MARKET PERSPECTIVE

By J Mulraj

Dec 6-12, 2025

But we decide which is right, and which is an illusion

Image created using Bing

The lyrics of ‘Nights in White Satin’ sung by the Moody Blues, talk about the cold hearted orb that rules the night (ie the moon), removes the colours from our sight, red is grey, and yellow white, but we decide which is right, and which is an illusion.

This is equally true of the stock market.

The official narrative of DJ Trump is of a booming economy and stock market at a peak. The promise of Artificial Intelligence (AI) substantially improving productivity, and solving major societal problems of food, of energy, of health, of transportation, and providing a universal high income, seems to have removed, for the nonce, the colours from our sight.

It is we who have to decide which is right, and which is an illusion.

Global debt is around $320 trillion. (Source: Claude.ai). This includes Government debt, corporate debt and household debt. This is nearly 3 times global GDP of $110 trillion. Warren Buffet, arguably the best investor with a long track record of compounding wealth, has propounded the Buffet ratio (global market cap/global GDP) which, according to him, signals time to sell once it hits 2.

Next, the performance of the US stock market is skewed in favour of just 7 stocks called the Magnificent 7. These 7 stocks accounted for 50-60% of gains made by S&P 500 (an index of 500 stocks) and 86.7% of its earnings growth.

We decide which is right, and which is an illusion.

US companies have resorted to share buy backs and high dividends, often with borrowed funds. In 2024 share buy backs plus dividends amounted to $ 1.57 trillion. This boosts the index.

Then there is a likely repeat of the problems associated with the Commercial Real Estate (CRE) sector. Demand for office space has declined after Covid, and small businesses/shops are shutting due to high interest rates, competition, and crackdown on illegal immigrants. Loans taken by owners of CRE buildings are due for renewal, but at significantly higher rates. This could force many building owners into liquidation, which will affect the Community Banks that have lent to the CRE sector. Remember Silicon Valley Bank? It had enough Treasury Bills to cover deposits, and had the ability to not mark the fall in their T Bills because they had declared they would be held to maturity. However, when there was a run on the bank, SVB had to sell the T Bills, at a loss, and needed a rescue.

There is a huge risk of a replay of events leading to the failure of Regional, or Community Banks. The FDIC (Federal Deposit Insurance Corporation) is unprepared to insure deposits, as mandated. It has insufficient funds. Owners of CRE buildings need to re-finance $ 1.5 trillion before end 2026. The existing loans were raised at around 3.5% interest rates; the cost would be double now. The value of the CRE properties have fallen sharply, due to vacancies. This problem would spill over to Regional Banks, as it did last time.

Coming to India, let’s take a look at the GST (Goods and Service Tax) system. GST was introduced in July 2017, to replace other indirect taxes like excise duty, customs duty or import duty, service tax and taxes collected by States, like octroi, which was a goods entry tax into one state from another. It was hugely wasteful, and added to logistics cost and time, as well as to rampant corruption. Then Finance Minister, Jaitley, and team, made a huge effort to get all the States on board, and has had to give a share of GST revenue to the States. But, to get them to agree, it can be argued that the system is too complex, expensive, and needs a review.

GST collections now exceed Rs 20 trillion ($ 222 billion) per year. This is far more than the Rs 8.6 trillion in indirect taxes it has replaced. In Sep 2025, after the Government rationalised GST rates, lowering them for some items like packaged food items, lower priced apparel/footwear, from 12% to 5%, GST collections went up! Obviously, since costs of these items fell.

Now, compare our GST/VAT structure with those of other countries. Several countries charge a flat, uniform rate of VAT, payable by the consumer at point of sale. E.g. in UAE and Sri Lanka, both much smaller economies than India, it is uniform rate of 5% across the board.

Why should India have multiple rates (5%, 12%, 18% and 28%) which makes classification an issue of dispute, sometimes laughably so (none other than the Finance Minister clarified, in Parliament, on television, why the Government was right in charging a higher rate for caramelised popcorn, than on salted popcorn! The former was considered by her as a ‘mithai’, no kidding, hence a ‘luxury’ whilst the former was considered a ‘namkeen’, hence eaten by the common man. It was worthy of inclusion in a Franz Kafka novel!

Moreover, the Indian system keeps rates higher than the 5% in other countries, then mollifies producers by allowing ‘input credits’ creating a nightmare for small producers and a feast for corrupt bureaucrats, who then go on to differentiate between types of popcorn.

