Bernstein: India’s Ambitions are Hollow Without R&D Investments 1. No nation in history became a developed economy with R&D @ 0.65% of GDP 2. Labor Arbitrage Economy: Demand broken as wages stagnate for 10 yrs. You raise wages, you can’t compete. AI dents it further. INSIGHTS: R&D Intensity (% of GDP) 2000s Korea: 3.12% Taiwan: 2.7% China: 1.32% India: 0.82% 2010s Korea: 4.29% Taiwan: 3.3% China: 2.11% India: 0.75% 2020-25 Korea: 5.21% Taiwan: 4.0% China: 2.8% India: 0.65% Widening Innovation Gap: China’s GDP is 5X of India. Its R&D budget is 4X in % of GDP. So, in dollar terms, China is 5x4 = 20X of India’s R&D every year. Labourers vs. Innovators a. India’s Top 10 Companies: Combined R&D Expense 2025 (Thinking in Quarters): Below $1B b. China Companies R&D Expense 2025 (Thinking in Decades): BYD $8B; Huawei $14B; Xiaomi $5B c. Korea: In 1970s, private to government R&D share was 20:80. In 1990s, the ratio became 80:20. Korean government forced private sector to invest in R&D, reject short-termism, and massively incentivized firms with export credits and R&D tax credits. d. Taiwan: In 1980s, the government funded research labs for semiconductors. The “seed” was sown by the government; the “scale” was led by private sector. Today a single company TSMC controls 70% world market share in semiconductor pure-play, driven by AI demand. e. China: In 1980s, India and China had similar R&D investments. China realized that technology was their only guarantee of national survival. The government and private sector formed a combined “war machine” to become the “IP owner” and not just the “world’s factory” for tech goods. India’s Scarcity Mindset a. While Korean and Chinese companies operate in a culture that rewards global innovation, Indian companies operate in a culture that rewards bowing down before bureaucrats and ministers. b. To grow in India, you don’t need to build world-beating products. You just need to operate in those areas of the domestic economy where government policy favours Indians over foreign businesses. c. Think of a student whose father owns the school, and no other students are allowed to sit in the exam. What will be his capability? While other countries demand global dominance as a point of national pride, Tata, Reliance, and Adani cannot even make a candy that sells in the world market. d. Curse of Cheap Labor: Indian IT companies realized that when you can make 20% margin by selling cheap labor, why build a semiconductor factory that requires $20 billion CapEx? They kept distributing lakhs of crores in dividends (mainly to promoters) while the world invested in AI and chips. e. The GCC Paradox: India now has over 50% of the world's Global Capability Centers (GCCs). From Google to Walmart to Mercedes, the world’s best tech innovation and research is happening in India, but the Intellectual Property (IP) belongs to other countries. So, we remain only “cheap labour” for others. Low Wages; Broken Consumption a. Labour arbitrage economies enjoy GDP growth till wages keep rising. But wage growth stalls when other poor economies like Bangladesh or Philippines catch up with lower wages. That’s when their dream of becoming a “developed economy” gets a reality check. b. From 2015 to 2025, real wages in India have stagnated. Rural wages have seen a negligible CAGR of 0.1%, and entry-level IT salaries have famously remained stuck at ₹3.5 LPA. China’s real wages (inflation-adjusted wages) have grown at 8 to 9% CAGR during the same period. c. Indian companies continue to operate in low-complexity, me-too product/service segments where low wages are a competitive advantage. But now AI is the new emerging threat to IT sector and GCCs. Endpiece In absence of an urgency to shift from Labour Arbitrage to Innovation Premium, India risks falling into the Middle Income Trap. India’s demographic dividend is ending by 2040. Without investing patient capital in R&D, India will squander its opportunity to achieve a developed nation status by 2047. @arabicatrader

🚨 U.S. 30Y YIELD — 5.508% 🔥 “यदा यदा हि धर्मस्य ग्लानिर्भवति भारत… अभ्युत्थानम् अधर्मस्य तदात्मानं सृजाम्यहम्।” — Bhagavad Gita 4.7 जब-जब Market Dharma बिगड़ता है… Bond Market स्वयं अवतार लेता है। 😏 और इस बार अवतार है — 5.50%+ U.S. 30Y Yield. ☠️📈 परित्राणाय साधूनां विनाशाय च दुष्कृताम्… 🔥 #BondMarket #US30Y #StockMarket ✍️@AlgoBoffin ::

Markets Sense a Long Era of Instability: Don’t Buy the Fall (a) Govt is distracted (b) FIIs dislike mass protests (c) 2021-26: Nifty below-FD Return (d) FD rates will rise; Build Cash (d) China 17 yrs 0 return (e) Here’s India Data & Facts: Second Order Effects on Economy a. Govt is facing real political storms. It has no bandwidth left for major economic policy or reforms to attract foreign investment. b. Foreign funds don’t invest where mass protests and public discontent are a daily affair. Their bet on India was a strong govt; strong economic agenda. c. Inflation rising, unemployment rising; IT exports declining; Rupee under pressure. RBI is forced to fight inflation. FD rates will rise in Oct. Zero Risk Premium in Equity a. 5-Year Returns: Sept 2021 to Sept 2026 (5 Yrs): Nifty 50 Return: 32.3%; Post Office Deposit Return: 34.4%; SBI 5-Yr FD Return: 30.8% b. 3-Year Returns: Nifty 50 Return: 15.58%; Sensex Return: 9.94%; Post Office Deposit Return: 21.56%; SBI FD Risk-Free Return: 21.34% c. Last 3 Years: Out of a universe of 2,867 stocks, 43.3% delivered negative returns (one-third lost up to 50% value; 11% lost above 50% value). d. Risk-Reward Ratio: In last 3 years, you had a 43.3% probability of destroying your capital. Against such high risk, even if you won, the returns were far too negligible to justify such volatile investment. Don’t Bet on Growth Narrative a. Yesterday, Kotak published a chart showing that China stock market (CSI 300) has remained sideways for the last 17 yrs; and has not yet regained the level it set 18 yrs ago. b. Howard Marks published data in his recent memo: In the last 100 yrs, each time you bought S&P 500 at forward PE 23x, the annualized return in the next 10 yrs has been between +2% and -2%. Every single time. No exceptions. c. India is no exception. India’s growth story of FDI, FII, IT boom, low inflation is long over. Over the next 5 yrs, the downside risk looks higher than the upside potential. If you go all-in, that’s a risky bet for your mental peace, with little potential upside. Why Are FIIs So Pessimistic? a. On Aug 28, Bernstein published a hard-hitting strategy note: "India’s corporate earnings are artificially engineered through state subsidies, fiscal cushions, and borrowed offshore dollars rather than through genuine productivity gains." b. Market bulls touted NSE 200 top-line growth was 12%. Yet, net profit grew only 7%. Bernstein questioned the practice of excluding loss-making oil marketing companies (OMCs) "to manufacture a strong earnings growth story." c. Govt expanded LPG/fertilizer subsidies, took $10B hit through excise duty reductions, $20B GST cuts, OMCs took $2B loss. So govt subsidized consumer spending power, which artificially padded the firms’ operating margins. That's not a long-term play. d. $70B Pay Commission wage revision is coming, which will encumber sovereign balance sheet and cut govt’s capacity for public capex. Plus, with costly FCNR deposits, govt is purchasing rupee stability on credit, Bernstein warned. e. Finally, Bernstein says India’s large caps are not investing in the future, and are consolidating their past (preserving balance sheets). Companies with deepest pockets don’t want to commit capital to emerging technologies, and want policy protection. f. In this scenario, FIIs are forced to look at small and midcaps (SMIDs). But those companies remain sub-scale, with low free-floats, high volatility, and risky corporate governance. Institutional capital is not interested. Bernstein concludes: With these problems, why should FIIs invest in India? ENDPIECE: Investor Strategy a. PE de-rating is going on globally. World-class US companies are available at throwaway prices, and there are no buyers. So, don’t get tempted by a falling market in India. b. Build cash patiently. Unwind risky positions. Cash has 3 benefits: (1) Emergency funds give security & happiness (2) FD may beat equity for next few years (3) If global equity crashes, you will be the only buyer in town. c. Think in Probabilities: Considering all macro factors: (1) India Equity Boom: 20% chance (2) Sideways: 60% chance (3) Bust: 20% chance FD wins: 60% + 20% = 80% chance Equity wins: 20% chance Markets are the greatest game on earth. The dream to get rich is as old as the hills. Most investors will still pick equity. @arabicatrader

