s it for this edition. Thank you for reading. Do let us know your feedback in the comments.

In the first two parts of this 2026 outlook series, the big takeaway was simple: the storm never really arrived. Inflation has cooled, interest rates have stopped rising, and the global economy has held up far better than most people expected. The widely feared recession, energy shock, or financial accident just didn’t happen.

But that doesn’t mean nothing is changing.

It means the changes are happening quietly—and often in places that don’t show up immediately in the headline numbers.

One of the biggest shifts is where the money is going. AI is no longer just a software story or an internet services theme. It’s starting to show up in the real economy—through spending on data centres, power infrastructure, semiconductors, and industrial capacity. On the surface, this looks like a normal capex cycle. But underneath, a lot of this spending is structural, not cyclical.

At the same time, global trade is being reshaped in slow motion. Supply chains are becoming more regional and more political. Cost and efficiency still matter, but they’re no longer the only priorities.

There’s also a quieter but important change in government finances. In many large economies, budget deficits no longer look temporary. They’re sticking around even when growth is decent, and employment is strong. That’s starting to influence how bond markets behave—and it limits how much room central banks really have to maneuver.

India’s 2026 outlook fits neatly into this global backdrop. On the surface, things look fairly comfortable. Growth is still stronger than in most large economies. Inflation has eased. And policymakers aren’t under the same pressure as their counterparts in the US or Europe.

But India is now entering a phase where growth can’t lean on one big engine anymore. It depends on several things going right at the same time.

Consumption has to gradually take the lead from investment. Government finances need to stay steady even if growth softens. The rupee is doing more of the work in absorbing global shocks. And markets are still figuring out how to value India in a world where global capital is far more selective than it was a few years ago.

Most global outlooks agree on one point: India’s cyclical growth momentum is still intact. But they also highlight a transition underway—from investment-led growth to consumption-led growth.

The post-pandemic recovery leaned heavily on public capex, infrastructure spending, and a strong investment cycle. That engine did what it was supposed to do. The next phase, though, depends much more on households.

Investment-led growth is usually clean and predictable on paper. Projects get announced, money is allocated, and execution can be tracked. Consumption-led growth is messier. It depends on how confident people feel, whether jobs are holding up, and how much room households have in their budgets when inflation or interest rates move.

Let’s start with consumer confidence.

Households aren’t saying things feel great right now. Measures of the current situation have only just climbed back to around pre-pandemic levels. Expectations, though, tell a better story. People feel more optimistic about the year ahead, and that improvement has been steady through 2024 and 2025.

That gap between “now” and “next year” matters. It points to caution in the present but a willingness to spend if conditions don’t deteriorate.

Hiring shows a similar pattern. Employment is better than it was before the pandemic, but it isn’t broad-based. Banks, financial services, and parts of domestic services are adding jobs. IT and software are not. The result is enough income support to keep consumption steady—but not enough momentum to drive a sharp acceleration.

Spending data tells the same story. Vehicle registrations have held up through 2024 and into 2025, with occasional boosts from festive demand and GST cuts. These are exactly the kinds of purchases households postpone when confidence weakens. The fact that they haven’t dropped off tells us something important: people are cautious but not under stress.

At the same time, it raises a question. How durable is this demand once temporary supports fade?

Credit growth to households has slowed from the peaks of 2023, but leverage is still higher than before the pandemic. Retail lending—especially unsecured credit—expanded rapidly in the post-pandemic recovery. Banks have started tightening at the margins, but the system is still digesting that expansion.

This doesn’t point to immediate stress. But it does put a ceiling on how fast consumption can pick up. When households are already carrying more debt, spending responds more to income stability than to lower interest rates alone.

All of this reinforces the broader theme. Consumption in 2026 is likely to be resilient, not explosive. It can keep growth steady, but it’s unlikely to deliver a sharp upside surprise unless income growth becomes much broader.

Inflation plays a big role in all of this.

Prices today are far lower than they were in 2022, especially food prices. That has eased pressure on household budgets. Even without strong wage growth, lower inflation has helped stabilize real purchasing power. In that sense, disinflation has quietly done a lot of the heavy lifting for consumption.

But there’s another side to this. Food is also the most volatile part of inflation. When prices are calm, it brings comfort—but it also brings fragility. A bad monsoon, a supply disruption, or a commodity shock that feeds through the currency can change the picture quickly. India’s inflation backdrop is supportive, but it isn’t bulletproof.

This matters for how we read growth numbers.

Several outlooks point out that real GDP growth in the first half of FY26 benefited from very low price growth in the economy. When prices barely rise, real growth can look strong even if incomes and cash flows are growing more slowly. Some base effects and technical factors also helped flatter growth for a few quarters.

That doesn’t mean the growth story is wrong. It just means headline numbers may be overstating the momentum on the ground.

Put differently, growth is real—but some of it looks better on paper because inflation is unusually low. As inflation normalises, growth may appear to slow even if underlying activity stays steady. From here, nominal growth—the kind that shows up in corporate revenues and tax collections—starts to matter much more.

Now let’s move to monetary policy.

One idea that keeps coming up in global outlooks is fiscal dominance—the sense that central banks have less freedom because governments are borrowing heavily, and cutting deficits is politically hard. India isn’t in the same place as the US or Europe. But the trade-offs still exist.

The RBI has room mainly because inflation is low. That gives policymakers flexibility. But it also means every move carries consequences—for the rupee, for imported inflation, and for overall financial conditions. Rate cuts are possible, and they’re likely to be gradual. The real question isn’t whether there’s one cut or two. It’s how carefully the RBI navigates a world where currency moves matter more, and global risk-off phases transmit quickly through capital flows.

Which brings us to the rupee.

2025 wasn’t a great year for the currency, even as the dollar weakened globally. Looking ahead to 2026, most outlooks sketch two broad paths. In the base case, the rupee stays in the lower half of its long-term range and weakens gradually. In a more adverse scenario, it moves into the upper half of that range—implying sharper depreciation.

What separates these outcomes is largely external. Trade policy, tariffs, and global risk sentiment matter more now than they did earlier in the cycle. A stable trade environment helps anchor currency expectations. Sudden trade shocks do the opposite.

This is where trade stops being an abstract macro idea and starts showing up in everyday prices. Trade outcomes influence exports, capital flows, currency expectations, and inflation. For India, more of the adjustment is now happening through the rupee. The currency is increasingly being used as the shock absorber, rather than interest rates.

There’s also a more constructive side to the trade story.

As global supply chains fragment, India is slowly gaining share in manufacturing and export diversification. This doesn’t show up as a dramatic export surge. It shows up as steady gains across electronics, pharmaceuticals, engineering goods, and supply-chain relocation. It’s a slow, structural tailwind—not a cyclical boost—but it helps cushion growth when global demand is uneven.

These macro shifts are also playing out unevenly across sectors. Areas tied to domestic investment and balance-sheet strength—financials, infrastructure, manufacturing-linked industries, and parts of domestic services—look relatively better positioned going into 2026. Globally exposed sectors, especially IT services, continue to face headwinds from slower overseas demand and delayed client spending. Consumer-facing sectors sit somewhere in between, with staples supported by lower inflation and discretionary spending still sensitive to confidence and income trends.

On the fiscal side, India isn’t facing a loss of control. The bigger issue heading into 2026 is execution.

By the middle of FY26, central government revenues were running below budget assumptions. Gross tax collections were growing more slowly than needed to hit full-year targets. GST collections were also coming in below plan. Non-tax revenues and disinvestment receipts helped, but they didn’t fully close the gap.

That means more of the adjustment has to happen in the second half of the year.

If revenues don’t pick up meaningfully, the choices are limited. Either borrowing rises, or spending is adjusted by changing its timing or composition. Most outlooks assume the deficit target is broadly met. That implies spending flexibility does the heavy lifting, not a change in the headline number.

This is where India looks different from many advanced economies. In the US and parts of Europe, large deficits are being run even with steady growth and low unemployment. India’s fiscal stance is more disciplined. But that discipline also means fiscal space is being preserved, not expanded. If growth softens, there’s less room for discretionary stimulus, and more responsibility falls on private demand.

Now let’s turn to markets.

2025 wasn’t a bad year in headline terms, even if it didn’t feel that way. The Nifty 50 ended the year up a little over 10%. The pain was beneath the surface. Mid- and small-cap stocks underperformed sharply after delivering outsized gains in 2024.

Three factors explain why.

The first factor was earnings. At the start of 2025, earnings expectations for Indian companies were high, running in the mid-teens. As the year progressed, that optimism faded. Earnings upgrades slowed, forecasts were trimmed, and quarterly results stopped delivering upside surprises.

The second factor was valuations. Indian equities entered 2025 trading at a large premium to other emerging markets, with forward multiples well above the EM average. When starting valuations are that stretched, even modest earnings disappointment leads to underperformance. This effect was most visible in mid- and small-cap stocks, where valuations had expanded sharply during the 2024 rally.

The third factor was foreign participation. Despite the correction in Indian markets since September 2024, foreign investors largely stayed on the sidelines instead of stepping in. There are two main reasons for this:

First, global conditions were not supportive. US interest rates stayed higher for longer through most of 2025, keeping dollar assets attractive and limiting risk appetite for emerging markets. In that environment, flows into EM equities remained selective rather than broad-based.

Second, valuations still mattered, as discussed earlier. Even after the correction, India continued to trade at a premium to most EM peers, which reduced the incentive for foreign investors to add exposure aggressively at a time when earnings momentum was slowing.

For 2026, the starting point looks different.

Valuations have reset more through time and underperformance than through sharp crashes. Expectations are lower. Foreign positioning is lighter. That changes how markets react to outcomes. Earnings don’t need to be exceptional to support returns. They just need to improve from 2025 levels and broaden beyond a narrow set of stocks.

At the same time, global equity returns are becoming increasingly concentrated in a small group of AI-linked US mega-caps. That concentration is forcing global investors to think harder about diversification.

The risks haven’t gone away. A global risk-off episode, a renewed spike in US yields, a currency shock, or another round of earnings disappointment would still weigh on flows.

But overall, things for 2026 are more balanced than they were a year ago. Growth is steady. Inflation is supportive. Policy has room, but not full freedom. And markets are far less euphoric.

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Trade isn’t dying, but it’s being rewired

If you only look at the headlines, it feels like globalization is going backwards. Tariffs are rising, trade wars are back, and every country wants products stamped “Made in X.” But when you look through the big global outlook reports, they’re all saying something slightly different. Trade isn’t falling apart. It’s changing how it works.

Morningstar’s outlook captures this mood by calling the moment “Global Trade in Turmoil.” US tariffs are clearly higher than they were before 2018. But for most major trading partners, they still sit below 10%. That’s a real shift, but it’s a long way from the kind of shutdown the world saw in the 1930s. The bigger change isn’t how high tariffs are. It’s where their impact is showing up.

The clearest break is in trade between the US and China. A few years ago, the US took nearly one-fifth of China’s exports. That share has steadily fallen—from around 18–19% in 2017–18 to about 14–15% in 2024, and closer to 11–12% in 2025.

But that trade hasn’t disappeared. It’s been redirected.

Southeast Asia has absorbed a large part of it. The share of ASEAN countries has risen from roughly 12–13% in 2015 to around 17–18% today, making the region China’s largest export destination. Latin America has also taken a bigger share, climbing from about 5–6% to nearly 8%. Europe, meanwhile, has stayed broadly stable. In simple terms, the US–China trade route is narrowing, but China is still exporting at scale—just through different paths.

Goldman Sachs helps put numbers around this shift. In their 2026 Outlook, they estimate that US tariffs now amount to about 18%, the highest burden on American consumers since 1934. Even so, they don’t expect global trade to collapse. Companies have adjusted instead. They’ve shifted supply chains, sourced from more places, and raised prices where possible. So far, many have managed to protect margins despite the policy swings.

When you step back, these company-level moves start to add up to something bigger. As Franklin Templeton argues, globalization isn’t ending so much as being reorganized.

The old idea of one tightly connected global market is fading. In its place, a more political and more regional system is taking shape, built around three broad blocs: North America, Europe, and Asia.

Other reports describe the same shift in different ways. JPMorgan calls it a move from globalization to fragmentation, driven by tariffs, technology controls, and geopolitics. Goldman talks about a new trade order, where companies worry less about being the cheapest and more about keeping supply chains secure.

One data point ties this together. Global trade, as a share of the world economy, has barely grown since 2009. But investment into supply chains has surged.

Regions are rebuilding how things are made and moved—from North America’s push to manufacture closer to home to the fast-growing China–ASEAN–India corridor.

S&P’s data shows China sending far more goods to the Global South than it did a decade ago, strengthening trade within Asia itself. Europe, meanwhile, is feeling squeezed, caught between cheaper Chinese imports and rising protectionism at home.

This new regional order doesn’t benefit everyone equally. Countries like Mexico, Vietnam, Indonesia, and India are emerging as clear winners from this rewiring. At the same time, many Asian manufacturers face tougher competition as Chinese goods are redirected into their markets. And despite all the talk of decoupling, a clean break remains unlikely. The US still depends on allies for minerals and processing, while China’s grip on rare earths keeps both sides tied together.

Big government and the fiscal overhang

On fiscal policy, the reports are surprisingly aligned. Governments are bigger, deficits are wider, and this isn’t something that’s going to reverse anytime soon.

Government finances are already stretched in most big economies, and many are likely to get worse in 2026. As per Morningstar, budget deficits across the G7, China, India, and Brazil are staying firmly in the red through 2025 and 2026. The reasons are well known, but they’re all hitting at the same time: slower long-term growth, aging populations that push up pension and healthcare costs, higher welfare spending, bigger defense budgets, and rising interest bills as old debt is refinanced at higher rates.

Weak public finances are becoming one of the biggest risks to sovereign credit ratings, not just in rich countries but also in large emerging markets like China, India, and Brazil.

What makes this period different is that these deficits aren’t being driven by a crisis. Many governments are running large, persistent budget gaps even though unemployment is low and growth is reasonably stable. That leaves much less room to respond when the next slowdown eventually comes. It also means bond markets start worrying about fiscal risks much earlier than they used to.

Franklin Templeton describes this shift as the start of an “era of big government,” as we touched on in part 1. The old belief in small government, tight budgets, and strict discipline has been fading ever since the global financial crisis. Today, governments are playing a much bigger role in trade policy, industrial strategy, defense, the energy transition, and social support. Their charts show large and ongoing deficits across the US, Western Europe, China, and possibly Japan, with only a small group of emerging markets moving the other way.

Goldman Sachs adds some perspective on scale and market reaction. Global government debt has now crossed $100 trillion. In the US, deficits are unusually large given how strong the economy still is, with debt levels close to post-war highs. Goldman also points to France as a warning sign. Political uncertainty there has pushed 10-year bond yields close to Italian levels, showing how quickly markets can lose patience when fiscal worries meet political instability.

S&P’s Asia-Pacific outlook tells a similar story. Many governments in the region have taken on much more debt since 2019. S&P warns that efforts to cut deficits may stall, as governments lean on spending to deal with high living costs, social pressure, and uneven growth—even if that weakens their balance sheets further.

One important consequence is competition for money. When governments run large and lasting deficits, they compete directly with the private sector for savings. That includes investment in AI, data centers, energy infrastructure, and the climate transition. This makes it harder for interest rates to fall in a meaningful way. Higher real interest rates start to look less like a short-term phase and more like something that could last through the decade. And that raises the bar for returns across markets while putting pressure on valuations if profits don’t grow fast enough.

Markets are also becoming more selective. Not all deficits are treated the same anymore. Countries that issue reserve currencies, like the US, still have more breathing room. But even there, long-term bond yields are reacting more quickly to fiscal news. In countries without that privilege—from parts of Europe to large emerging markets—loose budgets are translating much faster into higher borrowing costs and pressure on credit ratings.

As deficits stay large, central banks face more pressure to support government borrowing. That makes it harder to keep monetary policy fully independent. Inflation control becomes more political, and bond markets become more sensitive to elections, budgets, and policy surprises.

Put simply, three things are happening at once. Governments are spending more—on defense, energy transition, social support, and industrial policy. There’s little political appetite to reverse that. And the cost shows up as higher debt, more nervous bond markets, and bigger swings in long-term yields, especially around elections and budget announcements.

What else do the reports warn about

Beyond the big headlines, there’s a set of slower-moving forces that don’t always make it into the executive summary.