Is this what India, the #4 economy in the world, should debate about in a world that’s busy with new, disruptive, technologies?

The increase in indirect tax collections (Rs 20 trillion + in GST v/s the Rs 8.6 trillion collection of indirect taxes before GST, has given politicians the freedom to splurge.

India spends Rs 2 trillion on food subsidies, giving rice and grain to over 800 million disadvantaged people. A laudable objective and a huge effort. We must, however, question a food policy that requires giving food subsidies to nearly 60% of the population, 78 years after we gained independence! Surely our agricultural policy is wrong!

It is! Terms of trade are anti farmer. About 50% of India’s population is dependent on agriculture for their livelihood, but earn between 18-20% of GDP. The other half, non-farmers, mainly urban folk, earn 80-82%. The price of food grain is kept artificially low. Despite this, if Rs 2 trillion is spent on food subsidies to 80 m people (which being more than 50% of the population, implies it goes to all the farmers plus 10 m urban poor), then our policies have failed half the population that feeds the other half.

The Government had tried to course correct a few years ago, giving an option to farmers to sell their produce either at Government mandis, or markets, or in the open market, wherever they got a better price. Poor communication by Government, of the benefits to farmers, caused a farmer protest (instigated) and a shelving of agri reform.

Given that the food subsidy exceeds the farming population, o the obvious question is – for whom is farm tax exemption intended? Obviously for the large farmer, but also, equally obviously, for those in power, to wash dirty laundry.

Is it not hypocrisy for the Government to brag about it’s generosity in food dole, on the one hand, whilst extending a complete tax exemption, on the other, all the while claiming it is waging a war against corruption?

Red is grey, and yellow, white, but we decide which is right, and which is an illusion.

Not only its farmers, the Government has failed to protect it’s investors from fraud. Newspaper headlines are presenting the one time settlement between 13000 victims of the NSEL (National Spot Exchange Ltd) Ponzi fraud; the victims will get Rs 1950 crores, or 34.8% of the Rs 5600 lost. After 12 years.

Compare this with the experience of the 41000 victims of the 2008 Bernie Madoff case in USA. After 18 years, entirely due to Government effort (in the NSEL case the victims settled, in frustration, when the Government did nothing to help) the Madoff victims recovered 94% of their funds.

The DGCA (Director General of Civil Aviation) also displayed helplessness in protecting fliers when India’s leading airline, Indigo, with a 60%+ market share, flouted a directive issued 2 years prior, meant to give pilots more rest time, to ensure flight safety. Other airlines increased pilot strength to meet the directive. Indigo didn’t, cancelling its flights, instead, causing a huge disruption to passengers. The airline needed an extra 65 pilots and didn’t bother to get them over 2 years, but have now decided to hire foreign pilots. Was it hubris? Arrogance?

It makes no sense. Indigo is a highly valued airline, with a good reputation for on time service and enjoyed a good branding. Why risk all this only to demonstrate clout? The owners surely would not risk their brand or valuation. But if the executive erred, why did the owners not step in? Other airlines would need to step up. Indigo’s market share needs to be curtailed and it has to strive to restore its reputation.

The US Fed cut interest rates by 25 bips (0.25%) but the board is unsure of how many cuts it would implement in 2026. It will have a new Chair as the term of J Powell is ending.

President Putin made a state visit to India, which would result in more bilateral trade in their own currencies, rather than USD, and even closer military ties.

Meanwhile Trump has cleared a $686 m package to Pakistan to upgrade its F16 fleet. This is after Asif Munir assumed greater powers and more control over the country. Trump also shot down a Venezuelan boat, in international waters, killing 9 sailors, on the grounds that they were drug smugglers. Given that Russia has provided Venezuela with weapons, likely Oreshnik, any further escalation would be fraught with great danger.

China’s trade surplus has gone above $ 1 trillion for the first time. Ironic, because America’s interest bill is also likely to exceed $1 trillion! The contrast couldn’t be starker.

The BSE Sensex fell 448 points last week to close at 85264.

The news to follow next week will be the Bank of Japan meet on Dec 19. If Governor Ueda raises interest rates by 0.25% then the risk of the $ 20 trillion JNY carry trade unwinding is high. This would trigger a sharp reaction. Unlike his American counterpart, Ueda is not under political pressure to cut rates.

Red is grey, and yellow white…

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Comments may be sent to: jmulraj@asiaconverge.com