China Tops Global Exam in Math/Sci: 91 Nations Participate; India Skips (a) OECD’s PISA: Tests a Nation’s Education System; Not for Toppers (b) Inclusive Sample: 150 Schools Per Country (c) 2009 India Ranked LAST; Escaped Participation after that. India’s Education System: Isolated from Global Benchmarking a. The OECD (Organization of Economic Cooperation & Development) conducts a global exam every 3 years in Mathematics, Science, and Reading for 15-year-olds. b. It is not an Olympiad to identify rare child prodigies. It is a Program for International Assessment (PISA) to evaluate a nation’s education system and quality of education. c. Minimum 150 schools per country and 52 students per school are chosen randomly (= 7,800 students per country). Selection of schools & students is highly inclusive to cover wide-ranging backgrounds and varying abilities. d. Exam is monitored by international agencies so that no country can manipulate the results. Each country is free to choose its states/regions for participation, so 150 schools can be from its most advanced states. e. PISA test is designed to evaluate the students’ ability to apply knowledge and skills in practical life plus assess their communication, creative thinking, and problem-solving abilities. f. OECD’s goal is not to create a “competition” or a “race” among nations. The goal is to find answers to 3 critical questions for each nation: (1) Are our schools preparing young people to solve real-life problems? (2) Are some teaching methodologies more effective than others? (3) Is our focus only on mastering the school curricula (producing the world’s best ‘test-takers’ instead of problem-solvers)? The Only Nation Skipping the Test a. PISA 2009: In 2009, the UPA govt (Edu Min Kapil Sibal) was excited about its participation in PISA, considering India’s large number of students obtaining 90% or 95% marks in CBSE exams. b. Govt selected its most educationally advanced states: Tamil Nadu and Himachal Pradesh for the test. 5,000 students were randomly chosen from 150 schools. RESULT: India ranked 73 out of 74 nations, ahead of Kyrgyzstan (population: 60L). c. The media blasted the UPA govt. The results were obvious. India’s education system was obsolete, designed for rote learning and test-taking (“private tuitions & coaching” to game the system while crushing natural curiosity.) d. PISA 2012: With egg on its face, the UPA boycotted PISA 2012 saying the test was “culturally unfit” and the questions were “out of context”. No other country in the world protested, even if they ranked poorly. The Curse of Education Continues a. PISA 2015: NDA came to power in 2014, but it carried on the tradition set by UPA and skipped the 2015 PISA. Since it was a “Party with a Difference,” it decided to introduce its own Aatm-Nirbhar “National Achievement Survey” (NAS) conducted by NCERT. b. All “cultural biases” and “out of context” hurdles were removed. NAS 2015 was conducted pan-India in five subjects. RESULT: Avg national score for 2.70 lakh students was a disappointing below 50%. The truth had been exposed. c. PISA 2018: This time the govt declared its intention to participate, but somehow “missed the application deadline.” Next year, India signed an agreed with OECD for participation in PISA 2021 (postponed to 2022 due to Covid). d. After India agreed for PISA 2021/22, the World Bank’s India representative Junaid Ahmad said: “India is aiming for that global benchmark, and has no issue with taking on PISA. It is a reflection of India’s strength.” The WB rep cited the example of Vietnam: “When Vietnam entered PISA, the diagnostic helped it to understand what was wrong with its education system. Today, Vietnam’s PISA numbers are equivalent to top nations in the world.” e. PISA 2022: India chose Chandigarh along with central govt schools (Kendriya Vidyalayas). However, just days before the test was scheduled to begin, the govt withdrew again. Officials cited pandemic as the reason (no other country in the world withdrew.) f. PISA 2025: India again opted out. Over 760,000 students across 91 countries participated. On Sept 8, 2026, OECD announced the results of PISA 2025. China ranked first in both Science and Math, and second in Reading. Asian countries excelled and outperformed Europe and the US. ENDPIECE India continues to remain absent from the global education scorecard. It is like a patient who is so scared of the diagnosis that he keeps seeking quick cures with tantra-mantra instead of evidence-based surgical intervention to treat the root cause. @arabicatrader