China: slowing down, not falling apart

Most reports don’t see China as heading into a crisis. They see it in the middle of a long transition. S&P describes China as slowly moving away from an economy driven by property and heavy borrowing and toward a more mature model by 2035. The focus is shifting to areas like advanced manufacturing, green technology, and other strategic industries.

This shift isn’t painless. S&P is clear that there will be losers along the way. Some companies—including state-owned firms—and weaker banks are likely to take losses as excess capacity is worked out of the system. The cleanup in real estate is still unfinished.

Local governments are under financial strain. Private investment hasn’t fully recovered. Slower growth, in this sense, is not a mistake. It reflects a choice by policymakers to accept short-term pain in order to create a more stable system over time.

Policy support has also changed. Instead of big, economy-wide stimulus packages, China is using smaller and more targeted tools. Support is being directed toward specific sectors, with selective liquidity help where needed. This makes a sudden collapse less likely, but it also caps how fast the economy can grow. Growth is being guided carefully, not pushed aggressively.

Most of the pressure is now inside the country. Local governments are struggling with weaker land-sale income and rising spending needs. Banks are dealing with stressed loans without assuming they’ll always be rescued. Investors, both at home and abroad, are adjusting to lower returns and more policy uncertainty. The real question isn’t whether China slows—that’s already happening. It’s how the costs of that slowdown are shared across the system.

The main risk, then, isn’t a sharp crash. It’s a long period of repair, where losses are absorbed gradually, and growth stays modest. How well China manages this phase will matter for years to come, even if there’s no dramatic crisis along the way.

Europe: holding up, but fragile

Most outlooks place Europe in an awkward middle spot. Growth isn’t strong, but it isn’t falling apart either. Amundi and Allianz describe an economy that’s being helped by higher spending on defense and clean energy but held back by tight budgets, weak productivity, and ongoing political uncertainty.

The bigger issue isn’t a lack of government support. It’s the absence of a strong private-sector growth engine. Years of underinvestment in technology, slow productivity gains, and an aging workforce mean that government spending mainly prevents things from getting worse, rather than pushing growth higher. Even defence spending takes time to show up in the economy, because contracts move slowly and capacity is limited.

T. Rowe Price flags a near-term risk. Many European exporters appear to have rushed goods to the US ahead of expected tariffs. That may have boosted recent data, but it could leave factories quieter in 2026. If that happens, the ECB may feel pressure to cut rates to support growth.

At the same time, higher government spending—especially in Germany—means more bond issuance. So even if short-term rates fall, long-term bond yields may stay high. Europe’s challenge isn’t avoiding a recession. It’s breaking out of a low-growth pattern where government support keeps the economy stable but can’t fully revive it.

Japan: a real change after decades

Japan stands out as one of the few clear changes in the global outlook. Morningstar notes that the Bank of Japan has started raising rates from extremely low levels, but policy is still loose by historical standards. More importantly, inflation has finally stayed above zero, ending decades of deflation.

The bigger change is in wages. T. Rowe Price expects labor shortages to keep pushing pay higher. This matters more than interest rates. Rising wages support household spending and reduce Japan’s reliance on exports to drive growth.

Policy changes are likely to stay cautious. With very high government debt, the BOJ can’t raise rates aggressively without upsetting the bond market. Any hikes are likely to be slow and careful.

The dollar and emerging markets

For emerging markets, the direction of the US dollar matters a lot. S&P shows that a weaker dollar can make it easier for countries to service debt that’s been borrowed in dollars. That alone can improve financial stability.

Allianz points out that many emerging markets, especially in Asia, are in better shape than in past cycles. Inflation is lower, interest rates are positive in real terms, debt maturities are longer, and more borrowing is done in local currencies. That makes them less vulnerable than during episodes like the 2013 taper tantrum.

Still, a weaker dollar isn’t a magic fix. Countries with weak public finances, unstable politics, or poor institutions remain exposed. The benefits will be uneven.

The likely outcome is divergence. Countries tied into global supply chains and technology investment look better placed than those relying mainly on commodities or loose fiscal policy. A softer dollar creates breathing room, but fundamentals still decide who can use it well.

Demographics: the slow force underneath everything

Demographics run quietly through almost every theme in the reports. Franklin Templeton and Morningstar both point to a widening gap between aging economies—like Europe, the US, Japan, and China—and younger ones such as India, Indonesia, the Philippines, and parts of Africa.

Aging affects much more than growth. Smaller workforces tighten labor markets, push wages up, and make inflation harder to control. At the same time, older populations raise pension and healthcare costs, adding pressure to government budgets.

Younger populations offer opportunity, but nothing is guaranteed. Franklin notes that demographic advantages only turn into growth when countries invest in education, infrastructure, and jobs. Without that, a young population can become a source of stress rather than strength.

Demographics don’t cause sudden shocks. But over time, they decide which economies keep moving forward—and which ones struggle to regain momentum.

That’s it for this edition. Thank you for reading. Do let us know your feedback in the comments.

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The storm that never came has been the big story for the past few years. There were warnings of a recession in the US, an energy scare in Europe, worries about a hard landing in China, and a fight against inflation around the world, with no clear way out. As 2026 approaches, though, the world seems surprisingly stable.

As there’s quite a bit to unpack, in this and upcoming editions of Beyond The Charts, we’ll look at the outlook of big global financial firms like Goldman Sachs, Morningstar, J.P. Morgan, Franklin Templeton, Amundi, S&P, for 2026, and what it means for the rest of the world and India.

The best way to understand 2026 is to see that two themes are happening at the same time. One is that inflation is going down, interest rates are no longer going up, and the world economy has not gone into a deep recession.

But the other, more important one is how AI is changing the demand for energy and computing around the world. Political alignment is changing the way trade works. More money is going to defense, infrastructure, and industrial policy from governments. The need for climate transition is growing faster, and older people are changing the job market and public finances.

In this edition, we will take a look at the global macro outlook and AI.

The macro backdrop

Let’s begin with the big picture.

The first thing that Morningstar says in its 2026 outlook is that the global economy “weathered the trade policy-induced shock relatively well.” Their predictions say that growth in 2026 will be “reasonably strong,” with inflation falling in most advanced and emerging economies.

This chart from the report for the US, Euro Area, UK, and Japan shows these trends clearly. The rise in inflation since its peak in 2022 is behind us. The US and UK are still above their targets, but they are not at their highest points, and interest rates have begun to drop. Japan is the only country where the Bank of Japan is still raising rates from very low levels.

The numbers from Amundi for 2026 make it easier to see how inflation and growth are doing in the world’s biggest economies. They think that the US will grow by 1.9%, the Eurozone by 0.9%, Japan by 0.8%, China by 4.4%, and India by 6.3%. And the CPI inflation will be 3.0% in the US, 1.7% in the Eurozone, 2.1% in Japan, slightly negative in China (–0.2%), and 4.3% in India.

Amundi thinks that by the end of 2026, the Fed funds rate will be 3.25%, the ECB deposit rate will be 1.50%, the Bank of England’s rate will be 3.25%, the Bank of Japan’s rate will be around 1.0%, the PBoC’s 7-day rate will be around 1.20%, and the RBI’s rate will be around 5.0%.

The financial side is the messy part.

Franklin Templeton’s 2026 outlook says that we are now living in “an era of big and intrusive government.” This is most clear in the growing budget deficits of major economies. According to IMF data, economies like the United States will have a fiscal deficit of –7.9% of GDP in 2026, China will have a deficit of –8.5%, Germany will have a deficit of –3.4%, and Japan will have a deficit of –2.0%.

Franklin says that these imbalances are structural, not cyclical. There are the same basic forces at work in all of the major economies: growth is slowing, populations are getting older, social service needs are growing, and defense spending is going up. All of these things are keeping deficits wide even as economies grow.

J.P. Morgan places the US situation in a sharp historical context. They note that “never before have we seen fiscal deficits… delivered outside of recessions.” In plain terms, the US is running recession-sized deficits even though the economy isn’t in a recession. This mix of monetary and fiscal fuel is helping sustain growth, but it’s also creating an unusual setup where deficits keep widening while unemployment stays low.

Amundi states that the “One Big Beautiful Bill” (OBBB) will add $3.4 trillion to US deficits over the next ten years. Many of its tax breaks and credits will help families make ends meet in 2026, which is a stimulus that will come even though unemployment is low.

Taken together with J.P. Morgan’s point, this creates a rare combination: the US is running a fiscally expansionary policy without being in a recession, something that has almost no historical precedent.

Amundi then looks at the G7 as a whole and comes to the conclusion that “fiscal room is shrinking across the G7.” Their study shows that there is a clear divide.

Germany has better public finances than most other countries, so it is using its limited fiscal space to spend more on defense and infrastructure because of slow growth and new security needs.

France and the US have the opposite problem: they have a lot of debt and deficits, but there is no political agreement on how to fix them.

Japan is the outlier. Even as the Bank of Japan begins gently raising rates, the government is shifting toward a more supportive fiscal stance under new political leadership. In other words, Japan is leaning into fiscal expansion at the same time its monetary policy is slowly tightening, which is the opposite of most other G7 economies.

But one theme that keeps coming up across most of these reports is fiscal dominance, the idea that central banks are increasingly constrained by governments’ heavy borrowing. Taken together, they point to the same concern. Major economies are running large, persistent fiscal deficits that are politically difficult to correct, and these deficits are starting to shape inflation, interest rates, and central-bank decisions in the US, Europe, China, and Japan.

AI, data centres, and the electricity supercycle

Now let’s turn to a theme that dominated the conversation in 2025 and is set to stay at the center of everything in 2026, you guessed it right, it’s AI.

What’s different this year is the way everyone is talking about it. It’s no longer just a technology story. In all the major outlooks, AI shows up in discussions about electricity supply, metal shortages, infrastructure spending, government budgets, jobs, and even geopolitics. It has moved from being a “sector” to something that shapes the entire economy.

Franklin Templeton’s long-term outlook includes a chart showing data center electricity consumption rising steeply through the decade. Their point is simple: the first leg of the AI boom rewarded chipmakers and big platforms, but the next leg is going to hit a very real limit—electricity.

They describe AI as having a “vast energy appetite” and say that the world now needs to “feed the beast,” not by building smarter chips but by building a lot more power plants, strengthening transmission lines, and investing in large batteries and storage. And once you go down that path, you see the knock-on effects.

You need more engineering capacity, more copper, more rare earths, and more industrial metals—because behind every AI model is a physical world of cables, transformers, cooling systems, and substations that has to scale up too.

AI, they argue, now has a “vast energy appetite,” and meeting it will require enormous investment in generation capacity, modern transmission lines, and large-scale storage. This, in turn, spills over into engineering, basic materials, rare earths, and industrial metals, because every layer of AI infrastructure ultimately relies on physical systems, not just software.

Amundi looks at the problem from another angle, which is the grid itself. In many advanced economies, about 40% of the grid is over twenty years old and these networks were never designed for the combination we now have with rising data center loads, industrial electrification, and mass EV charging. Amundi points to research showing that updating these systems will take hundreds of billions of dollars over the next decade.

They also highlight how fast the demand is rising: US data centers alone could end up using close to 9% of the country’s electricity by 2030. Add the green-energy push on top of that, and the pressure on metals like copper jumps sharply, because copper sits inside almost every part of an electrified economy.

S&P’s Asia-Pacific Credit Outlook shows why this pressure becomes even more intense in Asia. The region already accounts for more than half of global emissions and almost two-thirds of new energy demand, according to the IEA—and that’s before adding the extra load from AI.

With digital adoption racing ahead, from payments and logistics to cloud computing and AI workloads, S&P warns that Asia’s energy demand “can only go up,” and that some countries could “see lost growth” if they don’t upgrade grids and improve resilience fast enough. They expect electricity use from data centers in the region to more than double by 2030.

However, the region faces practical constraints: markets in Southeast Asia are already seeing pressure on water supplies for cooling, and competition for power is intensifying—making it increasingly difficult to build and sustain large data center clusters.

All this infrastructure spending isn’t just putting pressure on the system; the charts show that it has already become a major driver of economic activity. One of the clearest examples comes from Amundi’s 2026 Outlook. Technology and AI-linked investment are adding more to US growth than household consumption. Investment has stayed strong even as consumption has cooled, and that widening gap is a big part of why the US economy hasn’t lost momentum.

You see the same pattern in other reports, too. Morningstar’s global outlook highlights just how large the AI build-out has become. Most of the capital spending by hyperscalers—the big cloud and AI players like Amazon, Microsoft, Google, and Meta—is climbing sharply from 2025 to 2026. The scale is striking: by their estimates, hyperscaler capex will be more than four times what the entire US energy sector is expected to spend. Goldman Sachs doesn’t give a precise GDP contribution, but this is exactly the kind of spending they have in mind when they describe data center construction as a central pillar of the US investment cycle heading into 2026.

While S&P shows that data center development across Southeast Asia, parts of Australia, and India has become a meaningful part of investment plans, backed by both private companies and utilities. They also explain that these projects require heavy upfront spending and increasingly complex financing. Instead of relying only on equity and bank loans, firms are turning to a mix of project finance, asset-backed structures, and, eventually, corporate bonds.

AI and inflation

A number of reports also draw a link between this global build-out and inflation, making the case that rebuilding energy systems, strengthening grids, and scaling up renewable capacity will keep investment needs—and therefore prices are now higher than they were in the 2010s. None of them say AI is the sole driver. But they all place AI inside a bigger structural investment wave that includes the green transition, supply-chain security, and national-security spending.

Put together, these forces make it difficult to imagine a return to the old low-inflation world. And because governments will have to support parts of this transformation—especially grid upgrades, storage, and resilience infrastructure—these investment demands also put pressure on public finances.

Franklin Templeton adds an important point about timing. The investment comes first; the productivity gains come later. Firms need time to understand how to use AI tools, train workers, and redesign workflows. The payoff only shows up after this adjustment, not at the start.

They also lay out what this means for workers. AI will phase out some roles and create others, but the transition won’t be smooth. There will be a period where companies experiment, workers adapt, and skill requirements shift. Productivity will improve in the long run, but getting there involves plenty of friction.

There’s also the geopolitical layer. J.P. Morgan notes that the US–China rivalry is increasingly shaped by access to advanced chips, compute capacity, and high-end AI hardware. AI capability is becoming a quiet marker of national strength. It influences industrial strategy, export restrictions, investment screening, and diplomatic relationships. Countries are now competing not just on software or model breakthroughs, but on who can secure the land, electricity, cooling water, and chips needed to run large-scale computing.

Impact on markets

And AI is reshaping financial markets as well. Morningstar’s data on the Global Next Generation AI Index shows just how dominant US companies have become within the AI universe. A handful of mega-cap names have come to dominate the entire basket. NVIDIA, Microsoft, Alphabet, Amazon, Meta, Broadcom, and Oracle—together, they have pushed the US share of this AI index from under 20% a few years ago to well above 30% by 2025.

This is the concentration story that Goldman Sachs also talks about in their outlook: the enthusiasm around AI has lifted a small cluster of mega-cap technology firms to the point where they now dominate index returns. The chart makes the point visually—when so much of the market’s AI exposure sits inside a few companies, the entire index becomes more sensitive. If these firms move, everything else tends to move with them.

Across all these outlooks, one conclusion keeps coming back. The next chapter of AI won’t be defined only by model breakthroughs or faster processors. It will depend on the companies and sectors that build and maintain the physical foundation for all of this, which are the equipment makers, engineering firms, grid operators, renewable-energy developers, metals producers, utilities, logistics networks, and the data-center specialists who house and cool the hardware. AI is becoming as much a story about transformers, cooling systems, and copper as it is about algorithms.

That’s it for this edition. Thank you for reading. Do let us know your feedback in the comments.

In this edition, we take a look at Goldman Sachs’ report named “Investing in Everything, Everywhere, All at Once.” The report explores how the world’s entire stock of investable assets—what Goldman calls the World Portfolio—has grown, changed, and concentrated over time, revealing how financial markets today have come to dwarf the real economy.

The world portfolio is essentially the sum of all investable assets around the world; the list includes global equities, bonds, gold, and alternative assets.

And let’s start with the big number: The report estimates the total value of these assets at about $261 trillion.

This is a little more than twice the size of global GDP, compared with about 75% of global GDP in the early 1990s. The increase reflects long-term asset returns as well as the expansion of global capital markets.

A big part of it is simple math. Over the past 75 years, a global mix of stocks, bonds, and gold has returned about 7.8% a year before inflation and just over 4% after inflation. That may not sound like much, but over 75 years, that compounds massively.

Another reason is how financial markets themselves have changed. Since the 1950s, global markets have grown deeper and more liquid. Companies issued more equity, governments borrowed more, and falling interest rates increased the value of existing bonds. As multinational companies expanded and technology made markets more connected, investors could access a far wider range of assets across countries.

This growth hasn’t been smooth. Different periods have favored different kinds of assets.

• In the 1970s, high inflation weakened both stocks and bonds, while gold held up better.

• In the 1990s, as inflation eased and global markets opened up, equities—especially technology companies—saw strong gains.

• After the 2008 financial crisis, very low interest rates and central bank support boosted the value of both stocks and bonds, increasing the overall size of financial markets.

One of the biggest shifts in the world portfolio is the increasing weight of the United States. Since the 1950s, U.S. equities have made up roughly half of the global equity market, and that share has grown over time. Today, the U.S. represents about 60 to 65 percent of global equity value, far ahead of any other single market.

Why has the U.S. become so dominant?

One reason is the outperformance of U.S. markets and companies. Since the 2008 financial crisis, the U.S. equity market has delivered stronger returns than most other regions. U.S. companies have reported higher and more stable profitability, supported in part by the expansion of large technology firms, lower financing costs, and relatively moderate wage growth over the period. These factors raised earnings and valuations, increasing the weight of U.S. equities in global benchmarks.

Sector composition also played a role. The U.S. has a larger concentration of technology and communication services companies, which performed well over the past decade. In contrast, regions with higher weights in banks, energy, or industrial sectors saw comparatively weaker returns, widening the gap between U.S. and non-U.S. markets.

Global investor behavior has contributed as well. U.S. assets benefit from the depth and liquidity of American capital markets and the reserve-currency status of the U.S. dollar, leading many international investors to treat them as a reliable long-term holding. As global benchmarks became more U.S.-heavy, overseas allocations tended to follow.

Though it’s worth noting that U.S. dominance has ebbed and flowed historically. For example, U.S. stocks also outshone others in the 1990s, whereas the 2000s saw some catch-up by emerging markets. The current era, however, shows an extraordinary American lead.

Along with regional shifts, the sector composition of global markets has also changed over time. Technology and Financials now make up a significant share of global market capitalization, while sectors linked to commodities account for a smaller portion than in earlier decades.

In previous periods, global indices had larger weights in energy, materials, and industrial companies involved in oil, mining, and manufacturing. As economies shifted toward services and knowledge-based industries, the composition of listed companies also changed.

Technology firms across software, internet services, hardware, and electronics, along with financial institutions such as banks, insurers, and payment companies, now represent a substantial part of global equity value. Goldman’s exhibits show these two sectors collectively outweighing commodity-linked sectors, which have declined as a share of total market capitalization.

Historical events have also influenced sector weights. For example, the Financial sector lost ground after the 2008 Global Financial Crisis (GFC) and has not regained its pre-crisis stature. Before 2007, banks and other financial firms accounted for a much larger portion of global indices, but the crisis led to a significant and lasting reduction in their valuations.

In the years that followed, the Technology sector increased its share. Large U.S. technology companies—such as Apple, Microsoft, Google, and Amazon—expanded substantially and became some of the largest constituents of global equity markets, surpassing the size of major financial institutions and energy companies.

These sector changes also appear in investor allocations. Global investors have gradually increased their equity exposure, and overall equity weights are now close to levels last seen in the late 1990s.

That said, allocation preferences vary by region. Europe’s financial system is more bank-centred and less integrated than the U.S., and this structure has contributed to European investors holding lower equity allocations. In markets where capital markets are smaller or where households rely more on bank deposits, participation in equities has historically been lower as well.

Another behavioral trend is the influence of benchmarks on investor decisions.

As global indices have become more weighted toward U.S. assets, investors who track these benchmarks have increased their allocations to U.S. equities and bonds. As per the report, investors in G10 countries outside the United States have steadily raised their exposure to U.S. markets, and overseas ownership of U.S. equities is currently at its highest recorded level.

Given these trends, Goldman examines whether simply investing in the world portfolio “as is” is the best strategy. Interestingly, the analysis finds that just matching the global market portfolio has seldom been the optimal portfolio historically.

For example, since 1950, a basic 60/40 mix of global equities and global bonds has delivered stronger long-term risk-adjusted returns than the market-cap-weighted World Portfolio.

The report notes that over long horizons, the world portfolio rarely maximizes risk-adjusted returns (Sharpe ratio) compared to other allocations. In fact, the world portfolio often underperformed simpler strategies like 60/40.

The years after the 2008 financial crisis provide one example. During this period, U.S. equities outperformed most other asset classes, and portfolios with a deliberate overweight to U.S. stocks saw stronger returns than the globally diversified World Portfolio.

In conclusion, the world portfolio helps show how global markets have shifted over the decades—across regions, sectors, and asset classes. Its evolution reflects changes in market structure, economic cycles, and the growing weight of U.S. and technology-related assets.

That’s it for this edition. Thank you for reading. Do let us know your feedback in the comments.

In this episode of Beyond the Charts, we’re unpacking how this massive system works and how it’s changing, based on insights from the UNCTAD Review of Maritime Transport 2025. We’ll look at what’s driving global shipping today, from shifting trade routes and new technologies to the growing pressures of geopolitics and climate goals, and what all of this means for the future of trade.

Let’s start with the big picture.

Growth amid volatility

After the pandemic shock, maritime trade has bounced back, but not quite the way it used to. In 2024, global seaborne trade reached 12.7 billion tons, up 2.2% from the year before. That’s slightly above the average growth of the past decade but well below the boom years of the early 2000s. In other words, shipping recovered, but the long-term trend points to slower, more uneven growth. UNCTAD expects trade to rise by just 0.5% in 2025, essentially flat.

Why the slowdown? Global trade faces a tricky mix of headwinds: weak demand, persistent inflation, and tighter financial conditions. Even the WTO projects that overall merchandise trade will grow barely 0.1% this year.

Beyond short-term shocks, there’s a deeper story: the link between global trade and GDP is weakening. Economies are growing, but each unit of GDP now generates less cross-border trade than before. That’s why shipping volumes aren’t surging even as recoveries take hold.

And yet, volatility remains the defining feature. Think about it: trade collapsed in 2020, roared back in 2021, slowed again with the Ukraine war, energy crisis, and inflation in 2022–23, and then was disrupted once more by the Red Sea crisis. These stop-start cycles make life hard for shippers and ports, which swing between capacity crunches and quiet docks.

Here’s a fascinating detail from the UNCTAD report: in 2024, while total trade volume rose 2.2%, shipping output in ton-miles jumped nearly 6%. That means ships were sailing farther on average—a direct effect of longer detours and rerouted trade. So even modest growth in trade can mean much higher demand for shipping if supply chains stretch out. But if routes shorten again, the same ships could suddenly be in excess supply.

For now, those longer voyages are keeping ships busier and freight revenues higher. The question is, what happens when the world’s sea lanes normalize?

Geopolitics redrawing the map of trade

Not since the Suez Canal crisis of the 1960s has the geography of global shipping been this disrupted.

Geopolitical tensions and climate shocks are literally redrawing the world’s sea routes, forcing ships to take longer, costlier detours.

Take the Red Sea. It’s one of the most important arteries of global trade, linking Asia and Europe through the Suez Canal. But since late 2023, escalating conflict around the region has made it too risky for many vessels to pass through. By May 2025, traffic through the Suez Canal had dropped almost 70% from 2023 levels. Instead, ships began sailing thousands of extra miles around Africa’s southern tip—the Cape of Good Hope.

The Panama Canal has faced its own crisis, not from war, but from climate. A historic drought lowered water levels and forced authorities to restrict the number of ships passing through in 2024. Between the Red Sea and Panama disruptions, vessels were suddenly traveling much longer routes, causing massive delays and driving up costs.

The numbers tell the story. While total trade volume in 2024 grew just 2.2%, total shipping output in ton-miles jumped nearly 6%. Container ships saw an even sharper rise,

up almost 19%.

In short, the same cargo now needed more ships and more sailing time to move. That kept freight markets tight, even without a surge in trade volumes.

But there’s a trade-off. Longer voyages mean higher fuel and insurance costs, more emissions, and slower deliveries. According to UNCTAD, global shipping emissions rose 5% in 2024, partly because of these extended detours.

And it’s not just the Red Sea or Panama.

The war in Ukraine has completely reshaped energy routes. Russian oil that once flowed to Europe now travels on longer-haul voyages to Asia, while Europe imports oil from the U.S. and the Middle East instead. That “shuffle” has pushed up average voyage distances for tankers.

Meanwhile, tensions around the Strait of Hormuz, which handles 11% of world maritime trade and over a third of all seaborne oil, continue to keep the world on edge. The flare-up between Iran and Israel in mid-2025 sent tanker freight rates soaring due to rising war-risk premiums.

Even trade policy is reshaping shipping lanes.

In 2025, the U.S. introduced new tariffs and proposed port fees on certain foreign-built or -operated vessels. These measures are still evolving, but they could change how global fleets are deployed and which ports they frequent.

All this is driving a deeper shift in how supply chains are organized. Companies are diversifying production and sourcing, moving away from over-centralized models. We’re already seeing stronger export growth from Southeast Asia—countries like Vietnam, Thailand, and Indonesia—as well as from India and Mexico.

ow, it’s important to separate what’s temporary from what’s structural.

Some of these detours, like the Red Sea reroutes, will probably end when security improves. But others may be here to stay. Climate-driven water shortages, like those at the Panama Canal, could become more frequent. And geopolitical rivalries aren’t going anywhere. That means global shipping might have to stay permanently more flexible, adapting to an era of shifting trade corridors.

The impact of all this isn’t shared equally.

• For businesses, longer routes mean higher logistics costs and more uncertainty.

• For policymakers, it highlights the need for secure trade corridors and better regional connectivity. And for consumers, it often translates into higher prices for imported goods.

But the harshest impact falls on developing countries, especially small island and landlocked nations. As UNCTAD’s foreword puts it:

“Small island developing States watch their import bills soar while their export competitiveness erodes. Landlocked developing countries sometimes pay transport costs three times the global average, and that gap widens with each disruption.”

In other words, the great rerouting of global trade isn’t just a story about ships and canals. It’s a story about how distance, politics, and climate are reshaping the cost of being connected to the world.

Container shipping: Navigating new routes and capacity shifts

If you’ve ever seen those giant ships stacked high with colorful containers, you’ve seen the workhorses of global trade.

Container shipping keeps the world’s supply chains running, moving everything from electronics to furniture to clothing in standardized steel boxes that make global trade possible.

But after a wild few years, this sector is now in the middle of a reset, adapting to new trade routes, new partnerships, and a lot of uncertainty.

Let’s start with how trade routes themselves are changing.

The big East–West corridors, connecting Asia with Europe and North America, still dominate global container traffic. But growth is shifting elsewhere. South–South trade routes like Asia–Africa, Asia–Latin America, and intra-Asia were the most dynamic in 2024. As developing economies industrialize and trade more with one another, we’re seeing more direct shipping links between these regions.

This isn’t just about new markets; it’s also about resilience. Shippers are deliberately diversifying routes and building more flexible supply chains to avoid dependence on any single chokepoint or trade lane. In other words, global trade is learning to hedge against shocks.

Now, the industry side of the story.

After the pandemic, container lines made record profits as freight rates hit historic highs. From 2021 to 2022, they went through what UNCTAD calls a “cash-flow boom.” Carriers used that windfall to order a wave of new, larger ships.

Those vessels are now being delivered just as demand growth is slowing. In 2024, total container shipping capacity jumped nearly 10%, the biggest annual increase since 2008, raising fears of too many ships chasing too little cargo. When that happens, freight rates usually fall.

And rates have indeed been swinging wildly.

The Red Sea crisis in early 2024 sent them soaring close to pandemic peaks. By the end of the year, they had cooled, but they stayed well above pre-crisis levels. Then, in the first half of 2025, they spiked again, this time because exporters rushed to ship goods ahead of possible tariff changes and amid rising geopolitical risks.

The report sums it up neatly: trade policy uncertainty, new domestic shipbuilding programs, and shifting alliances are making this one of the most volatile periods in container shipping history.

Speaking of alliances, the industry map is being redrawn.

The long-standing 2M alliance between Maersk and MSC ended in 2025. Maersk joined Hapag-Lloyd to form the new Gemini Cooperation, while ONE, HMM, and Yang Ming created the Premier Alliance.

Meanwhile, MSC, now the world’s largest carrier, has decided to go solo.

These new partnerships aim to match capacity with shifting trade flows, but they’re also causing short-term confusion for shippers about routes, schedules, and reliability.

So where does that leave the industry?

The container sector is coming down from the extreme highs of 2021–22 and entering a more balanced but uncertain phase. Fleet capacity is growing faster than trade volumes. Routes are becoming more diverse. Alliances are reshaping.

UNCTAD expects containerized trade to keep expanding, though at a slower pace than fleet growth. For businesses, that could mean lower freight costs than in the boom years, but also more volatility as carriers adjust.

Energy cargoes: fossil fuels down, gas up

The makeup of what the world ships by sea is changing—and nowhere is that more visible than in the energy trade. For decades, bulk energy cargoes like oil and coal dominated maritime shipping. Today, decarbonization goals and geopolitics are reshaping those flows, some changes temporary, others structural.

Let’s start with coal.

Despite the global shift toward cleaner energy, coal remains a heavyweight in dry bulk shipping. In fact, 2024 saw a 3.3% jump in seaborne coal trade, reaching its highest level since 1980. The main reason? Strong demand from Asia—especially China and India—and industrial stockpiling by several importers.

But as UNCTAD points out, this is a “temporary rebound” rather than a comeback. In the long run, coal’s share in maritime trade is flattening out, while gas and cleaner fuels slowly gain ground. The center of gravity has decisively moved eastward: European and North American imports are shrinking, and Asia now dominates both demand and trade routes.

That means longer voyages, for instance, coal shipments from Colombia or Russia traveling farther to reach Asian ports. Yet, even with occasional demand spikes, the broader trend is clear: a gradual decline in coal’s role as climate policies tighten over the coming decade.

Oil tells a similar story: long-term pressure from the energy transition, but short-term turbulence from geopolitics. In 2024, seaborne crude oil shipments fell by 1.5%, and refined petroleum products slipped 0.7%, extending a pattern of stagnant growth seen since 2010. But interestingly, ton-miles, which measure both cargo and distance, rose: up 1.6% for crude and 6.5% for refined products.

Why? Because the war in Ukraine and related sanctions have forced a massive reshuffling of routes. Europe has cut pipeline imports from Russia and is now buying oil from the U.S. and the Middle East, while Russia sends its barrels east to Asia.

So even though less oil is moving overall, ships are sailing much farther. Tanker markets stayed firm in 2024, not at the wild peaks of 2022–23, but still profitable thanks to those longer hauls. And new players like Brazil and Guyana are emerging as exporters, driving even more long-distance shipments to Asia.

Then there’s liquefied natural gas, or LNG, the most dynamic fossil fuel in maritime trade right now.

Often seen as a “bridge fuel” in the energy transition, LNG has become central to global energy security. In 2024, LNG trade volumes rose 1.1%, but ton-miles surged a massive 12.2%. That means much longer voyages, from Africa and the U.S. to Asia and Europe, as new export terminals came online in both regions.

UNCTAD expects this momentum to continue in 2025 as more liquefaction capacity ramps up. The LNG fleet is growing fast, with a record order book and new routes forming as the U.S. joins Qatar and Australia among the top exporters.

And beyond these fuels?

There’s already talk of hydrogen and ammonia as potential clean-energy cargoes of the future. But for now, UNCTAD notes, they’re more relevant as alternative ship fuels than as major traded commodities.

Critical minerals

For most of the 20th century, oil was the world’s “strategic commodity.” In the 21st, a new set of materials is taking that title—critical minerals. These are the metals that power clean energy and high-tech industries; think about lithium, cobalt, nickel, copper, and more. They’re what make electric-vehicle batteries, wind turbines, solar panels, and smartphones possible. And as demand for all these products soars, seaborne trade in these minerals has surged, turning ships into the new arteries of the green economy.

The report calls this one of the defining shifts of our time. Asia, and especially China, has become the central destination for many of these minerals because that’s where most of the processing and manufacturing happens. Meanwhile, Africa, Latin America, and Oceania are the main sources. Think copper from Chile and Peru, cobalt from the DRC, bauxite from Guinea, and nickel ore from Indonesia almost all flowing toward Asia.

But here’s the catch: production and trade are highly concentrated.