India’s Growth Model Left Out Youth (a) PLFS Data Released: In 70% districts, 20%+ youth not in job, not in education (b) Youth jobless rate 3X of overall rate (c) 40L engineers chasing 7L jobs (1 in 6) (d) Household burden to feed them rising. K-Shaped Boom; Youth Job Bust a. On 18 Sept 2026, Ministry of Statistics released the first-ever nationwide district-level PLFS data. In 70% of India’s districts, 20% or more youth (15-29) are in NEET category: Neither in Employment, nor in Education, nor in Training. b. Worst Performers: Bihar, UP, Haryana, Punjab, and West Bengal (38% of India’s population): Two-thirds of districts in these 5 states have 25%+ NEET youth. Nationwide: 8.7 cr youth are in NEET (Total 37 cr youth: the world’s largest youth population in 2026.) c. India’s unemployment rate is 5%; youth unemployment rate is 16% (3x). 8 out of 10 jobs are in informal sector. 19.4% of jobs are as “unpaid helpers” (helping in household enterprises.) That is 11 cr counted as “employed” without any pay. d. 58% of unemployed youth (grads, post-grads, diploma) have been searching for work for over one year. Exactly half (28.9%) have remained unemployed for over two years. Youth graduate unemployment rate is highest in 40 yrs: SWI 2026 Data. e. Engineering Talent: Foundit (ex-Monster dotcom) Sept 2026 report shows that 39.6 lakh active engineering candidates are chasing 6.7 lakh jobs. The study found there are 5.9 engineering candidates for every available engineering job in the country. NYT & WSJ Reports New York Times: 18 Aug a. India’s college boom is leaving graduates in debt and without jobs. Families are draining their savings on private education & coaching. Education loans start accruing interest @ 10% p.a. Result for Jobless Youth: debt trap, depression, loss of self-worth. b. India adds 1.2 cr to its working population every year. More than 60 lakh graduates every year. But India creates only 2.5 lakh new jobs a year paying more than ₹48,000 p.m. Over 40% of all college graduates under 25 are unemployed. c. “There’s a lie that has been sold to young people: that a degree will get them a job,” NYT quotes an expert. “A national psychosis”: a ferocious competition for engineering degrees has created a private college & coaching industry, which is “monetizing youth’s desperation.” Wall Street Journal: 14 Aug In 2023, Jharkhand advertised for 583 govt posts for excise constable. More than 5 lakh people applied. Kundan Mehta, 25, was one of them. For the next 3 years, he studied for the exam, and also trained for the 10-km run (in 60 minutes) as part of the screening. The night before the run, Mehta took a 5-hour train journey for the 10-km run in peak heat, sleeping in an open field. After at least 12 applicants collapsed and died during the run (possibly from the heat), the govt temporarily suspended the tests. In April 2026, Mehta, who has a degree in computer applications, slept at the station the night before a 6-hour exam. He passed. But in July, he was informed that he hadn’t been selected for the job – his sixth failed attempt in 10 yrs to get a govt job. ENDPIECE India cannot build an export-competitive economy with protectionist policies for its domestic billionaires while private investment declines for 15 yrs along with zero R&D. It’s time policymakers stop cheering India's family-owned top 1%, and ask the real question: What economic future awaits India’s youth? @arabicatrader

"Heavy rain falls on the just and the unjust alike. You are going to experience adversity, unfairness, and bad luck in life. How you respond to that adversity defines your character and your long term success. If you sit around feeling sorry for yourself or blaming others, you guarantee your own failure. But if you accept reality as it is and focus on what you can control, you can turn almost any setback into an advantage." - Charlie Munger

Why Nations Fail [By 2024 Nobel Prize Winner in Economics, Dr. Acemoglu]: In Jan 2000, Zimbabwe was facing its worst economic crisis following decades of mismanagement. A national lottery was organized by a govt bank. Guess who won? Book: Why Nations Fail Excerpts from Chapter 13 It was January 2000 in Harare, Zimbabwe. A national lottery was organized by a state-owned bank (Zimbank). The lottery was open to the account-holders of the bank. The day of the draw arrived. Every account-holder who secretly hoped to win waited anxiously for the outcome. The person in-charge of drawing the winning ticket made a random selection from among thousands of eligible customers. As Zimbank’s public statement put it: “Master of Ceremonies Fallot Chawawa could not believe his eyes when the ticket drawn for Z$100,000 prize was shown to him, and he saw His Excellency Robert Mugabe written on it.” President Robert Mugabe, who had ruled Zimbabwe by hook or crook, and with an iron fist, for the past 20 years, had won the lottery. What a lucky man! Extractive Institutions In “Why Nations Fail,” Prof. Acemoglu argues that “the most common reason why nations fail” is because they have extractive institutions. These institutions systematically block opportunities and incentives for the masses to improve their lives. Control of resources is reserved for a small elite ruling class who are free to manipulate any opportunity in order to perpetuate the dependence of the less privileged. ENDQUOTE “Poor countries are poor because those in power make choices that lead to poverty. They get it wrong not by mistake or ignorance, but on purpose.” – MIT Professor, Dr. Daren Acemoglu Daren Acemoglu, Simon Johnson, and James Robinson jointly won the 2024 Nobel Prize in Economics for demonstrating the crucial role of institutions in the economic success or failure of nations. @arabicatrader

I’ve mentioned before how my grandfather encouraged me to start following politics from the time I entered 6th standard. Healthy political discussions were always part of our household. There were many times when each of us voted for a different political party. Our family used to be large, with grandparents, parents and siblings. The only time, probably the first and last time in my life, that I ever supported a political party in public was when Modi became Prime Minister. I tried to convince my father to vote for Modi, telling him that economic development and a government free of corruption were essential if our people’s standard of living was to improve. He said there was no dispute on that point, but that where I was going wrong was in believing Modi would deliver it. He said I was still naive in certain respects, and that the first thing I should learn is that if something is too good to be true, it usually isn’t. My father passed away in 2020. Among ourselves we continued to discuss politics. He never voted for Modi in the years that I did. Before the recent state elections in Tamil Nadu, though my son is only 15, we asked him to think for himself about whom he would vote for. I wouldn’t say his logic was great. But he reached a conclusion based on his own reasoning, which differed from my wife’s view and mine. We still encouraged him a lot. What matters is starting to think for ourselves, even though some decisions will be right and others wrong. The one big clarity we have as a family is that, in most cases, we are able to distinguish narratives from ground reality. Thinking is painful. But there is no substitute for it.