The report notes that global trade in critical minerals “remains concentrated in a handful of exporters,” which makes supply chains vulnerable to both political and logistical shocks. One striking example: in 2023, the DRC accounted for more than 80 percent of all seaborne cobalt exports. That level of dependence mirrors the old reliance on a few oil producers decades ago.

Naturally, this has set off a geopolitical scramble. Importing countries are racing to secure supply.

The U.S. Inflation Reduction Act and the EU Critical Raw Materials Act both aim to diversify sources and expand domestic processing. On the other side, resource-rich countries are asserting more control, imposing export restrictions, as Indonesia has done for nickel, or adding local-content rules to keep more value at home.

For maritime trade, this means bigger cargo volumes and new routes. UNCTAD reports steady growth in seaborne shipments of bauxite, nickel ore, manganese ore, and copper concentrates, mostly carried by bulk carriers.

Strategically important lanes now link Africa, Latin America, and Australia with Asia’s industrial centers, above all, China. If you trace copper and cobalt flows on UNCTAD’s maps, Asia clearly sits at the heart of this new network.

Is this shift temporary? Hardly.

UNCTAD’s projections show global demand for these energy-transition minerals could nearly triple by 2030 and quadruple by 2040. That means decades of expansion in mining, processing, and, crucially, shipping.

While recycling and technology might ease the pressure later, the near-term reality is clear: the ocean trade in critical minerals is entering a long-term growth phase. And just like oil once did, these materials are already reshaping alliances, with countries forging new strategic partnerships around minerals to secure their place in the clean-energy supply chain.

Decarbonizing the fleet

Even as ships carry the materials needed for the world’s green transition, the shipping industry itself faces one of its toughest challenges yet: decarbonization.

Maritime transport is incredibly efficient for moving huge amounts of cargo, but because of its sheer scale, it’s still a major emitter. Big ships burn fossil fuels, and the sector accounts for about 3% of all global emissions. UNCTAD calls this “the gap between ambition and reality”, a gap the industry now has to close.

And it’s not getting easier. In 2024, shipping emissions rose about 5%, partly because vessels had to take longer routes and sail faster to meet delivery schedules. Meanwhile, more than 90% of the global fleet still runs on conventional fuels. Only 8% can currently use cleaner alternatives.

To change that, regulators are moving fast. In July 2023, member states of the International Maritime Organization adopted a climate strategy aiming for net-zero emissions from shipping by around 2050, with interim goals for 2030. Then, in April 2025, the IMO’s environment committee approved draft measures under a new Net-Zero Framework, a global system that combines technical and economic tools to drive change.

Here’s how it works:

• First, a fuel standard: ships will need to reduce the greenhouse gas intensity of the fuel they use over time.

• Second, a pricing mechanism: ships that exceed emissions targets will have to buy “remedial units,” contributing to a new Net-Zero Fund, while cleaner ships could earn rewards. That fund would then help finance innovation, port infrastructure, and a just transition for developing countries.

So, what does a low-carbon future look like at sea?

It won’t be one single fuel or technology, but a mix. LNG is already being used as a transition fuel, making up over a third of all new ship orders in 2024. Methanol is gaining ground quickly, while ammonia and hydrogen are seen as the next generation of zero-emission fuels, though technical and safety hurdles remain. At the same time, efficiency improvements—better hull design, slow steaming, smarter routing, and even wind-assist technologies—are helping ships burn less fuel.

The orderbook shows how fast the industry is pivoting.

As of May 2025, more than half of all ships on order, about 53% by tonnage, are being built to run on alternative fuels. But this creates a “zero-carbon fuel dilemma.” Ships last 20 to 30 years, and no one knows which future fuel, be it ammonia, hydrogen, or something else, will win. That uncertainty makes it challenging for shipowners to commit today.

Existing regulations are also tightening. Since 2023, measures like the Energy Efficiency Existing Ship Index (EEXI) and the Carbon Intensity Indicator (CII) have forced ships to meet efficiency benchmarks. Those that don’t must either slow down or retrofit—both of which affect costs and capacity.

And if the IMO’s carbon-pricing plan is approved, operating costs will rise further for high-emission vessels, giving shipowners another reason to go green.

But going green won’t be cheap. UNCTAD estimates annual investment needs between $8 and $28 billion for new or retrofitted ships and an additional $30 to $90 billion a year for onshore infrastructure, things like green-fuel production, storage, and port refueling systems. Many older ships will likely be recycled, converted, or replaced in the coming decade as the fleet turns over.

In short, the decarbonization of shipping is no longer a distant goal; it’s a massive industrial transformation already underway. And while the road to zero-carbon seas will be long and costly, the direction is now set: global shipping is finally starting to clean up the cargo that makes the world go round.

Ports and People

Maritime trade isn’t just about ships and cargo. It’s also about the ports and the people that keep this massive system running. The last few years have stress-tested both, pushing ports to become smarter l and more efficient while also reminding the world just how vital human labor is to global trade.

Ports are where sea meets land, and they’ve been under pressure. Even in 2024, congestion was rising. UNCTAD data show that the average vessel waiting time increased from 5.2 to 6.4 hours in developed countries and from 10.2 to 10.9 hours in developing ones. Those few extra hours may not sound like much, but across thousands of ships, they ripple through the entire supply chain, adding costs and delays that businesses and consumers ultimately feel.

To fix this, ports are going digital. Tools like Maritime Single Windows and Port Community Systems are transforming how information flows—allowing ships, customs, and port authorities to exchange data electronically instead of relying on paper or siloed systems. This means faster cargo clearance, smoother vessel scheduling, and more predictable turnaround times. UNCTAD’s data even show that ports using these systems tend to score higher on logistics and trade facilitation indicators. Automation, from yard cranes to container tracking, is speeding things up even further.

But digitization brings new risks. As ports become more connected, they also become more vulnerable to cyberattacks that can cripple operations.

Then there’s the human side of the story. Ports depend on people, and the workforce itself is evolving. There’s been progress on gender diversity; in 2024, women held 39% of management and administrative roles in reporting ports. But in hands-on operational jobs like cargo handling, that figure drops to just 2%. Automation could help change that by making physically demanding roles more accessible, but it’ll take active policy support to close the gap.

At sea, the situation is even more urgent. The industry faces a growing seafarer shortage, worsened by the tough conditions exposed during the pandemic. The report highlights that protecting seafarers’ rights, fair treatment, shore leave, repatriation, and safe working conditions under the Maritime Labor Convention is essential to attract and retain skilled crews. Without them, global trade literally stops.

As automation advances and autonomous ships edge closer to reality, the kinds of maritime jobs will change. Some traditional roles may disappear, but new ones, in technology, data, and remote operations, will emerge. Managing this transition fairly, through training and upskilling, is key to keeping the system both efficient and humane.

Digitalization and human welfare now sit side by side as priorities. “Smart ports” using data, AI, and IoT are becoming the norm, enabling faster, cleaner, and more reliable trade flows. And international frameworks, from the IMO’s Facilitation Convention, which mandates digital port systems, to the WTO’s Trade Facilitation Agreement, are pushing for universal adoption, especially in developing countries that risk being left behind.

Looking ahead

Maritime trade has always been called a barometer of the global economy, sensitive to every breeze or storm. And right now, it’s sailing through both: short-term turbulence and long-term transformation.

The challenge is knowing which is which.

Structural shifts are the deep, lasting changes: a slower pace of global trade, new routes shaped by emerging markets, the reshaping of energy cargoes as the world goes green, the rise of critical minerals, and the twin revolutions of decarbonization and digitalization within shipping itself. These are the forces that will define maritime trade for decades to come. To stay ahead, shipping lines might focus on high-growth routes in the Global South, invest in dual-fuel vessels, or build expertise in moving new cargoes like critical minerals.

Meanwhile, cyclical forces, like geopolitical uncertainty, will keep testing the system. The trick is to stay resilient enough to ride out those waves without losing sight of the horizon. A port might expand and digitize, but it also needs contingency plans for sudden disruptions. A shipping company might enjoy a temporary freight spike, but if it rushes to order too many new vessels, it risks repeating an old mistake and being caught in the next downturn.

Ultimately, maritime trade isn’t just about ships or cargo; it’s about connection. It reflects how economies rise, adapt, and endure through change. If the industry can stay steady through today’s turbulence, it won’t just weather the storm; it’ll help steer global trade toward a more resilient and sustainable future.

That’s it for this edition. Thank you for reading, and do let us know your feedback in the comments.

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Global uncertainty is on the rise, from new US tariffs to fiscal strains in advanced economies, but India so far has managed to hold its own. In this edition of Beyond The Charts, we will take a look at some insights from RBI’s September Bulletin and some interesting charts on the Indian economy.

Let’s start with India’s economic growth. Both reports converge on one theme: the economy is being driven from within. In the first quarter of FY26, GDP grew 7.8%. Most of that came from private consumption and fixed investment—in simple terms, people spending more on goods and services, and businesses putting money into factories, housing, and infrastructure. On the other hand, trade dragged growth down, since imports were higher than exports.

The high-frequency indicators tell a similar story. GST e-way bills, power demand, and toll collections all grew strongly in August. But there’s more to those numbers than meets the eye. Part of the growth came from festive stocking—companies moving goods early to get ready for the upcoming festival season, when demand usually jumps. Another factor was exporters rushing shipments ahead of new US tariffs, trying to soften the impact of higher import duties by sending goods before the hikes took effect.

Rural revival, Urban softness

Shifting to demand patterns, there’s a clear change. Demand in Rural India is picking up again, something we discussed in the previous edition of Beyond The Charts. Tractor and two-wheeler sales rose in August, more farm jobs opened up with kharif sowing, and demand for MGNREGA dropped. Good rains and healthy reservoirs supported sowing and also helped keep food prices in check.

Urban India, on the other hand, looks weaker. Car sales were modest, and domestic air travel actually fell. That’s the opposite of the trend seen from 2021 to 2024, when cities were driving growth while villages struggled with high inflation.

Coming to employment trends. The unemployment rate fell to 5.1% in August, mainly because urban unemployment dropped. More people are joining the workforce, and hiring is steady in areas like technology, insurance, hotels, outsourcing, and real estate. Business surveys also show companies are still adding workers in both the manufacturing and services sectors.

Trade: Narrowing deficit, fragile cushion

When we look at India’s trade with the rest of the world—what economists call the external sector—the picture is mixed. On the goods side, India usually runs a deficit, since imports of oil, electronics, and gold outweigh exports. In August, though, the gap narrowed sharply,

At $26.5 billion, it was much smaller than the $35.6 billion deficit a year earlier. Exports of engineering goods, petroleum products, electronics, gems and jewellery, and pharmaceuticals all rose. Imports fell in gold, coal, and transport equipment. Oil imports did go up, but not enough to undo the overall improvement.

Services are a different story. India usually earns more from services than it spends, mainly because of IT and business outsourcing. In July, net services exports rose 10.2% year on year to $16.4 billion. Imports also grew, mostly from travel and royalty payments, but the surplus stayed strong, just as it has since the mid-2010s. The RBI warns, though, that weaker global IT spending, automation, and tighter visa rules could put this cushion at risk.

Inflation: calm, but watch food

Now let’s look at inflation. Consumer price inflation in August was just 2.1%, comfortably below the RBI’s 4% target. On the food side, the picture was mixed. Prices of cereals, fruits, and milk cooled, while vegetables, pulses, and spices were still in deflation.

Fuel inflation also eased—electricity and kerosene got cheaper, though LPG prices remained high.

Core inflation, which strips out food and fuel, ticked up slightly to 4.2%. That was mostly because of higher gold prices, even as inflation in housing, clothing, health, and transport softened.

But the RBI warns the risks aren’t gone. Pulses and onions are still volatile, high-frequency data already show cereals picking up in September, and higher wages could add to costs through what it calls “second-round effects.” In other words, the headline number looks calm, but for households, kitchen bills still feel heavy.

Industry and Services

Industrial activity is holding firm. The eight core sectors grew strongly in August, with steel and coal showing double-digit gains, cement rising, and electricity steady. The manufacturing PMI even touched an 18-year high — a clear sign of infrastructure build-out. But the RBI points out that much of this momentum is coming from government capital spending, while private investment still hasn’t fully returned.

Services are doing well too. The services PMI climbed to its highest level in 15 years, with air travel, commercial vehicle sales, digital payments, rail freight, and port cargo all expanding. Since 2020, services have been the most reliable driver of growth. But because they depend so much on urban incomes, they remain vulnerable to any slowdown in jobs or wages.

Credit, capital flows, and buffers

Let’s look at the financial system. Bank credit growth eased to around 10% year on year in early September. Retail loans—housing, gold, and personal loans—remain the main driver.

Credit to services was also strong, led by trade and real estate. MSME credit grew too, though industrial lending is still patchy.

Deposits growth, on the other hand, slowed a bit to 9.8%.

On external flows, FDI touched $10.7 billion in April to July, with July alone hitting a 38-month high of $5 billion. But most of this came from one big services deal, not a broad surge.

Foreign portfolio flows remain volatile. August saw equity outflows on tariff fears, but debt inflows after India’s credit rating upgrade. By mid-September, overall flows turned positive again, boosted by debt inflows after the US Fed’s rate cut.

Reserves remain a strong cushion. At $703 billion in mid-September, they cover more than 11 months of imports and 95% of external debt. The RBI has dipped into them to smooth rupee volatility, but the buffer is large enough to absorb oil shocks or sudden outflows.

Financing the economy: banks, markets, foreign funds

The flow of funds shows how India’s financing model is shifting. Put simply, this is about where businesses get their money from, whether through bank loans, markets, or overseas sources.

In FY25, bank lending slowed, with non-food credit — loans that banks give to companies and households — down by about ₹3.4 lakh crore. But that gap was more than made up by non-bank sources, which rose by ₹4.5 lakh crore. Together, total money flowing into the commercial sector reached ₹35.1 lakh crore.

Markets are now supplying nearly as much finance as banks — about ₹14 lakh crore compared with ₹18 lakh crore. In FY25, companies raised about ₹14 lakh crore from the markets compared with ₹18 lakh crore from banks.

How did they do this? Equity fundraising surged, as companies sold new shares. Corporate bond issuance grew as interest rates eased, making borrowing cheaper. Commercial paper, that is short-term debt issued by firms, also saw a revival. And while smaller in size, REITs and InvITs (used to fund real estate and infrastructure) added steadily to the pool.

Foreign sources are still an important piece of India’s funding story. Most of this comes in the form of FDI—long-term investments by global firms — which consistently make up the largest share. ECBs, or external commercial borrowings, and short-term trade credit play a role, but they’re much smaller compared to FDI.

Where does this foreign money go? The breakdown shows that services dominate FDI inflows, taking close to 40% in 2024–25. Manufacturing comes next, with about one-fifth of the total, while energy, retail trade, and construction each take smaller shares. For external borrowings, companies in manufacturing are the largest users, followed by power, transport, and communication.

The takeaway here is, the Indian businesses are no longer as dependent on bank loans as they once were. Markets and foreign investors now provide a large share of funding.

NBFCs: Stronger, but still bank-tied

Non-Banking Financial Companies (NBFCs) like banks are also seeing lower loan growth, Loan growth slowed to 15.4% by end-2024, after the RBI raised risk weights on unsecured lending.

As a result, unsecured loans now make up a smaller share of their portfolios, down to around 24%.

On the funding side, NBFCs still rely heavily on the banking system. Banks and debentures together make up 73% of their borrowings.

On the lending side, credit is split—with industry loans concentrated in the power sector, and retail lending spread across housing, vehicles, and consumption.

The sector is also in far better shape than it was in 2018. Gross NPAs have dropped to 3.4%, net NPAs to 1.2%, capital buffers are high, and liquidity coverage is well above regulatory norms. Still, the RBI warns that microfinance NBFCs and fintech-focused lenders are the most vulnerable if credit conditions tighten.

Public spending

Finally, let’s turn to government spending. Central capital expenditure has climbed to 3.1% of GDP in FY25, the highest in decades, with roads, defence, and logistics leading the way. The RBI notes this spending has been front-loaded, with more funds released early in the year to push activity.

Looking at the data, infrastructure growth has generally moved in line with GDP growth in recent years. Both slumped during the COVID shock, bounced back sharply in 2021–22, and have since moderated but remain closely linked.

There’s also a clear pattern over time: when government capex rises, GDP growth tends to improve later. That’s why policymakers today are leaning so heavily on public investment as a growth driver.

The challenge, however, is sustainability. Pushing capex higher with limited fiscal space risks swelling the deficit, meaning that while public spending can keep growth going, it cannot carry the burden alone indefinitely.

So the story across all these charts is clear. India’s growth today rests on people spending more, businesses investing, services firing, banks and NBFCs holding steady, and record government capex. The weak links are trade, food inflation risks, and the fact that private investment still hasn’t fully joined in. India may be holding its ground better than most, but the real test is whether these domestic engines can keep running.

That’s it for this edition. Thank you for reading. Do let us know your feedback in the comments.

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Rising cost of government debt

Remember when interest rates were close to zero? Back then, governments could borrow cheaply. They racked up record amounts of debt to pay for everything from pandemic relief to new infrastructure. But that era is over, and the bill is coming due.

A Goldman Sachs report shows just how serious this has become. Even though central banks have started cutting rates from their highs, the interest burden on major economies is still rising.

Here’s what’s happening. Old, cheap debt is coming due and being refinanced at much higher rates. It’s like a homeowner whose 2% mortgage expires and suddenly has to refinance at 6%. The debt itself hasn’t grown, but the payments have shot up.

For now, governments are still cushioned by the ultra-low rates of the past decade, which keep interest costs at the lower end of historical ranges.

But that cushion is fading as older bonds mature and are refinanced at higher rates. Since the pandemic, budget deficits in the US, UK, and Europe have regularly ended up larger than initial projections.

This isn’t just a bookkeeping problem. Rising interest costs are mandatory; governments have no choice but to pay them. That leaves less room in the budget for areas like healthcare, education, infrastructure, and climate programs.

The Goldman Sachs report points out that spending on social protection and healthcare is already near the top of historical ranges, which makes cutting back politically difficult. At the same time, defense budgets are also climbing across much of Europe.

To bring budgets under control, governments face a tough choice: raise taxes or cut public services. But higher taxes aren’t a simple fix either. In much of Europe, revenues are already above their historical average as a share of GDP. And Goldman notes that higher tax-to-GDP ratios often go hand in hand with slower growth.

Another big question is whether real interest rates rise faster than real growth. If the cost of borrowing ends up higher than the growth rate, managing debt becomes much harder.

Long-term bond yields have already climbed, reflecting these fiscal pressures. In fact, 30-year bonds in the US, UK, and Europe are now at their highest levels in decades.

China’s solar pain

China dominates the global solar industry, controlling close to 90% of the world’s manufacturing capacity for solar cells. This has helped drive solar panel prices to record lows, speeding up the global energy transition.

But a recent Financial Times article shows the industry is now facing a severe crisis. In the first half of 2025 alone, six of China’s biggest solar companies lost a combined RMB 20.2 billion, or about $2.8 billion, more than double their losses from a year earlier.

Driven by Beijing’s push for technological leadership, Chinese companies rapidly expanded capacity, adding new factories and production lines at an unprecedented pace. In 2024 alone, China produced 588 gigawatts of solar cells, far more than the combined demand at home, about 277 gigawatts, and abroad, about 174 gigawatts.

The result is what economists call ‘involution,’ that is, intense internal competition where everyone produces more, but no one actually gains.

To clear excess inventory, Chinese companies are now selling solar panels at prices below cost, hoping to outlast their rivals. Since 2021, solar module prices have nearly halved. For consumers worldwide, that means record-low installation costs. But for producers, it has been devastating—margins have disappeared, and balance sheets are under heavy strain. What was once one of China’s most profitable green-tech sectors is now loss-making.

The upside for the rest of the world is cheaper solar, which helps speed up the green transition. The downside is that this wave of cheap, state-supported exports is hurting solar manufacturers in the US, Europe, and India and could spark trade disputes.

The trillion-dollar chip race

By 2030, the global semiconductor market is projected to cross $1 trillion, up from about $600 billion today. A new PwC report says this surge is being driven by two forces: the rise of Artificial Intelligence and the transformation of cars into software-driven machines.

Semiconductors are no longer just about powering PCs and smartphones. Those remain huge markets, but the fastest growth is coming from new areas that need more specialized and powerful chips.

Services like ChatGPT have kicked off an arms race for computing power. PwC projects that chips for servers and networks—the backbone of data centers and AI training—will grow the fastest, expanding at about 11.6% a year through 2030. By then, data center chips alone will account for more than half of the industry’s revenue.

The second big growth driver is autos. With electric vehicles, autonomous driving, and software-defined cars, vehicles now use more chips than ever before. To put that in perspective, a basic Level 0 or Level 1 car—meaning no or minimal self-driving features has less than $500 worth of semiconductors. But a fully autonomous Level 5 car, capable of driving itself in all conditions, could pack in more than $5,000 worth.

That tenfold increase comes from the need for high-performance computing, advanced sensors like cameras, radar, and LiDAR, and always-on connectivity. Automotive chips are projected to grow at about 10.7% a year, making it the second-fastest-growing segment after servers.

But this isn’t just about technology—it’s also about geopolitics. The race for semiconductor leadership is reshaping global supply chains and national policies. Chips have become central to the contest for technological supremacy. Worried about supply disruptions, governments are now pouring hundreds of billions into local manufacturing and research.

The US CHIPS Act is aimed at bringing advanced chip manufacturing back home. China, meanwhile, is doubling down on older, so-called mature-node chips—these are older-generation chips still widely used in cars, appliances, and consumer electronics. They remain a big market, and one where China can keep growing despite US export controls.

At the same time, Taiwan’s TSMC, South Korea’s Samsung and SK Hynix, and Japan, through projects like Rapidus and its joint venture with TSMC and Sony, are all scaling up. The result is supply chains that are more diversified but also more politicized.

Another big change is the shift from general-purpose chips to application-specific ones. These are custom-designed chips, known as ASICs, built for particular tasks. For example, some are designed only for AI training, while others are built just for car sensors.

Big tech companies like Google and Tesla are already designing their own, both to boost performance and to reduce dependence on outside suppliers. Automakers are following the same path, creating chips tailored for electric vehicles and self-driving systems.

US mutual fund industry trends

In earlier editions, we’ve focused on India’s mutual fund industry. This time, we’re looking at some fascinating charts from a Franklin Templeton report on the US and global mutual fund landscape.

When we discuss mutual funds worldwide, it’s essentially a US story. The scale of the American market is staggering and makes the rest of the world look small in comparison. Globally, regulated open-end funds held about $74.5 trillion in assets in the first quarter of 2025. And the Americas—driven overwhelmingly by the US—account for the bulk of it.

The Americas account for about 57% of global mutual fund assets. Europe is far behind at 32%, and the entire Africa and Asia-Pacific region combined makes up just 11%.

In the US, mutual funds are central to how people save and invest. The report notes that 56% of American households hold mutual funds—that’s 127 million investors. It’s a level of participation that most other countries, including India, can only aspire to.

The scale is just as clear when you look at assets under management. US investors allocate heavily to equities. Together, US equity funds at 48% and world equity funds at 13% make up about 61% of the total. In contrast, bond funds at 18% and money market funds at 17% account for much smaller shares.

In 2015, actively managed funds dominated, holding about 76% of assets. Passive funds—mainly index funds and ETFs—made up the remaining 24%.

By 2025, that picture has flipped. Passive funds now hold the majority at 51%, while active funds have slipped to 49%. The big drivers have been lower costs, easier access through ETFs, and the fact that most active funds have struggled to consistently beat the market. It’s one of the most significant shifts in modern finance.

That’s it for this edition. Thank you for reading. Do let us know your feedback in the comments.

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A tale of two markets

2025 has been a tale of two markets. Globally, equities are enjoying one of their strongest runs in years. The MSCI Emerging Markets Index is up 17%—its best run since 2017. The S&P 500 has gained nearly 15%. Korea has surged 41%, Germany 35%, and Brazil 21% in dollar terms.

India, on the other hand, has barely managed 3–4% gains this year. That puts it near the bottom of the global leaderboard, as this chart from Motilal Oswal shows.

A lot of it comes down to the U.S. dollar. The dollar index has fallen 8% this year, and history shows emerging markets usually shine when the dollar weakens. JP Morgan notes that investors poured $16.3 billion into EM equities in July alone—the biggest monthly inflow in over a year.

The weaker dollar has also boosted returns through currency effects. Roughly 7% of Korea’s gains and 12% of Latin America’s this year came purely from dollar depreciation.

India, though, hasn’t captured the same upside and has seen its contribution to the global market cap slip to 3.6% from a peak of 4.6% in February last year.

So why hasn’t India shared equally in the global rally?

The simple answer is valuations and flows.

India has long been one of the most expensive markets globally. The MSCI India index trades at a 65% premium to MSCI EM on P/E. When cheaper opportunities opened up in Korea, Taiwan, and Brazil, global investors rotated money there instead.

At the same time, foreign portfolio investor (FPI) positioning in India is at its weakest since 2000. Domestic investors—through SIPs and mutual funds—have stepped in to fill the gap. Households now own 18.5% of the market compared with 17.3% for FPIs. But the lack of fresh foreign flows has kept India’s relative performance muted.

In dollar terms, DIIs have infused a record $83 billion since September 2024—more than offsetting FII outflows of $27 billion. August 2025 alone saw the second-highest monthly DII inflow ever at $10.8 billion, even as FIIs pulled out $4.3 billion.

On top of valuations, trade frictions have added to the headwinds. The U.S. has imposed a 50% reciprocal tariff on India, among the steepest faced by any major economy.

The GDP-level impact of these tariffs looks modest at –0.2% to –0.8%. But sector-level damage is sharper, with textiles, gems & jewelry, and seafood exports taking a hit, as per the Motilal Oswal report.

Market performance has been uneven across segments. Over the past 12 months:

• Large caps fell 3%.

• Midcaps slipped 6%.

• Small caps dropped 11%.

Earnings, however, tell a different story. Midcaps have delivered stronger earnings growth than prices suggest, led by real estate, capital goods, pharma, and private banks.

On the policy side, the GST reforms announced on 3rd September didn’t move the markets much at first. But they could support consumption and earnings in the months ahead. The new structure simplifies rates into three slabs: 5% for essentials, 18% for most goods, and 40% for luxury and sin items.

For a deeper breakdown, check out Friday’s edition of The Daily Brief.

To add some structural context, Morgan Stanley calls India a “low-beta” market. It falls less during global downturns but lags during bull runs—exactly what we’ve seen in 2025.

At the same time, India’s policy stability stands out against its peers. On their index, India has among the lowest “policy uncertainty” scores, supporting its long-term case even if short-term flows remain volatile.

To sum up: Indian markets have lagged global peers, held back by high valuations, weak foreign inflows, and tariff-related uncertainty weighing on sentiment. Domestic investors, however, have stepped in to keep markets stable in the absence of FIIs. With GST reforms likely to boost consumption, it might help improve the sentiment.

Rural India: From stagnation to signs of a comeback

When we talk about India’s economy, the spotlight usually falls on cities. But nearly two-thirds of Indians live in villages, and what happens there shapes everything from company earnings to government policy.

The last few years, though, have been tough for rural India. Ambit Asset Management’s August 2025 newsletter calls the past three years “particularly challenging.” Wages barely moved, prices of essentials shot up, and demand for two-wheelers, soaps, and packaged food weakened. Families cut back to just the basics.

Take inflation, for example. During COVID, rural inflation soared to about 7.5%, much higher than the long-term average.

At the same time, farm and non-farm wages stagnated. For many workers, real wages—basically, income after adjusting for rising prices—actually fell. That meant less money left in pockets, smaller savings, and lower spending.

Two of the best indicators of rural prosperity are tractor and two-wheeler sales. Together, they tell a clear story: a rough patch, followed by early signs of recovery.

From FY19 to FY25, tractor sales grew only ~3% annually, well below the ~7% long-term trend. There was a brief jump in FY21–FY22 after good monsoons and post-COVID pent-up demand, but it didn’t last.

Two-wheelers show the same pattern. Around 56% of them are sold in rural India, mostly in the sub-110cc entry segment. But this segment still hasn’t returned to FY19 peaks. Prices for entry bikes are up ~35–40% since then (due to emission upgrades, safety norms, and higher costs), while rural wages barely budged, making upgrades harder.

The good news is that this downbeat trend might be changing. By FY24 and FY25, volumes have started picking up again. Tractor sales were up 9% year-on-year in June 2025 and 8% in July. Two-wheeler sales also saw mid-single-digit gains. Early signs suggest rural households are beginning to loosen their purse strings again.

FMCG companies like HUL and Dabur, which saw weak rural demand in FY22–23, are reporting some recovery as consumers move back to larger packs. Rural housing construction is also showing signs of life, helped by easing input costs.

The monsoon this year has been kinder—rainfall has been slightly above average and better distributed. By July-end, Kharif sowing was 8% higher than last year, setting the stage for stronger farm output and incomes.

Wages, too, are improving. After years of stagnation, real rural wage growth turned positive in mid-FY25, thanks to lower inflation and more government spending on rural infrastructure. Demand for MGNREGA work has even dipped, which usually signals better job availability elsewhere.

Credit is flowing more into smaller towns and villages too. Between FY19 and FY25, the share of outstanding housing credit going to rural and semi-urban India has edged higher.

So it looks like the rural economy, which had been stuck in a slowdown, is finally turning a corner.

That’s it for this edition. Thank you for reading and do let us know your feedback in the comments.

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The fault in our demographics

Let’s start with something that touches all of us sooner or later—age. For decades, global growth was powered by a steady stream of young workers and booming populations. That “demographic dividend” is now running out. Birth rates have fallen sharply almost everywhere, people are living longer, and the once wide-bottomed population pyramids are slowly turning into tall, narrow towers.

Two-thirds of humanity already lives in countries where fertility is below the “replacement rate” of 2.1 children per woman, according to a McKinsey report. Even India, once thought of as an endless source of young workers, slipped below that mark back in 2019. The only real exception is Sub-Saharan Africa, where birth rates are still high—but even there, the numbers are starting to drift lower.

And this drop in fertility is already reshaping what’s called the “support ratio”—the number of working-age people for every retiree. Back in 1997, there were about 9 workers for each retiree. Today, that’s down to 6.5. By 2050, it’s expected to fall to just 3.9. In advanced economies and in China, the squeeze could be even sharper, with only two workers supporting every retiree.

This change also has economic consequences. McKinsey estimates that aging alone will trim about 0.4% off annual per capita GDP growth in advanced economies through 2050. Put another way, that’s like people in Western Europe ending up with around $10,000 less income each by mid-century.

And the OECD paints an even starker picture. It expects annual per capita growth in its member countries to slow by about 40%—from 1% today to just 0.6% by 2050.

But aging isn’t all doom and gloom. The IMF points out that older adults today are living healthier and more active lives than ever before, giving rise to what they call the “silver economy.” This healthier aging could actually add about 0.4 percentage points to annual global GDP growth through 2050—offsetting almost three-quarters of the drag from shrinking workforces. Without these health gains, global growth would have slowed by 1.5 percentage points instead of 1.1.

So how do countries actually tap into this silver economy? The IMF highlights three big moves. First, keep older workers healthy and productive—through prevention programs and more flexible work options. That alone could lift annual growth by 0.2% to 0.3%. Second, extend working lives, especially in places where people can expect to live more than 20 years after retirement. That adds another 0.1 point. And third, close gender gaps. In many emerging markets, women’s participation in the workforce still trails men’s by 20% to 30%. Pairing higher participation with smart use of automation—not to replace, but to support experienced workers.

India at a premium

U.S. stocks have traditionally traded at higher valuations because of their size, profitability, and dominance in innovation. But an HSBC report shows that Indian markets are now trading at a premium to U.S. markets.

The chart makes it clear: most regions—China, Europe, Latin America, and other countries—are still at historic discounts compared to the U.S., making India a big outlier. Investors are so confident in India’s growth story that they’re willing to pay more for each rupee of earnings here than for a dollar of earnings in the U.S.

Of course, this premium cuts both ways. On the one hand, it highlights India’s rise as a preferred equity market. On the other hand, it also means valuations are expensive—and corporate earnings will need to keep rising to justify them.

Interestingly, not everyone shares that optimism. Foreign Portfolio Investors, or FPIs, have actually been net sellers in India over the past few years. Their shareholding in listed companies has slipped to about 35%, according to NSE Pulse.

Volatile China-US cargo flows

US President Trump’s tariffs have brought a lot of uncertainty to the world economy. One clear way to see this is through China–US cargo shipments, since the US is the biggest importer of Chinese goods. And those flows have been anything but smooth this year.