MDR = Monetizing a Desperate Republic (a) UPI Merchant Fee during inflationary times shows the IQ of India’s policymakers (b) Instead of upskilling: treating poor as captive customer base (c) Why fund rich banks enjoying tax cuts from 30% to 22%? Great Timing, Great Priorities a. On 10 Aug, 2026, Parliament passed the Taxation Amendment Bill, removing the legal shield which had kept UPI fee-free since 2020. Until now, about 90% of this cost was borne by private players (banks & payment apps); and 10% by govt subsidies. b. Consolidated net profit of all listed commercial banks in FY26 was a record ₹4.11 lakh cr. What was the urgent need to gift them this new revenue stream (UPI MDR) at a time when consumers are facing the monster of rising inflation and youth unemployment? c. In 2019, banks and large private companies were gifted a corporate tax reduction from 30% to 22%. It boosted their balance sheets and cash reserves, while they invested nothing in R&D and human capital upskilling. How MDR Indirectly Hits Consumers a. The Pass-Through Effect: MDR has been framed as a technical fee on merchants, not consumers. This framing ignores basic retail economics: Merchant costs are ultimately consumer costs. Merchants don’t have a cash printer like RBI. They will mark-up the MRP to absorb the cost. b. Regressive Impact: Transaction fees on merchants (transaction size: ₹2,000+; monthly receipts: ₹1 lakh+) acts like an indirect consumption tax on people. A jobless youth, an under-employed worker, or a low-income individual bears the same burden as the top 1% earners. c. Shooting Your Own Foot: After earning well-deserved global recognition for creating a cash-lite digital economy (after a devastating demonetisation), the MDR toll opens the doors to creating hurdles for financial inclusion and economic efficiency. Irrational Managements a. Think of a company that pays fat salaries to promoters (= incentives to big corporates); ignores capital allocation for R&D; refuses to invest in workforce training & education; and yet expects employees to generate revenues. b. When growth stalls, instead of fixing the fundamentals, management decides to raise prices (= taxes & tolls) on its captive customer base. The customer has nowhere else to go because the company (govt) is a monopoly. c. Great nations, like great companies, think long-term. They make large capital expenditures in public education, technical training, and R&D to monetize their strongest asset: human capital. They give policy protection and tax cuts to industry against legally binding commitments of R&D, innovation, and workforce upskilling. They do not gift an unconditional playing field to multiply personal billionaire wealth over a short time-span. ENDQUOTE Short-term gains carry long-term invoices. @arabicatrader

India PE De-rating in Progress (a) 20 Yrs 1990-2009: 6 mkt declines of 35%+ (every 3 yrs) (b) 17 Yrs 2010-26: 1 decline 35%+ (Covid) (c) 2020-26 Liquidity Distortion: Max Decline 17% (d) Sept 2026: India PE 2x of MSCI EM Index (Double Expensive). Natural Boom-Bust Mkt Function Peaks and troughs (bottoms) are the stock market’s primary function for price discovery. India’s high domestic liquidity (SIP inflow) has distorted that natural bull-bear function. Major Sensex Declines 1990 to 2009: 6 Bear Mkts Peak to Trough: 35%+ Peak: 9 Oct 1990: 1,551 Trough: 25 Jan 1991: 956 Fall: 39% (over 4 months) Peak: 22 Apr 1992: 4,467 Trough: 26 Apr 1993: 2,037 Fall: 54% (over 12 months) Peak: 12 Sept 1994: 4,631 Trough: 4 Dec 1996: 2,745 Fall: 41% (over 27 months) Peak: 21 Apr 1998: 4,281 Trough: 20 Oct 1998: 2,764 Fall: 35% (over 6 months) Peak: 11 Feb 2000: 5,934 Trough: 21 Sept 2001: 2,600 Fall: 56% (over 19 months) Peak: 8 Jan 2008: 20,873 Trough: 9 Mar 2009: 8,160 Fall: 61% (over 14 months) ======= 2010 to 2026: 1 Decline Peak to Trough: 35%+ Peak: 14 Jan 2020: 41,952 Trough: 23 Mar 2020: 25,981 Temp Fall: 38% (Lasted 2 months) ======= 2020 to 2026: Sensex Declines Peak: 19 Oct 2021: 62,245 Trough: 17 June 2022: 51,360 Fall: 17% (over 8 months) Peak: 25 Sept 2024: 85,836 Trough: 28 Feb 2025: 73,198 Fall: 15% (over 5 months) Peak: 1 Dec 2025: 86,159 Trough: 30 Mar 2026: 71,948 Fall: 16% (over 4 months) 2020-2026 Market Distortion: Small declines followed by quick recoveries: Liquidity acts like a painkiller. Brain is numbed into believing there is no pain, though pain exists. India Still 2x Expensive Jefferies India chief said on 20 Aug, 2026: Indian equities are trading at 20x forward earnings (with midcaps/smallcaps pricier still). Compared to the MSCI Emerging Markets index, Indian stocks now carry close to a 100% premium. It means investors are paying double what they would pay for similar Emerging-Market exposure elsewhere. PE De-rating Going On Nifty 50: Sept 2024 Trailing EPS: 1,057 Trailing PE: 24.9x Nifty 50: Sept 2026 Trailing EPS: 1,117 Trailing PE: 19.9x INTERPRETATION: Sept 2024 to Sept 2026: Nifty EPS (Earnings) Up 11% Still Nifty went Down 10% PE Down from 24.9x to 19.9x Means: PE De-rated by 20% Jeffries says India’s Forward PE is currently 20x (based on estimated future earnings). At this level, PE is still 2x of other emerging markets (their average PE is 10x) To come at par with other Emerging Markets: a. Either Nifty DOUBLES its forward earnings from the current EPS estimates. b. Or, Nifty’s forward PE multiple compresses by HALF (from 20x to 10x) to match other Emerging Markets. With earnings unchanged, that means a 50% price correction. c. Unless one of the above two happens, FIIs are not coming back Except If: (1) the AI trade breaks; or (2) the oil shock ends; or (3) India delivers an economic miracle. ENDPIECE Indian stock market is currently a single-engine aircraft flying on SIP inflows. Your best strategy: Pray that the SIP engine does not start running out of fuel. @arabicatrader

Non-SIP Investors Net Selling in 2026 (a) SIP investors had negative returns last 2 yrs (b) Lumpsum MF redemptions began in 2026 (c) Inflation Risk: FD rates may go up in Oct (RBI Meet) (d) If SIP inflows reduce by 20%, market floor is gone. Test of Patience Has Begun In 2024 and 2025, there were no net redemptions by lumpsum investors. In fact, retail investors added extra amount over and above SIPs in the form of lumpsum equity MF. Jan-Aug 2024 Extra Inflows Above SIPs +₹74,000 cr Jan-Aug 2025 Extra Inflows Above SIPs +₹21,000 cr Jan-Aug 2026 Extra Amount Above SIPs -₹16,000 cr INTERPRETATION: a. The discretionary, non-SIP equity MF investor has already begun net selling (for 6 out of 8 months of 2026). SIP is now the single pillar of support left in the current market. b. Historical data shows monthly SIPs are sticky like “auto-debit” payments. Human mind is resistant to alter them. But their old SIP units and lumpsum equity MF investments are vulnerable to redemptions. c. At present, SIP AUM is ₹18.6 lakh cr. Equity-scheme AUM is ₹39.2 lakh cr (SIP + lumpsum mixed). Out of this Equity AUM, redemptions are already ₹2K cr p.m. (avg) in 2026. If this monthly redemption amount increases from ₹2K cr to ₹10-15K cr, the market will lose its floor. Why? Because SIP inflows are max ₹30-32K p.m. That is the only liquidity cushion available to DIIs right now. If ₹10K or 15K goes out as monthly redemptions, the fire begins, and nobody will get a chance to exit the building. Human Tolerance for Losses a. FD interest is 6.5% p.a. Last week, SBI Research recommended that RBI should raise interest rates because inflation is spreading. SIP investors are already sitting through 2 yrs of negative returns while FDs compound at 6.5% p.a. b. Nifty 50 Year-to-Date return is -13.67% as of Sept 9, 2026. Nifty Smallcap 250 return is -23% from Sept 2024 to March 2026. c. Redemption risk is high when you consider where most of the retail money is parked. Driven by FOMO, a large chunk of retail inflows have chased high-PE small & midcap funds. PE de-rating here can be fast & furious. d. Aug 2026 SIP/MF Inflows: Smallcap funds ₹8K cr; Midcap funds ₹7K cr; Large-cap funds: Outflows (-) ₹1K cr. Liquidity in small and midcaps is low and leverage 50% of total MTF Book. So, redemptions will cause forced liquidations due to margin calls. There will be no buyers on your trading screen; only sellers. SIP Investors Are Human Too a. In theory, it is logical to hold SIPs for 10 or 12 years to achieve the true benefits of compounding. But SIP investors are also humans with emotions. They don’t look at 10-yr CAGR. They look at the last SIP statement vs. the FD interest rate. b. SIP stoppage ratio in Aug 2026 was 81%. (Mar-Apr was 100%). It means SIP industry churn is high. SIP leavers are getting replaced by new joiners. Retail patience with underperforming equities is only 18-24 months. Beyond that limit, disillusionment sets in. c. Capital Migration: If FD rates increase or gold/silver starts booming, while equities underperform, disillusioned retail capital will shift towards the latest hype in town. That increases the risk of redemptions. d. How the Floor Breaks: Two groups fund SIPs. Group 1: People already paying SIPs: they mostly continue. Group 2: New SIP starters: they look at past years’ returns vs. FD returns. When negative years come, Group 1 shrinks 10%; Group 2 shrinks 50%. So, the floor breaks: gradually, then suddenly. Which Side of the SIP You’re On This is not a call to stop your SIP. But you should know which side of the math you’re on. If your SIP is the one that DIIs are counting upon every month, you are currently the only reliable buyer left in this market. That is either the most disciplined thing you are doing with your money, or the riskiest. It depends entirely on your emotional control and your time horizon. @arabicatrader

Inflation Is Spreading; Hike Rates: SBI Research (a) Inflation spreading across more items in the CPI Basket (b) RBI should raise interest rates (c) US Bond Yields Rising → $ Outflows → ₹ Falls (d) Liquidity will tighten (e) What Should Investors Do? SBI’s Rate-Hike Call Higher interest rates slow down economic growth, but help in inflation control. Markets hate that. a. Time Is Running Out: SBI Research Note by SBI’s Chief Economic Adviser SK Ghosh begins with the Latin phrase “Tempus fugit” (time flies). Time is moving faster than markets expected. b. Raise 50 bps: RBI’s repo rate today is 5.25%. SBI Research says a “prolonged pause” on interest rate hikes is no longer an option. Raise rates by 25 bps in Oct and another 25 bps in Dec (repo becomes 5.75%). c. Moat Against Inflation: SBI report calls 50 bps (0.5%) as a “protective barrier” against inflation threat. Even if the August CPI (Consumer Price Index) looks fine, SBI says the rate hike of 50 bps is still necessary. d. Oil Shock: SBI’s statistical model sees crude going up to $123/barrel in two weeks. Even in a mild scenario, they expect $105/barrel. Oil price rise widens India’s trade deficit, weakens the rupee, and hits households & companies alike. Inflation Is Spreading a. SBI Research says CPI is showing “early signs of generalization.” Inflation is no longer confined only to 1-2 items (say, vegetables). It is starting to spread. SBI sees Oct & Nov CPI moving to 6.5% or higher (outside RBI’s comfort limit.) b. Items that constitute 90% of CPI’s weighted contribution (means, number of items that impact 90% of the price movement): It was 22 items in Jan 2026. It has widened to 53 items in July 2026. c. Share of top 25 items (ex-gold/silver) has come down from 83% to 75% (so inflation is leaking down to more items.) Headline CPI has gone up from 2.73% in Jan to 4.45% in July. Core CPI (non-food/fuel) is still soft (risen from 3.67% to 3.87%). d. SBI’s worry is what happens in the next 2-3 months to Core CPI. Sectors like Oil & LPG, Beverages, Pharma, and Electronics are till now absorbing higher input costs, without passing them on to consumers. But they have a limit. e. The report gives the example of restaurant inflation. It is rising due to higher costs of onions, cooking oil, and LPG. But restaurants do not print new menu cards overnight. The pass-through in prices comes with a lag. f. SBI’s worry is that by the time the pass-through in prices shows up fully, it may be too late for RBI to pre-emptively fight the fire. It means, some of the inflation is already “in transit” but it has not yet reached your doorstep. g. US Bond Yields: Long-term interest rates on US treasuries are reaching a 10-year high. When global investors get attractive returns on US treasuries (sovereign guarantee), why will they stay in risky emerging markets? Once global money leaves, Indian bond rates and rupee come under pressure. Impact on Your Stock Portfolio a. Hold your cash until Oct 7, 2026 (RBI meeting) if you can. Fresh lumpsum investments in IPOs, highly leveraged stocks, and momentum stocks might be the riskiest use of cash till Oct 7. b. Mid/small caps that have been rising only because “RBI won’t hike” are the most exposed to price damage. Mid/small caps with weak pricing power and even large cap FMCG get hurt if they cannot pass on the costs to consumers. c. High-PE growth stocks can get hit if 50 bps rate hikes happen. Their valuation relies on future cash flows. If RBI raises interest rates, their present value gets discounted at a higher rate. (Means: the attraction of holding risky equities reduces if FD interest rates increase.) d. NBFCs, high-debt infra, capital goods, or mfg companies, and real estate are losers if 50 bps happens. (Nifty Realty already hit @ -2.7% yesterday). IT, Pharma, and exporters gain due to weaker rupee. Banks with low-cost CASA sustain (NIM can expand.) ENDQUOTE: Newton's Apple “Interest rates are to asset prices what gravity is to the apple. Interest rates power everything in the economic universe.” – Warren Buffett (Berkshire AGM, 2013) @arabicatrader