As this chart from Fidelity shows, shipments have swung from sudden surges to steep drop-offs as tariffs shifted from sharp hikes to short truces and constant deadline changes. As a result of this flip-flop, importers have been struggling to plan, and that confusion is now showing up in trade flows.

Is the party over for the dollar?

Another culprit in this year’s trade uncertainty has been the U.S. dollar. At the start of 2025, most investors expected it to strengthen, betting that Trump’s tax cuts and deregulation would extend America’s economic “exceptionalism.” Instead, tariffs have taken center stage, denting growth expectations and pushing the dollar down by roughly 10% so far this year.

Yet even with the dollar sliding, U.S. stocks have bounced back from their post–Liberation Day sell-off to fresh all-time highs. The catch is that the rally has been heavily concentrated in tech and AI names, rather than reflecting broad economic strength.

A weaker dollar does give U.S. companies with overseas sales a boost—exports get cheaper, and foreign earnings look bigger once converted back into dollars. And as this chart from The Compound shows, earnings estimates for U.S. companies are now sitting at record highs.

Will tariffs give a bigger shock to the global economy?

A recent Goldman Sachs report shows who’s really paying for U.S. tariffs. For now, it’s mostly American businesses. As of June, they were absorbing about two-thirds of the costs instead of passing them on to consumers, which has meant thinner profit margins. But that can’t last forever.

By October, Goldman projects the burden will flip—U.S. consumers will end up shouldering about two-thirds of the tariff costs. That means higher prices at the checkout counter, weaker demand, and stickier inflation. Foreign exporters will also feel more of the strain as trade slows.

This brings us to how global fund managers see it. Bank of America’s latest survey shows that investors aren’t just worried about tariffs pushing up inflation—they see them as the single biggest threat to the world economy. In August, 29% of fund managers called a “trade war triggering a global recession” the top tail risk. That ranked ahead of worries about bond yields, an AI bubble, or even U.S. dollar weakness.

China’s stuck in a deflationary trap

China is still stuck in deflation. In July 2025, consumer prices were flat compared to a year ago, showing households aren’t spending enough to push prices higher. Producer prices—what companies earn for their goods—fell 3.6% from last year. That makes it the 34th straight month of falling producer prices, the longest stretch in decades.

The reasons are familiar. Families are cautious about spending, weighed down by the property slump, high youth unemployment, and tighter finances. On the supply side, industries like EVs and solar are locked in fierce price cuts, as companies slash prices to protect market share. Exporters, facing U.S. tariffs and global competition, are cutting prices too, just to stay in the game.

Beijing has tried to boost demand and even launched an “anti-involution” campaign to discourage cutthroat pricing. But so far, little has changed—factories, shops, and investments are all losing momentum.

For the world, China’s deflation is a mixed bag. Selling goods abroad helps Chinese companies, and cheaper imports give consumers and central banks some relief. But it also makes life harder for local manufacturers, from steelmakers to carmakers, who can’t match China’s low costs. Good news for shoppers, bad news for factories.

That’s it for this edition. Thank you for reading. Do let us know your feedback in the comments.

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In this edition, we track the pulse of the Indian economy through fresh, high-frequency indicators and some other data points, from inflation and factory output to jobs, corporate earnings, and more.

Prices & inflation

Retail inflation cooled to 2.1% in June 2025—the lowest in six years. The big driver was food prices, which slipped 0.2% year-on-year. Vegetables, last year’s main inflation villain thanks to supply shocks and erratic weather, fell nearly 19% as conditions improved.

Part of this drop is a base effect—prices had spiked in mid-2024, so the year-on-year comparison now makes inflation look lower. Core inflation, which strips out volatile food and fuel, tells a different story. It rose to 4.4% in June, showing that underlying price pressures remain.

RBI, in its monetary policy statement released on Wednesday, said that inflation could climb back to around 4% by the end of this financial year as the base effect fades and demand picks up.

Interestingly, while actual inflation is low, people still expect prices to rise sharply. The RBI’s July survey shows households foresee about 9% inflation over the next year—down slightly from May but still far above reality. So even if prices are stable in reality, people’s worries about inflation haven’t gone away.

Auto sales

Car sales slipped 1.4% year-on-year in July after growing 5.2% in June. The bigger worry is in two-wheelers—closely linked to rural demand—which fell 6.6% after two months of growth. Three-wheeler and commercial vehicle sales were up only slightly, by 0.8% and 0.6%.

The one bright spot was tractors and farm equipment, with sales jumping 10.7% year-on-year, hinting at healthy farm incomes ahead of the harvest season.

Agriculture

The 2025 monsoon has been a boon so far. By the end of July, rainfall was 7% above normal, helping farmers plant 83 million hectares of kharif crops—over 5% more than last year.

Rice sowing surged 16.69% year-on-year, while coarse cereals like jowar, bajra, ragi, and maize rose 4.74%. These gains could help keep food inflation in check later in the year.

Not all crops are doing well. Oilseeds are down 3.99%, and cotton is lower by 2.36%, partly due to uneven rains in central and western India and weaker crop prices that discouraged planting.

Rural employment & wages

After spiking earlier this year, demand for work under the MGNREGA scheme has cooled. In July, 2.6 million fewer people sought jobs under the programme—a drop of 11.4% from last year—suggesting better job availability.

But wages tell a mixed story. Nominal rural wages have risen, but the pace has slowed. Men’s wages have been flat at 5–6% annual growth since mid-2023, while women’s wage growth has dropped from over 8% in 2023 to about 5.5% by March 2025.

Industry & infrastructure

India’s eight core industries grew 1.7% in June 2025—slightly better than May’s 0.7% but far below the 5–6% growth seen in early 2024. Weakness came from coal and electricity output, partly due to last year’s high base. Steel and cement bucked the trend, up over 9%, reflecting strong construction and infrastructure activity.

The broader industrial output (IIP) rose 1.5% in June, down from 1.9% in May. For April–June, growth averaged 2%, half the pace of the previous quarter. Manufacturing grew 3.9% in June, but mining fell 8.7% and electricity slipped 2.6%.

Infrastructure-linked goods rose over 7%, but consumer goods were mixed—non-durables like food and personal care fell 0.4%, while durables like electronics and appliances grew 2.9%.

While official output data looks sluggish, business surveys paint a rosier picture.

The HSBC India Manufacturing PMI rose to 59.1 in July, the highest in over a year, driven by more domestic and export orders. Services PMI stayed strong at 60.5, with finance and insurance especially busy. But both sectors saw hiring slow, and business confidence hit a three-year low as firms worried about rising competition and costs.

Trade & transport activity

Rail freight grew just 3.6% year-on-year in April, showing muted demand for coal, cement, and food grains. More goods may be shifting to road transport.

Ports are faring better—cargo handled at major ports rose 5.6% in June from a year earlier, continuing the recovery after last year’s global trade slowdown.

Looking at how much electricity and diesel we’re using can also give us insights into economic activity. Factories, construction sites, trucks, and trains closely depend on power and fuel, not just homes and cars.

Electricity use has been weak. After falling –4.7% in May and –2.1% in June, it rose just 2.2% in July. This dip is partly due to cooler weather and a high base from last summer, but it also reflects muted activity in factories and infrastructure.

Diesel consumption, on the other hand, has been steadier. It grew by around 2–2.4% year-on-year between May and July. That suggests freight and transport are holding up, even if the broader economy isn’t running at full speed.

Another way to track goods movement in India is through GST e-way bills, which are required whenever goods are transported. In June 2025, e-way bill generation was about 20% higher than a year earlier. This means more goods are moving across the country, pointing to busy activity in trade and logistics.

GST collections, however, have slowed in recent months. July’s collections were ₹1.95 lakh crore, up just over 7.5% from a year ago, still strong in absolute terms but softer in growth.

Jobs

Formal hiring is picking up. Naukri’s JobSpeak Index shows July hiring up 8% year-on-year, led by AI/ML roles (+41%), hospitality (+26%), insurance (+22%), real estate (+15%), and BPO/customer service (+14%). Though job growth in the IT sector declined by 1%.

The CMIE unemployment rate fell to around 6.5% in July, from over 8.5% in mid-2024, indicating an improving job market.

RBI’s Business Expectations Index jumped to 126.2 for the July–September quarter, the highest in six quarters. About one in four companies plan to hire, and very few expect to cut jobs.

Sectoral credit

Bank lending is growing at a steady pace, but the kind of borrowers driving that growth has changed. As of June 2025, the overall bank credit was up by about 10.4% compared to the same time last year. That figure is healthy, although it is slower than the growth observed in the last couple of years.

The biggest push is coming from small and medium businesses (MSMEs). Loans to MSMEs grew by around 13%, and those to micro and small by 19% over the past year, as banks continue to focus on this segment. Government support and loan guarantees have helped, and small businesses are actively borrowing to grow.

On the other hand, big companies are borrowing much less. Loans to large industries grew by less than a percent. Overall industry credit grew around 5.5%, mainly because small businesses were still borrowing.

Credit to the services sector has slowed to 9.6% growth. Some sub-sectors like computer software and shipping are doing well, but others, such as NBFCs and housing finance, have cooled.

Personal loans are also growing well, up 11.8% from a year ago. People are still taking out loans to buy homes and vehicles, and gold loans have gone up sharply—over 124%, boosted by high gold prices and the ease of borrowing against jewelry.

Corporate profit growth

India Inc.’s April–June 2025 (Q1 FY26) results so far show the economy is still growing, but at a slower pace than last year.

Let’s start with the big picture. Company revenues were up 7.6% from a year ago, and profits grew 7.5%. Growth is still there, but it’s slower than last year, and there’s also a gap between which sectors are doing well and which aren’t. Domestically focused industries are doing better than those hit by weak global demand or high costs.

• In the financial sector, banks and other lenders reported revenue growth of 11.3% and profit growth of 3.2%, supported by steady loan growth and fewer bad loans.

• Energy companies saw sales edge up 0.7% as lower crude prices reduced sales values, but profits rose 36% on improved refining margins.

• In industrials, revenues grew 9.2% and profits 16.2%, helped by construction activity and higher government spending on infrastructure.

• In consumer goods, FMCG companies increased sales by 9.6%, while profits were up 3.7%

• Consumer discretionary companies—including carmakers and leisure brands—grew sales by 8.1%, but profits fell 1.8%.

• IT services companies posted revenue growth of 5.2% and profit growth of 6.7%, reflecting the slower pace of global technology spending.

• Telecom companies reported revenues up 20.2% and profits up 32.6%.

• And finally, healthcare revenues grew 9.9%, but profits plunged 30.3% due to higher costs and softer export demand.

To sum it up, the economy is still growing, but momentum has cooled. Agriculture and infrastructure are keeping things moving, inflation is at a six-year low, and jobs are improving. But consumer demand is patchy, industrial growth is uneven, and businesses are cautious.

That’s it for this edition. If you have any feedback, do let us know in the comments.

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AMFI recently released the mutual fund inflow data for June, and now that we're halfway through 2025, it's a perfect time to see how investors have been reacting to markets.

A lot has happened in the past six months, from rising tariff tensions to ongoing conflicts in different parts of the world. These events have kept global markets nervous, and Indian markets have felt some impact too. Looking at mutual fund flows can give us insights into investor sentiment and confidence.

Between January and June, mutual fund assets under management (AUM) grew by over ₹7 lakh crore, from ₹67.25 lakh crore to ₹74.41 lakh crore—a growth of about 11%. This was driven mainly by the rise in the value of existing investments and fresh investments across categories. Overall, the mutual fund industry saw inflows of around ₹4.18 lakh crore during this period.

Interestingly, compared to annual inflows recorded since 2000, 2025 already stands out. Excluding 2024, the inflows seen in just the first six months this year exceed the full-year totals of most previous years.

So, let’s break down the numbers across equity, debt, and hybrid funds and see what they tell us about how investors are thinking in this kind of market.

Equity mutual funds

Of those ₹4.18 lakh crore worth of inflows this year, ₹1.6 lakh crore has been towards equity mutual funds. This has seen a steady stream of funds coming in since 2021; in fact, despite multiple periods of economic uncertainties post-COVID, flows into equity funds have remained positive ever since.

However, recently there's been a slowdown, from an average of ₹35,000-₹40,000 crore between May 2024 and January 2025, to around ₹24,000 crore monthly since February. Yet, equity fund AUM continues to rise, reaching ₹33.47 lakh crore in June from ₹29.5 lakh crore in January.

Interestingly, despite the moderation, equity fund AUM has steadily grown every month this year, from ₹29.5 lakh crore in January to ₹33.47 lakh crore in June.

One big reason for this fall is the sharp decline in flows in sectoral/thematic funds. In December, these funds pulled in over ₹15,000 crore, far more than any other category. But by June, that number had decreased to just ₹476 crore.

At the same time, categories like flexi-cap and mid-cap funds are still holding up well. Flexi-cap funds have received consistent inflows throughout this year, with June bringing in ₹5,733 crore, the highest among all categories. Other categories that have seen stable inflows have been mid- and small-cap and multi-cap funds.

Thematic losing shine?

Thematic funds had become hugely popular as investors rushed to bet on specific sectors like infrastructure, defense, green energy, tourism, and more. Since July 2023, they’ve pulled in nearly ₹2 lakh crore, about a third of the ₹6.5 lakh crore that flowed into equity mutual funds during the same period.

But that momentum has faded. In the last four months, inflows have slowed to just ₹4,500 crore. This could be due to rising uncertainty from global tariff tensions, making investors more cautious about concentrated sector bets.

Performance can be another factor. While these themes delivered strong returns over the past three years, recent performance has been underwhelming. In the last year, only three thematic categories have posted double-digit returns on average, and in 2025 so far, just one has managed to do so.

DIIs on the rise

Here's something interesting: consistent inflows into mutual funds have boosted the share of Domestic Institutional Investors (DIIs) in Indian equities. DIIs now hold an 18.1% share, surpassing Foreign Institutional Investors (FIIs), who hold 17.5% as of March 2025.

Debt and Hybrid funds

Debt fund flows have been volatile. In April 2025, there was a huge spike in inflows, ₹2.19 lakh crore, mainly because companies park surplus money in liquid and money market funds at the end of the financial year for a short period. That’s a seasonal trend. But once that money is withdrawn after year-end payouts or tax payments, flows reverse. That’s what happened in May and June, where liquid funds alone saw combined outflows of over ₹65,000 crore, dragging total debt flows into negative territory.

However, some categories are seeing good interest from the falling interest rate cycle. With the RBI cutting the repo rate by a full percentage point in 2025 so far, most recently to 5.5% in June, short-duration funds and corporate bond funds, which tend to benefit as rates decline, saw strong inflows of ₹10,277 crore and ₹7,124 crore in June. Meanwhile, overnight and ultra-short duration funds continued to see outflows as their relative returns become less attractive in a falling rate environment.

Flows in hybrid funds, on the other hand, have been steady and have increased from ₹4,370 crore in December 2024 to ₹23,223 crore in June 2025. Arbitrage funds are driving most of this growth, with ₹15,585 crore coming in June alone. These funds benefit from market volatility, earning returns from price differences in the cash and futures segments. With markets being choppy, they’ve become a preferred low-risk option for many investors.

Also, seeing strong inflows are multi-asset and dynamic asset allocation funds, which offer a mix of equity, debt, and even gold. With equity markets volatile and debt returns becoming unattractive following rate cuts, investors seem to prefer balanced options that adjust exposure based on market conditions.

Notably, hybrid fund AUM grew 13% in the first half of the year, while debt funds remained relatively flat.

No bulls, no NFO party

Meanwhile, as the markets have seen some correction and increased volatility, the funds raised through New Fund Offerings (NFOs) have sharply declined. From average monthly collections of ₹10,000 crore in 2024, they dropped to around ₹3,100 crore per month this year.

Passive

While active equity and hybrid funds continue to see steady inflows, let’s take a look at how passive funds, like index funds, ETFs, and overseas fund-of-funds, are doing.

First, index mutual funds, which aim to mirror the performance of benchmark indices like the Nifty or Sensex, saw strong interest in 2024, averaging around Rs. 4,000 crores in monthly inflows. But since earlier this year, flows have slowed down, dropping below ₹2,000 crore in June. Despite this, assets under management (AUM) have steadily climbed to around ₹3.4 lakh crore.