The Illusion of Booming GST Revenues: Dr. Arvind Subramanian (a) 1 yr ago, govt re-labelled parts of GST (b) That created an optical illusion of booming receipts, while hiding a sharp decline in revenue performance (c) “Observers have been misled” A Masterclass in Magic Tricks In an illuminating piece titled “GST Re-labelling Misleads and Obscures,” former CEA Dr. Arvind Subramanian along with Abhishek Anand and Josh Felman, describe how “observers of revenue performance” (analysts, journalists, and general public) “have been misled.” Starting in Sept 2025, the govt of India changed the labels on certain parts of the GST system. According to the authors, this “re-labelling” has led to two consequences: (1) It creates an illusion of a booming growth in tax revenues, while hiding a sharp decline in actual revenue performance. (2) It deprives state govts of about ₹15,000 to ₹20,000 crores every year from their fair share of the GST revenues. How the Illusion Works Imagine you have a ₹100 note in your left pocket and a ₹100 note in your right pocket. Now you move both notes into one pocket. Has your wealth doubled? a. Before Sept 2025, the GST system had two main buckets: Regular GST and Compensation Cess (an extra tax on luxury or sin goods like SUVs & tobacco.) b. Starting Sept 2025, the govt lowered GST rates on most items, and simplified the GST structure. The “Compensation Cess” was abolished in phases, while the items under that Cess were moved up from 28% GST rate to 40% GST. c. Now in place of the abolished Cess, the govt introduced a new tax on these items called the Additional Excise Duty (AED). d. In effect, the GST labels were changed. The old system was: “GST + large Cess”. The new system became: “Much bigger GST + smaller AED”. Headline Numbers vs. Reality a. The govt does not explicitly publish the data for the new Additional Excise Duty (AED). By obscuring this data, it becomes very difficult to compare the old GST numbers with the new ones. b. The so-called massive surge in “GST” collections has occurred because a major portion of the old Compensation Cess is now labeled as “GST.” So, the GST bucket becomes fatter. c. This moving money from one pocket to the other has been touted as a “Laffer Curve” phenomenon (“miraculous achievement”) where GST rates have been lowered, and yet tax collections have increased. d. Headline vs. Actual GST Revenue Growth Headline GST Growth FY25: 9.4% FY26: 7.5% Q1FY27: 10.5% (Booming) Actual GST Growth: Reality FY25: 9.4% FY26: 5.8% Q1FY27: 4.9% (Declining) IMPLICATIONS: 1. When you count ALL the taxes collected across all labels (GST + AED + old Cess), the total GST revenue growth in Q1 did not surge to 10.5%. It actually declined to 4.9%. 2. GST changes in Sept 2025 may have simplified and improved the system, but they have led to revenue losses. The GDP Reality Check To understand the economic conditions through the lens of tax revenue collections, you must look at net tax revenue (gross minus refunds), and then compare it against the GDP. Since FY24, net GST revenues as a share of GDP have been steadily declining. Net GST Revenues FY24: 6.0% of GDP FY25: 5.9% of GDP FY26: 5.7% of GDP Before the GST system was introduced in the country, the pre-GST average collection of indirect taxes was 6.2% of GDP. So, in terms of receiving revenue as a share of GDP, the govt is doing much worse in FY26 @ 5.7%. The States are Hurting a. When GST was designed, the Finance Commission’s formula meant that if ever the Compensation Cess was folded into the “Regular GST” structure, the states would receive 40% of the Central GST indirectly. b. Reality: The Centre has completely changed the game under the new arrangements. The newly created Additional Excise Duty (AED) allows the Centre to keep a much larger slice. c. The Centre has introduced a new tobacco machinery-related tax (“Health Security and National Security Cess”.) This is not shared at all with the states. The authors argue this seems to “legally” violate the GST law (“de jure”). d. The Financial Hit: The authors estimate the entire act of re-labelling of taxes is depriving the state govts of ₹15,000 to ₹20,000 cr annually. Dr. Subramanian’s full article is available as a repost on his X timeline @arvindsubraman ENDQUOTE “Everything the State says is a lie.” – Friedrich Nietzsche, Thus Spoke Zarathustra (1883) @arabicatrader

India's Semiconductor Story (a) How Korea/Taiwan built a monopoly (b) India’s focus is on low-end, loss-making assembly (c) How many billions Indian govt is pouring as semicon subsidies (d) Why Dr. Raghuram Rajan calls it capital MISallocation? Korea’s Story Lose a Decade; Own a Century a. In 1953, South Korea’s per capita income was lower than Somalia’s; literacy was 20%; population was less than Lucknow. Today, two Korean companies, Samsung and SK Hynix, sell two-thirds of the world’s memory chips at monopoly prices. b. On Feb 7, 1983 in a Tokyo hotel room, Samsung’s founder Lee, who was dying of throat cancer, called his electronics division chief. Lee said 4 words that Korea’s business historians now call the “Tokyo Declaration”: Samsung will build semiconductors. c. Samsung board strongly opposed. Japan’s chip industry was at its peak, having crushed US competition. Samsung had no tech base except TV assembly, sugar refining, and dried fish. Lee committed almost all of Samsung's cash reserves to semiconductors. Korean media called him “reckless.” d. Lee died in 1987, but his daring move in semiconductors became one of the most consequential bets in industrial history. Samsung sent its researchers to study US chipmakers, licensed costly technology to reverse-engineer, and absorbed years of R&D losses. Within a decade, Samsung was the world’s largest DRAM producer. Taiwan’s Story When Nations Dare to Dream a. In 1960s, Taiwan was a tiny island known for making “plastic toys and low-cost footwear.” Today Taiwan's TSMC controls 72% of the global “contract” chipmaking market, and for super-advanced chips, nearly 100%. b. In 1985, Taiwanese govt invited semiconductor expert Morris Chang of Texas Instruments to build Taiwan's chip industry from scratch. Chang founded TSMC, which needed billions in capital to build factories. Intel, Toshiba, Hitachi, Sony, all said "No" as the investment was too risky. Taiwanese govt decided to invest its own capital. c. After a decade of TSMC's production optimizations, process innovations, and its struggle against Intel, finally Intel made the worst call in tech history. It rejected Steve Jobs' offer to build the iPhone's chip (on pricing), and TSMC stepped in. d. TSMC borrowed billions for R&D upgrades and capacity buildup as Apple demanded a better & faster chip for every new launch, while iPhone sales broke all records. Apple later gave an offer to TSMC for exclusive supply. Chang refused and explained his commitment to a small customer that depended on him: Nvidia. The rest is AI history. India’s Story Profits Without Risk a. Semiconductor design & manufacturing is so complex that it requires hundreds of billions in patient capital, decades of learning curve to master the physics, and an advanced supply chain and talent pipeline. The new 1.7nm fabs are so cutting-edge they even factor the moon’s gravitational pull. The moat is impossible to break. Competition from China is almost a decade behind Korea & Taiwan. b. Indian family-owned firms are not willing to lose money for a decade with no guarantee of a return. India is not doing chip design or manufacturing. India is doing back-end assembly, testing, and packaging (ATP). c. ATP is the only way for India to be a part of the global semiconductor supply chain and generate employment for assembly workers. But ATP has low operating margins. Industry margins are shared as follows: Chip Design: 55%; Fabrication: 35%; ATP: 10%. With high capex and low margin, ATP is a loss-making part of the business. d. Tata Semicon and others are not going to take a loss. So, Indian govt is bearing 50% of the project cost. $10B was allocated as subsidy in Semicon 1.0. Just last week, the govt has notified another $13.5B (₹1.28 lakh cr) subsidy under Semicon 2.0. e. Stop the Subsidy: Dr. Raghuram Rajan has called India’s rush into chip subsidies “a ruinous race to get into now,” as every nation is chasing the same prize. Prof. Rajan argues that India’s chip-subsidy exceeds the entire annual higher education budget. With 85% Debt-to-GDP ratio, India does not need this capital-intensive industry with low job creation per dollar. ENDPIECE: Govt Should Ask Big Business to Invest In 2019, govt of India cut corporate tax rate from 30% to 22%. It was a historic move to financially empower the industry to invest in R&D and high-tech mfg. Instead, promoters simply used the tax cuts to boost cash reserves. It’s payback time. @arabicatrader

Economists Flag India's 4 Structural Defects Ex-RBI Gov Dr. D. Subbarao (IMF article) and Dr. Raghuram Rajan (Frontline) diagnose what’s holding India back. Why investment is weak, jobs are poor, skills are low, masses struggle, and top 1% thrive? In Sept 2026, former RBI governors Dr. D. Subbarao (writing for IMF publication) and Dr. Raghuram Rajan (Frontline interview) identify India’s 4 fundamental flaws: Growth on a Shallow Foundation? Just a year ago, the Indian economy was in a celebratory mood. Riding high on strong growth, low inflation, and China+1 story, India had overtaken the UK and was set to surpass Japan. That narrative has shifted so quickly that it makes one think whether India’s Goldilocks moment was built on a shallow foundation. Growth momentum has cooled, inflation is rising, and India has slipped to 6th place in global GDP rankings. India’s 4 Structural Defects 1. Policy Favours Oligarchs a. Bulk of India’s growth is coming from govt capital expenditure. Pvt corporate investment as a % of GDP is at lowest level since 2012. Govt spending has limits as it leads to fiscal deficit & inflation. India needs pvt capex for sustainable growth. b. Pvt investment is concentrated in a few large business groups in sectors benefiting from govt policy. Small/Medium manufacturing firms are hesitant due to policy shifts and an uneven playing field. c. Businesses only place long-term bets when they have deep confidence in both demand and regulatory stability. Without strong pvt investment, GDP above 7% over the next decade will be an uphill battle. 2. Focus on Jobless Growth a. India’s structural disconnect between economic output and employment is widening. Agriculture contributes 15% of GDP, but employs 50% of workforce. Services contribute 15% of GDP, but employ 3%. b. Our gap between agriculture and the rest of the economy is one of the highest globally. During 2022-2024, while India became the world’s fastest-growing major economy, 3.8 crore women fell back into agriculture with poor wages. c. India’s large businesses focus on capital-intensive growth. So, output is expanding, but formal job creation remains poor. For millions of youth entering the labour market every year, headline GDP growth means nothing if there are no opportunities. 3. Wealth Concentration a. India’s wealth generated over the last 10 yrs is distributed unevenly, marked by a stock market boom, high-end real estate upsurge, and luxury consumption. 85% of workforce remains in informal employment with flat to negative real wage growth. b. This divergence is an economic bottleneck. Mass consumption is poor, which has stalled private investment. Only a small segment of population drives discretionary spending. This K-shaped growth cannot lift the whole economy. 4. Innovation & Education Deficit a. Countries can grow up to a point with cheap labour, capital accumulation, and favourable demographics. Growing beyond that requires domestic innovation and R&D, IP ownership in technologies, and deep investments in skills & education. b. Even basic skill development at scale is missing, which could create jobs such as: medical assistants, caregivers, mechanics, electricians, plumbers, welders, solar technicians, machinists, and heavy equipment operators. c. India has under-invested in education at all levels: primary, secondary, and higher. We have not created research universities, which provide the foundation for industry R&D. We have hugely lagged behind China in education. d. India’s R&D spending is 0.7% of GDP, while other nations spend 5x of that. India’s median age is 28 (US is 39; China is 40; Europe is 44). India’s demographic dividend is a demographic liability without investments in education and upskilling. ENDPIECE India’s economic growth till now has been a hard-fought victory. But very few countries go beyond that level to achieve developed nation status. The next phase will be the real test of India’s destiny. @arabicatrader

@arabicatrader @manurishiguptha @vka27 @TheClubJunto Indian GDP in terms of Gold 😏

GDP: Dr. Arvind Subramanian Delivers a Body Blow to the Official Narrative (a) Govt has created a fundamental trust deficit (b) GDP numbers are disconnected from reality (c) Why macro-indicators were poor in the past, yet GDP was high? The GDP Challenger Is Here For years, former CEA Dr. Arvind Subramanian has been a powerful voice questioning the credibility of India’s GDP numbers. Having examined India’s growth data under the microscope for over a decade, Dr. Subramanian’s commentaries on the subject carry unusual weight. Today he enters the ongoing GDP debate along with Abhishek Anand and Josh Felman. EXCERPTS: Govt is Correct on Face Value The Ministry of Statistics (MoSPI)’s argument is correct on the technicalities. GDP numbers of Q1FY27 (new base, new methodology) cannot be compared to Q1FY26 (old base, old methodology). But then why are people doubtful? Govt Faces Trust Deficit a. Govt’s handling of data has created a fundamental trust deficit. During the demonetisation shock (86% cash withdrawn) in 2016-17, the official data showed GDP has risen to a dizzy level of 8.2%. That was the beginning of distrust. b. Examples: The census has been delayed. The 2017 consumption survey was withdrawn. Covid deaths were significantly understated. Open defecation related claims were exaggerated. c. With this track record, the public has become doubtful about the govt’s claims. The burden of proof has passed on to the govt to demonstrate the integrity of its data. d. Govt has still not explained why Q1FY26 GDP was revised down by 7% (an extraordinary revision compared to historical data.) e. Govt has not released a long back series to explain this revision. Unusually, the govt has not even announced the standard committee to calculate this series. Decoupled from Ground Reality a. During the quarter of 7.8% GDP growth (Q1FY27), April and May 2026 were months of shortages. Fuel was being rationed, travel was subdued, restaurants & other businesses were buying LPG in black, wage & employment had slowed, stock market was sagginng, and currency had crumbled. b. It is hard to understand how the economy could have done so well in the face of the global energy shock. Despite fiscal stimulus and increase in exports, the damage from 32% jump in import bill was far greater. That was the RBI’s view, which had estimated that the economy had slowed in Q1FY27. c. In these circumstances, it would have been impressive if India had merely managed to sustain its previous growth rate. But when the numbers came in, the GDP had accelerated by almost full one percent to 7.8%. d. More Unsolved Puzzles: If the economy was booming, why did nominal net GST revenue grow just 5% (even allowing for GST rate cuts)? Why did import volumes fall? How could mfg deflator be negative when RBI data shows business margins actually improved? e. Govt should release the complete “Sources and Methods” document, which details how GDP is calculated and revised. This document exists, and it has always been released in the past. Let independent economists examine the document and reassure the public about the govt’s data. The Final Question The govt and its supporters argue in favour of Q1 GDP growth of 7.8% citing strong macro-indicators. If these macro-indicators have led to 7.8% GDP growth, how was 7 to 8% GDP growth achieved in the past years with several much weaker macro-indicators (notably, sales, trade, electricity, investment)? You cannot use one measuring tape for today, and another measuring tape for the past to suit your convenience. Data and charts are available in Dr. Subramanian’s published paper @arvindsubraman @arabicatrader