Gold prices have been on a tear since the second half of 2024, rising from around ₹63,000 per 10 grams to even crossing the ₹1 lakh mark. This rally has been driven by global uncertainty, geopolitical tensions, and strong central bank buying. This interest in gold has also reflected in Gold ETFs. While these aren’t the default way most Indians invest in gold, physical gold still remains more popular; ETFs have managed to pull in over ₹19,000 crore in inflows, with AUM crossing the ₹65,000 crore mark.

Other ETFs, which include everything beyond gold and index, such as sectoral or strategy-based ETFs, have seen inconsistent flows. There were strong inflows in March and April, but they have been subdued in the rest of the months.

Funds of Funds (FOFs) that invest in overseas assets have had a rough ride. For most of the past year, they’ve seen net outflows, a trend that started after SEBI restricted fresh inflows into international FOFs in early 2022 due to the overall overseas investment limit set by RBI. Despite some leeway allowed later, flows have only slightly recovered since.

SIP trends

Systematic Investment Plan (SIP) inflows have stayed strong, consistently above ₹20,000 crore since May 2024, hitting a record ₹27,269 crore in June 2025. However, there's a caveat—these numbers don't factor in redemptions, so we don't get a clear picture of what's really happening.

AMFI provides data on SIP registrations and discontinuations; this should give us some insights into the investor behavior.

While SIP collections hit a record ₹27,269 crore in June 2025, the numbers beneath tell a different story. The discontinuation ratio has jumped from 58.7% in June 2024 to 77.8% in June 2025. Put simply, for every 100 new SIPs started, about 78 are being stopped or discontinued.

There is also a large spike in discontinuations in April this year, with 1.62 crore discontinuations. Though that's largely due to AMFI revising its counting method based on SEBI guidelines, where SIPs with 3 consecutive failed installments for monthly plans, or 2 for other frequencies, are marked as discontinued, which resulted in this one-time spike.

Even accounting for this. Net monthly additions have fallen by half compared to last year. June 2025 saw only 13.75 lakh net new SIP accounts versus 22.78 lakh in June 2024. Yet, SIP assets under management grew 23% YoY to ₹15.31 lakh crore. This suggests that existing investors are increasing their monthly contributions instead of new investors joining in. 

The contribution rate, which measures the ratio of actual payments to total accounts, improved from 74.6% to 94.1%, indicating better quality despite a lower quantity of contributions.

AMFI's annual report gives us some really good insights into investor behavior when it comes to SIPs.

Regular plans still lead the way when it comes to long-term SIP discipline. As of March 2025, one in three SIPs in regular plans had been held for more than five years, up from just 12% in 2020. But direct plan investors are also catching up. The share of SIPs held for over five years in direct plans rose from 4% to 19%, and those held for less than a year dropped from 49% to 30%.

There’s also this long-term shift across geographies. Whether in the top 30 cities or smaller towns beyond them, the holding period trend is nearly identical. SIPs held for more than five years jumped from around 4–5% in 2020 to nearly 30% in 2025. Meanwhile, short-term SIPs, those held for less than a year, have dropped from over 40% to just around 21–23%.

Before we wrap up, here’s a quick question:

And that’s your roundup for mutual fund trends midway through 2025. Thank you for reading; do let us know your feedback in the comments.

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If you are one of those few who missed Beyond The Charts, we have been on a hiatus to freshen things up, and we will make sure not to disappear again, at least not unannounced.

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It might feel like 2025 just started, but we’re already halfway through the year. And the past six months have packed in more twists than an entire season of a Netflix show. From sudden policy changes to rising trade tensions and geopolitical flare-ups, both the global and Indian economies have been on a bit of a rollercoaster.

One of the biggest developments has come from the US, where a major shift in economic policy is already shaking things up. A fresh wave of tariffs and large government spending plans have added a new layer of uncertainty for businesses, consumers, and investors.

President Trump’s announcement of new tariffs on April 2nd was a big turning point. The average US tariff rate now stands at 15.8%, as you can see in this chart by JP Morgan. These are the highest levels in nearly 90 years. Even though it’s lower than what was first announced on what some dubbed “Liberation Day,” it still marks a sharp break from past trade policies.

This uncertainty has created a “wait and watch” mood across the economy. Businesses are holding back on investments. Households are pausing big purchases. Everyone seems to be waiting for more clarity before making any major decisions.

One clear sign of this slowdown is a sharp drop in the number of containers leaving China for the US, as seen in this chart by Apollo Global Management. It’s an early signal that trade flows are already being affected.

But trade isn’t the only source of concern. The US fiscal outlook is now another big question mark.

The new “One Big Beautiful Bill”—includes major tax cuts and big spending reductions. It’s estimated to add about $5 trillion to the national debt over the next decade. If that happens, the US budget deficit could widen sharply, pushing the debt-to-GDP ratio to around 129% by 2034.

Geopolitical tensions and market reactions

And that’s not all. Geopolitical tensions are also making things more complicated. The Israel-Iran conflict and shifts in US sanctions policy have added yet another layer of uncertainty to the global picture.

Surprisingly, global markets have stayed calm. After the flare-ups on June 13th and 22nd, the S&P 500 went up by 1.6%. The MSCI All Country World Index rose slightly by 0.3%. Even oil, which usually jumps during Middle East conflicts, dropped—Brent by 2% and WTI by 3.8%, as seen in this chart from MUFG.

Why Iran matters for energy?

Iran’s role in global energy markets is a big reason why this conflict matters. The country holds the third-largest oil reserves—about 12% of the world’s total. It also has the second-largest natural gas reserves and ranks third in gas production globally.

And when it comes to buyers, Iran leans heavily on China. Nearly 90% of its oil exports go to China, making that relationship a key economic lifeline.

The surprising fall of the US Dollar

One of the biggest surprises of 2025 so far has been the fall of the US dollar. The dollar index dropped by 10.7% in the first half of the year—the sharpest first-half decline since 1973, and the weakest six-month performance since 2009.

Why is the dollar falling? There’s no single reason—it’s a mix of things. The dollar had become overvalued. US economic data has been weaker than expected. Concerns are growing about rising US debt. And some countries are pushing back against US trade and sanctions policies.

Here’s another interesting thing, which HSBC pointed out in its mid-year outlook report. Normally, when the US bond yields rise, the price of the dollar also increases. But right now, the opposite is happening; even as the yields are going up, the price of the dollar is falling due to economic uncertainty.

It’s also a sign that investors might be starting to look beyond the dollar for safer places to park their money.

Capital markets

Even with all this uncertainty, capital markets are showing a mixed picture. Some parts are bouncing back, while others are staying cautious.

Take global mergers and acquisitions (M&A), for example. Deal volumes are up 25% this year, but most of that growth is due to a few massive deals. In fact, the total number of deals in the first half of 2025 was the lowest in 20 years.

So while big companies with deep pockets are still willing to make big moves, smaller deals are likely being delayed or scrapped due to all the uncertainty.

IPOs

Equity fundraising in the US is up 7% so far this year. But IPO activity is still down 11%, showing that companies are hesitant to go public.

Instead, many are choosing to stay private longer. In 2024, the average age of companies going public was 14 years, up from just 8 years in 2004, as shown in this chart from BlackRock.

Private markets now offer easier access to money, with fewer rules and more flexibility than public markets. Venture capital and private credit give companies the funding they need, without the pressure of quarterly reporting.

Bonds

At the same time, big, financially strong companies are raising record amounts through bond sales—more than in any other first half of the year, except for during COVID. This shows that companies are leaning on more stable ways to raise funds in uncertain times.

There’s also strong demand from investors for corporate bonds, especially those from solid companies. That shows a clear trend: investors are being cautious and looking for safety.

Riskier high-yield bonds did pick up in May and June, but overall, fewer of them have been issued this year.

Meanwhile, the bond market has been caught between mixed signals, inflation on one side and signs of slowing growth on the other.

In the first half of 2025, yields on US government bonds have generally come down. The 10-year Treasury yield, which is a key benchmark for global interest rates, stood at 4.47% by mid-May.

The yield curve has started to normalise too, with long-term bonds sometimes doing better than short-term ones. But overall, yields have stayed within a narrow range.

The term premium—the extra return investors want for holding long-term bonds—is rising again after years of being flat or even negative. That could mean investors are starting to worry more about long-term risks, like rising debt or inflation swings, and are demanding a higher risk premium for holding these bonds.

Stocks

Global stock markets have held up fairly well this year, but US equities have taken investors on a bit of a ride. Both the S&P 500 and NASDAQ saw sharp declines after the April 2nd tariff announcements, only to bounce back and climb above their earlier levels.

Despite the recovery, global stocks overall have outperformed US markets.

For most of the last 15 years, the U.S. has been the world’s growth engine—leading in stock market returns, attracting global money, and setting the tone for trade and innovation. But in the first half of 2025, that story is starting to show some cracks.

Foreign investors are starting to pull back or hedge their bets on the U.S. The dollar is losing ground, even during times of market stress, as we saw earlier. U.S. stocks look expensive, and government deficits are still running at levels we usually see during a crisis.

And perhaps the biggest sign of change, money is moving. European and Asian stock markets are seeing their biggest inflows in years. With all this happening, it’s only natural to ask: Is the era of U.S. exceptionalism coming to an end?

Rise of private capital

Private capital is now playing a bigger role in funding areas like infrastructure, energy, and AI. With many governments facing tight budgets, they’re increasingly turning to private investors to help meet their infrastructure goals.

Private infrastructure assets under management are expected to cross $2 trillion in assets by 2028, especially in the US and Europe.

Defense spending

Rising geopolitical tensions are also changing how countries think about national security, trade, and global alliances. One clear sign of this shift is the steady increase in defense spending.

For the first time in years, European NATO members are now meeting the long-standing target of spending 2% of GDP on defense. Germany has announced a massive €1 trillion stimulus plan focused on defense and infrastructure. Japan isn’t far behind either—it has boosted its defense budget by 9.4%.

Now let's take a look at some India-specific data. 

The Reserve Bank of India (RBI) recently released its Financial Stability Report (FSR) for June 2025. This twice-a-year report gives a deep dive into how India’s financial system is doing. It covers everything from banking and credit trends to stress tests and global risks.

Let’s explore some of the most important insights from this report.
The global economy today feels like a ship sailing through thick fog, uncertain and facing constant challenges. In the FSR’s foreword, RBI Governor Sanjay Malhotra pointed out one of the major shifts:

“The announcement of large tariffs by the US administration in April has set in motion a new paradigm in trade and economic policy.”

As a result, global growth forecasts are being downgraded. Major institutions like the IMF, OECD, and World Bank now expect the world economy to grow more slowly than earlier projected.

India’s growth holds steady

While things don’t look very bright for the global economy, they do for the Indian economy. On the back of good macroeconomic fundamentals, smart policies, and strong domestic growth, the Indian economy is expected to grow at 6.5% in 2025–26, matching the pace from the previous year.

Inflation is also softening. The headline consumer price index (CPI) hit a six-year low of 2.8% in May 2025, and food inflation dropped to just 1.5%, easing pressure on households.

Liquidity boost

Earlier this year, it became harder to get loans as liquidity tightened. But since April, the RBI has stepped in to ease the crunch. It added ₹9.5 lakh crore into the system by buying government bonds and using other tools to inject money into banks.

The RBI also reduced the Cash Reserve Ratio (CRR)—the portion of deposits banks must hold with it—by 1 percentage point in phases between September and December. This move will unlock another ₹2.5 lakh crore for banks to lend.

One sign of this shift is what’s called a bull steepening of the yield curve, a fancy way of saying short-term interest rates have dropped faster than long-term ones. That usually signals that investors expect more rate cuts in the future, which could make borrowing even cheaper.

India–US bond yield gap shrinks

Another trend to note: the gap between Indian and U.S. 10-year bond yields is now at a 20-year low. This means Indian bonds are losing their yield advantage over U.S. bonds, which could affect foreign investment flows.

Stock markets

After a sharp drop between October 2024 and February 2025, Indian stocks have mostly bounced back since March. However, Foreign investors have been pulling money out. In fact, their share in Indian stocks has fallen to a 10-year low.

And it’s not just India; across emerging markets, foreign outflows hit nearly US$40 billion in the fourth quarter of 2024. That’s the highest quarterly outflow since the pandemic.

Despite these outflows, Indian markets haven’t seen much pain as domestic investors have stepped up. Mutual funds, insurance companies, pension funds, and retail investors have all stepped in. For the first time in years, Domestic Institutional Investors (DIIs) now own more Indian equities than foreign investors.

While the participation of individual investors has grown in the markets, they still hold a disproportionately large share of microcap stocks, the smallest companies on the market. In contrast, their ownership in large-, mid-, and even small-cap stocks is relatively modest.

Valuations

Valuations have come off their earlier peaks but remain high by historical standards, especially in the mid-cap and small-cap segments.

As of end-March 2025, around two-thirds of listed stocks were trading at price-to-earnings (P/E) ratios above their long-term averages, meaning many stocks are still priced above their typical value range.

The Indian corporate sector has held up well, even amid global trade policy uncertainty.

Companies are managing their debt better and keeping their finances healthy.

While sales growth has slowed a bit for listed private non-financial companies, their profit margins remain strong, showing they’re handling operations efficiently.

However, if tariffs rise further, it could hurt corporate earnings. Analysts have already started moderating profit forecasts.

On the positive side, India’s corporate debt-to-GDP ratio is still low compared to both advanced and other emerging economies. So, even if earnings dip, companies have enough room to manage.

Banking sector

India’s banking sector is looking excellent right now.

Scheduled Commercial Banks (SCBs) have high capital buffers, plenty of liquidity, and solid earnings. And their loan books are healthier than they’ve been in decades.

As of March 2025:

• Gross NPA (bad loans): 2.3%

• Net NPA: 0.5% (Both at multi-decade lows)

• CRAR (Capital to Risk-Weighted Assets Ratio): 17.3%—a record high

This isn’t a one-off improvement. These numbers have been improving steadily thanks to years of cleanup and tighter lending standards.

And according to stress test results, even in worst-case economic scenarios, Indian banks would still stay well above minimum capital requirements.

Household debt is rising, but still manageable

India’s household debt rose to 41.9% of GDP by December 2024. That’s still low compared to other emerging markets, but it’s something worth keeping an eye on.

The main driver? A surge in personal loans, credit card dues, and consumer finance. These now make up 55% of all household debt, growing much faster than home or farm loans.

The good news is that most of this new borrowing is from high-rated borrowers—individuals with stronger credit histories.

The rise (and risk) of Non-Bank Financial Institutions

Non-bank financial institutions (NBFIs)—like asset managers, insurers, private equity, and hedge funds—are playing a much bigger role globally and in India.

By the end of 2023, they held 49.1% of all global financial assets.

Many of these institutions use a lot of borrowed money (leverage) to boost returns. If there’s a sudden market shock, they may be forced to quickly sell off positions, which can trigger market-wide disruptions.

The FSR also warns that since banks and NBFIs are increasingly linked, trouble in one can easily spill over to the other, posing a risk to the entire financial system.

India’s Non-Banking Financial Companies (NBFCs) are in good health overall. Most have:

• Strong capital buffers

• Healthy margins

• Low levels of bad loans

However, their loan growth has slowed recently. That’s mainly due to the RBI increasing risk weights on certain types of lending, making it more expensive for NBFCs to grow aggressively.

Systemic Risk Survey

The Systemic Risk Survey (SRS) conducted by the RBI in May 2025 gives a snapshot of expert sentiment on financial risks.

Here’s what they flagged:

• Medium risks: domestic growth, consumption demand, inflation, and climate change

• Top near-term risks: geopolitical tensions, capital outflows, and global trade slowdown due to tariffs

A key finding from the SRS: there’s a clear confidence gap between global and Indian financial systems. Around two-thirds of respondents said confidence in the global system is falling, but over 90% said their confidence in India’s system is steady or improving.

The survey also breaks down which sectors are seen as most at risk from global trade disruptions. Export-heavy industries like manufacturing, MSMEs in export hubs, and the shipping and logistics sector are viewed as particularly vulnerable in the current environment.

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With 2024 nearly behind us, it’s a great time to reflect on how the Indian markets and economy have fared this year. In this edition of Beyond The Charts, we’ll take a broader look at the ups and downs that shaped the past 12 months.

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Markets performance

Let’s start with the stock markets. It’s been quite a roller coaster ride—from the record all-time highs and never-ending optimism to concerns about an economic slowdown, FIIs selling like there’s no tomorrow and eventual correction. It was an eventful year for markets.

The Nifty 50 had its ups and downs, but it still closed the year with a solid gain of over 10.5%. The broader markets did even better—both the Midcap and Smallcap indices rose by more than 20%, while the Microcap index stood out with an impressive 32% increase.

Sectoral indices

When we look at specific sectors, real estate, healthcare, and pharmaceuticals are the stars of the year. These sectors delivered strong returns, with their indices climbing more than 30% during the year.

On the other hand, some of the usual market leaders had a quieter year. FMCG (Fast-Moving Consumer Goods) companies and private banks struggled to pick up pace, with their indices ending the year almost where they started in 2023. This flat performance from these key sectors, which often drive market growth, really stood out.

Factor indices

Let's break down how different investment strategies performed in 2024.

Factor investing—which focuses on specific stock characteristics - showed varying results this year. Value stocks (typically considered underpriced relative to their fundamentals) and Momentum stocks (those showing strong recent performance) beat the broader market, outperforming the Nifty 200 benchmark.

However, not all strategies worked well. Quality stocks (companies with strong balance sheets and stable earnings) and Low Volatility stocks (those that typically show smaller price swings) lagged behind the market.

For those new to investing, think of factor investing like this: Instead of just buying stocks of the biggest companies, you're choosing stocks based on specific traits. It's similar to how you might shop for a car - some people focus on fuel efficiency (like Quality stocks), while others look for performance (like Momentum stocks). Each approach has its moments of strength and weakness, as we saw this year.​​​​​​​​​​​​​​​​

Mutual funds

Despite market ups and downs, mutual funds saw remarkable growth, pulling in ₹9.14 lakh crores by November. Of this, over ₹3 lakh crores went into equity mutual funds alone.

This steady flow of domestic money was one of the key reasons Indian markets remained relatively stable, even when foreign investors (FIIs) were selling.

This trend also shows the maturity of Indian investors, who are increasingly choosing to invest rather than sitting on the sidelines or selling during market uncertainty.

Let's break down how different types of mutual funds performed in 2024.

Thematic funds focusing on specific sectors or trends were favorites among investors, attracting the biggest share of money. However, despite their popularity, these funds didn't manage to deliver the best returns.

The real winners were funds investing in mid-sized and smaller companies. Both midcap and smallcap funds outperformed their more specialized counterparts.

Looking back, 2024 proved to be a successful year for mutual funds across the board. Whether you invested in equity funds for potential growth, debt funds for stability, or hybrid funds for a balanced approach—all three major categories delivered positive returns.

Asset class performance

Looking at returns across different markets and assets. Equities were top performers amongst major asset classes—particularly the US and other developed markets, which managed to perform better compared to India and other emerging markets.

India’s increasing global stature

Indian markets have been one of the best-performing markets amongst emerging markets in recent years. Over the past year, India delivered a 25.4% return, second only to Taiwan. In the long term, India’s 20-year CAGR of 12.1% is the highest among emerging markets.

And this performance has certainly helped India increase its global stature.

Firstly, India’s weightage in the MSCI Emerging Market Index which tracks the performance of stocks over 20 emerging markets has seen a significant increase.

India’s weightage in this index has increased to 19.9% from 8.1% in 2020. At the same time, China’s weightage has dropped from a peak of 43% to around 27%.

Second, India’s share of global market capitalization has increased, now contributing around 4.3% to the world market cap compared to just 2.2% in 2020.

Commodities performance

In the commodities market, most commodity prices cooled down, while those of precious metals like gold and silver surged—prices of silver were up by over 28%, while those of gold were up around 27%.

This performance was largely driven by global tensions, and rate cuts, which pushed investors toward safer assets. Silver also gained from rising industrial demand in growing sectors like solar panels, electric vehicles, and electronics.

The general decline in other commodity prices was actually good news for consumers and businesses, as it helped ease inflation pressures.

Earnings

Let's examine how Indian businesses performed this year.

The July-September quarter was disappointing for corporate India. Many leading companies fell short of earnings expectations—a concerning sign given their high stock valuations.

Unfortunately, this isn’t a one-off, Companies have now posted weak, single-digit earnings growth for six consecutive quarters. Even more concerning is that profit growth has slowed to just 4.1% during this period, a noticeable drop from figures reported in September 2023.

The persistent slowdown in earnings is particularly noteworthy when you consider how strongly the stock markets performed. It raises questions about whether current stock prices accurately reflect company performance. When stock prices keep rising but company profits grow slowly, it often means stocks are becoming more expensive relative to their actual earnings.

Looking deeper at the relationship between company performance and market valuations. The combination of high stock prices and weak earnings growth eventually caught up with the markets.

After reaching peak levels in October, markets underwent a significant correction. This brought down the PE (Price-to-Earnings) ratios—a key measure of how expensive stocks are relative to their earnings across all market segments.

The Nifty 50's PE ratio, for example, has fallen from above 24 to around 21.8. Even Mid, small, and micro-cap indices have seen their valuations cool off.

Let’s look at another measure—the CAPE ratio. This metric has also declined across BSE Sensex and Nifty 500 indices in recent months, reflecting the market's response to the disappointing earnings we discussed earlier.

Think of CAPE as a longer-term valuation tool. While regular PE ratios are like taking a snapshot of a company's current earnings, CAPE looks at earnings over many years and accounts for economic ups and downs. This gives a more comprehensive view of whether the market is fundamentally overvalued or undervalued in the long run.

IPOs

2024 was a record-breaking year for India in terms of public issues. With over 301 companies going public until November, both through the main board and SME segments.

Together, these companies raised an impressive ₹1.41 lakh crores. The bigger companies led the charge with 75 of them listed on the main exchange and collecting ₹1.33 lakh crores.

226 small and medium-sized companies took their first step into public markets through NSE and BSE's SME platforms, raising about ₹8,400 crores together.

Collectively, the top 10 IPOs—featuring companies like Hyundai Motors, Swiggy, Vishal Mega Mart, Bajaj Housing Finance, and Ola Electric—accounted for Rs. 88,000 crores of the total proceeds.

India really stood out in the global IPO market in 2024. Here's something impressive—we led the world in terms of the number of companies going public. And when it came to the total money raised, India finished second globally, with only the United States ahead.

Growing investor base

The number of people investing in Indian markets kept growing strong in 2024. By November, there were more than 10.7 crore unique investors registered with NSE. What's even more impressive is that in just the first nine months of the financial year 2025, there has been the addition of 1.5 crore more investors.

The types of people investing in India are changing, and where they're coming from tells an interesting story. While investors used to be mostly from Western India, we're now seeing big changes across the country. With an increasing investor base in Northern and Eastern parts of India.

Northern India has seen an impressive rise, with its investor count reaching 3.8 crores—making it even bigger than the Western region.

This shows that investing is becoming popular across different parts of the country, not just in traditional financial centers.

Not only have we seen regional shifts, but investor demographics by age are also changing. More and more young people are coming to the market. Today, 4 out of every 10 investors are under 30 years old. That's a huge change from just five years ago when young investors made up less than a quarter of all investors.

FIIs vs DIIs

Foreign Institutional Investors (FIIs) have been pulling money out of Indian markets, especially in October and November. During these two months, they sold shares worth over Rs. 1.1 lakh crore, which triggered a market correction. However, looking at the full year, the situation seems less alarming: the net FII outflow in 2024 stands at around Rs. 15,000 crore.

Domestic Institutional Investors (DIIs), on the other hand, have been doing the opposite. In 2024, they’ve invested a hefty Rs. 4.93 lakh in the market.

Over the last five years—since 2020—there has been a noticeable change in how FIIs and DIIs invest. Between 2020 and now, FIIs invested about Rs. 2.3 lakh crore, while DIIs poured in around Rs. 10 lakh crore into Indian markets.

We can see this in other ownership patterns of both FIIs and DIIs.

FIIs have traditionally held the largest stake in Indian equities. However, their share has been on a steady decline since 2020 and is now at its lowest level in over a decade. At the same time, the share of DIIs has been on the rise.

If this trend continues, DIIs could soon overtake FIIs in terms of ownership.

Foreign Institutional Investors have been offloading shares in most emerging markets, not just in India. This year, they’ve been net buyers only in Indonesia and South Korea, while India, Brazil, Taiwan, and several other markets have seen net outflows in 2024.

Indian Economy

Now, let’s turn our attention to how the performance of the Indian economy.

India’s GDP growth slowed to 5.4% in the September quarter—the lowest in seven quarters and well below the RBI’s forecast of 6.7%.

This slowdown wasn’t a complete surprise, as several economic signs had already hinted at weaker growth. However, the size of the decline is significant. The main reasons were the poor performance of agriculture and manufacturing, two key parts of the economy. On top of that, government spending cuts, especially in big infrastructure projects, added to the overall slowdown.

Inflation

Inflation continues to be a big concern, putting a strain on household budgets. After easing earlier in 2024, it started climbing again in the second half of the year, mostly because of rising food prices. By November, overall inflation had reached 5.5%, with food prices rising even faster at 8.2%.

With inflation remaining high, the RBI has decided not to cut interest rates, unlike many other major economies that have started lowering theirs. While cutting rates could help boost growth, the RBI is being careful to avoid worsening the inflation problem.

Consumer confidence

The RBI’s consumer confidence survey provides insight into household sentiments regarding the economy, income, job prospects, inflation, and spending. The Current Situation Index—which reflects how people feel about the present state of the economy—dropped from 98 in March to 94 in November. This indicates that fewer people believe job opportunities, income, and overall economic conditions have improved compared to the previous year.

However, despite short-term concerns, optimism about the future remains strong. Households expect better job opportunities, higher incomes, and improved spending power in the coming year.

Auto sales

The automotive sector had a challenging year, with slow sales throughout 2024. While there was a small boost in vehicle purchases during the festive season in October, it didn’t last long. By November, sales of passenger cars and commercial vehicles dropped again, showing weak consumer demand and the impact of higher borrowing costs.

Industrial sector performance

India’s core sector industries—coal, steel, cement, electricity, and others—showed mixed performance. The index tracking these industries rebounded slightly in September and October, but growth levels remain low. This is the weakest growth since October 2022.

Breaking it down by sector gives us a clearer picture. Coal and steel production showed slight improvement, but most other sectors continued to decline. This shows that the small recovery in the overall index was mostly driven by these two industries, while the rest are still struggling to pick up pace.

The slow performance of core sectors is clearly reflected in industrial production numbers. When key industries struggle, it pulls down overall industrial production. Although the growth rate of 3.5% in October was better than the previous two months, it’s still quite low—actually, it’s the weakest since November 2023.

Despite some slowdown, India’s manufacturing sector has remained resilient. Data from the HSBC India Manufacturing PMI showed continued expansion in November, even though the pace of growth softened.

Positive demand trends, especially from international markets, helped manufacturers maintain output levels. However, rising costs of inputs such as cotton, chemicals, and rubber pushed up production prices, limiting profit margins for many firms.

On the other hand, India’s services sector is also performing well. In November, services businesses—like transport, finance, and real estate—continued to grow strongly. India’s Services Purchasing Managers Index or PMI stayed high at 58.4, slightly down from 58.5 in October.

A major highlight is job creation. The services sector added new jobs at the fastest rate since the survey began in 2005. However, this growth also led to higher costs. Wages and food prices increased, resulting in the steepest price rises in nearly 12 years.

GST and E-way bill collections

For the first time in three years, GST collections have grown by less than 10% over the past three months. Even with the festive season in September, October, and November, the growth didn’t meet expectations.

On the bright side, e-way bill generation—which tracks the movement of goods—has been strong, showing an 18% year-on-year increase. This indicates that while tax collections have slowed, trade and goods transportation remain active across the country.

To sum it up, while India’s economy continues to grow, the pace has slowed down recently. With some key sectors facing challenges, inflation is also proving to be stubborn straining household finances and slowing down spending on non-essentials.

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Welcome to Beyond the Charts! A newsletter where we dive into fascinating charts from the world of finance and the economy, breaking down what’s happening in a way that’s easy to understand.

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Mutual fund industry trends

In our first story, we’ll check out the latest numbers from AMFI and take a closer look at what’s happening in the mutual fund industry.

Lately, the Indian stock markets have had a tough time. In October and November, they dropped by over 6% as investors grew more concerned. Growth seems to be slowing, and many feel that stocks were getting too expensive. On top of that, foreign investors have been pulling their money out of Indian markets.

Even with the market downturn, Indian investors haven’t lost much confidence. The latest data from AMFI (Association of Mutual Funds in India) shows that equity mutual funds pulled in a solid ₹36,000 crore in November. That’s a bit lower than October, but still impressive—investments have been above ₹34,000 crore for eight months straight.

What’s even more interesting is that equity funds have seen positive inflows for 45 months in a row. In other words, for nearly four years, more money has been going into equity mutual funds than coming out.

Even though money is flowing into mutual funds, mutual funds' net buying in the stock market has dropped to its lowest point in 2024.

Equity mutual funds are holding more cash these days. As of November, they had about ₹1.74 lakh crore in cash, which makes up around 5.8% of their total equity assets. This is slightly lower than last month, likely because of the recent market drop, but overall, cash levels have stayed pretty steady.

Now, you might wonder—if mutual funds have all this cash, why don’t they just invest it and stop the market from falling? Well, it’s not that simple. Most mutual funds keep about 5% of their assets in cash for practical reasons. This cash acts as a buffer, helping them manage investor withdrawals without having to sell stocks at the wrong time. If they didn’t have this cushion, they might have to sell shares at lower prices, which could hurt performance.

When we break it down by category, most of the new money flowing into equity funds is heading to two key areas:

• Thematic funds – Investors are going big on specialized funds that focus on specific sectors or themes. These could be funds that invest in auto companies, banks, or newer areas like green energy and infrastructure.

• Mid and small-cap funds – There’s strong interest here too. With mid and small-cap stocks seeing an incredible run since 2021, it’s no surprise that retail investors are still chasing performance.

Thematic funds are having a big moment in 2024 as markets keep reaching new highs. These funds have brought in over ₹1.40 lakh crore by November, making up around 38% of all equity mutual fund inflows. That’s a huge shift from 2023 when most investors didn’t pay much attention to them.

When markets are booming, investors tend to feel more confident. Instead of sticking to broad, diversified funds, they’re more willing to take focused bets on specific sectors or themes.

Now, let’s talk about SIPs.

The SIP story this year is a mix of good and not-so-good news. On the bright side, monthly inflows are strong—₹25,300 crore came in, and total SIP investments for the year stand at ₹2.41 lakh crore. But there’s also a worrying sign.

The SIP stoppage ratio hit 79.12% in November. This means a lot of investors are either pausing or stopping their SIPs altogether. The uncertainty in the markets is probably to blame—new investors are more cautious, and some existing ones are hitting the brakes for now.

Let’s talk about New Fund Offers, or NFOs.

Think of NFOs like IPOs, but for mutual funds. Just like companies raise money from the public through IPOs to list on the stock market, mutual fund companies (or AMCs) launch NFOs when they want to start a new fund. They gather money from investors through these offers and invest it according to the fund’s mandate.

And, much like IPOs, NFOs tend to spike when markets are doing well. The numbers this year reflect that—AMCs have raised over ₹1 lakh crore through NFOs by November, averaging ₹10,000 crore a month. But as market sentiment cooled in the last two months, so did NFO launches.

Where’s all this money going? About 70% of NFO investments have flowed into equity-focused schemes.

This aligns with the broader trend we’re seeing in mutual fund inflows. Thematic funds are the clear winners, pulling in over 60% of equity NFO investments this year—double the amount from 2023.

Honestly, it’s not surprising. As we mentioned in a recent edition of Beyond the Charts on the rise of thematic funds—when something’s doing well, everyone wants a piece of it. Nobody wants to miss out on a trend that’s making money. And that’s exactly what’s happening with sectoral and thematic funds this year.

Let’s take a look at how debt and hybrid funds performed in November. While they still saw positive inflows, the numbers dropped sharply compared to October—debt fund inflows fell by over 90%, and hybrid funds saw a decline of more than 75%.

Zooming out to 2024, most fund categories have consistently attracted investments, except for those investing overseas. These funds are limited by the RBI’s $7 billion (around ₹59,400 crore) cap on mutual funds investing abroad. This restriction has kept a lid on how much these funds can accept from investors.

Now, let’s break down where the money is flowing within debt and hybrid funds.

In November, debt fund data revealed an interesting trend. About 57% of all inflows went into short-term funds, especially low-duration and ultra-short-duration funds.

This makes sense given the current market environment. With interest rates being unpredictable, many investors prefer shorter-duration debt funds. These funds are less affected by rate changes and offer better liquidity, making them a safer bet when the future of interest rates isn’t clear.