Why Nobody "Feels" GDP Boom? (a) 2012-24 Inflation-Adj Annual Wage Growth: China @ 9%; India Rural @ 0.9%; India Salaried @ -0.3% (b) 2012-24 Stock Mkt CAGR: China @ 4%; India @ 13% (c) India GDP ⇒ Asset Owners; China GDP ⇒Wage Earners. DATA: Definitions: a. Nominal Wage = Actual Wage Received b. Real Wage = Wage Adjusted for Inflation c. CAGR = Compounded Annual Growth Rate Data Sources: RBI, MoSPI, Ministry of Labour, National Bureau of Statistics (NBS) China China Wage Growth 2000-2025 Nominal Wage Growth: 1,280% Cumulative Inflation: 60% Real Wage Growth (25 yrs): 8.6x Real Wage CAGR: 9% Interpretation: a. In 25 yrs, a Chinese worker’s inflation-adjusted wage increased 8.6x. b. Each year the worker’s purchasing power grew by 9%. In the supermarket, if the worker could buy 1 cart of goods 25 yrs ago, today he can buy 8.6 carts (nearly 9 carts) of goods. India Rural/Casual Labour Wage Growth 2012-2024 Nominal Wage Growth: 120% Cumulative Inflation: 98% Real Wage Growth (12 yrs): 1.1x Real Wage CAGR: 0.9% Interpretation: a. In 12 yrs, an Indian rural/casual worker’s inflation-adjusted wage increased 1.1x. b. Each year the worker’s purchasing power grew by 0.9% (not even 1% improvement per year.) In the supermarket, if the worker could buy 1 cart of goods 12 yrs ago, today he can buy nearly 1.1 cart (same cart, just 10% extra goods in it). Indian Regular Salaried Worker Wage Growth 2012-2024 Nominal Wage Growth: 90% Cumulative Inflation: 98% Real Wage Growth (12 yrs): 0.96x Real Wage CAGR: -0.3% (Negative) Interpretation: a. In 12 yrs, an Indian regular salaried worker’s inflation-adjusted wage increased 0.96x. b. If 12 years ago this worker was earning ₹100, today he earns ₹96 (in inflation-adjusted terms). c. Each year this worker’s purchasing power decreased by 0.3%. In the supermarket, if this worker could buy 1 cart of goods 12 yrs ago, today he can buy nearly 0.96 cart. A little less dinner after 12 yrs. GDP Growth of Asset Owners INDIA: Nifty 50 1 Jan, 2012: 4,625 31 Dec, 2024: 23,644 Growth Multiple: 5.11x CAGR (13 yrs): 13.4% This means: If you invested ₹100 in 2012, you would have ₹511 in 2024. 5x your money in 13 yrs. Wealth compounding @ 13.4% CAGR. Dividends add another 1-1.5% to it. CHINA: CSI 300 1 Jan, 2012: 2,346 31 Dec, 2024: 3,935 Growth Multiple: 1.68x CAGR (13 yrs): 4.06% This CAGR is worse than India’s FD returns. If you invested ¥100 in China in 2012, you would have ¥168 in 2024. All-Round Growth: Chinese working class has seen spectacular prosperity in the last 25 yrs. Asset owning class is already rich. So, even with slow compounding over the last 12 yrs, they are still wealthy. GDP of the People You cannot feed Democracy to a hungry child for dinner. True Democracy is GDP of the people, by the people, for the people. @arabicatrader

R&D Lessons from China: After Reliance, JSW Halts Battery Mfg Plans (a) RIL & JSW: “China has weaponized access to battery tech” (b) FACT: Chinese firms failed for 30 yrs doing R&D, while we focused on quarterly EBITDA (c) Renting vs Owning Mentality. India’s Licensing Mentality a. On Aug 26, 2026, Parth Jindal (36 yrs) told reporters that JSW has halted its ₹40,000 cr planned investment to manufacture LFP (lithium iron phosphate) battery in India. Parth said: “China is guarding LFP technology like a weapon.” b. At Reliance AGM 2026, Anant Ambani (31 yrs) told shareholders: “Access to battery tech is being weaponized.” Reliance was forced to halt its mfg plans for LFP battery after China refused to license cell technology. c. Indian industry prefers non-export items like oil, steel, cement, power, ports, airports because a known playbook exists. Foreign competition disallowed, 100% domestic capture, predictable profits, multi-billion mkt cap, zero R&D. China’s R&D Mentality a. China controls 94% of global LFP capacity. Chinese Companies: CATL: 37%; BYD: 23% (BYD became a car-maker); Others: 34% b. LFP technology did not fall from heaven into China's lap. 30 years ago nobody wanted LFP. LFP was cheap and safe, but it had a failing. Its conductivity was so poor it could hardly deliver current. c. US researchers gave up on LFP after a long struggle as it looked impossible to crack. But it was obvious that LFP would one day win because it involved abundant, low-cost raw materials. BYD 2002-2020: Lessons in R&D 18 Years of Blood, Sweat & Tears 2002: BYD was a small battery-maker founded by Wang Chuanfu, an orphan from one of China’s poorest provinces. Wang chose the long and painful road of LFP when everyone else believed it was the road to bankruptcy. In 2002, BYD’s earliest investor was Charlie Munger. Charlie said: “I invested because Wang was a “chemistry genius” and a “fanatic who worked 70 hrs a week.” 2005: In 2005, BYD developed its first in-house LFP cell. 2008: BYD launched the world’s first hybrid electric vehicle running on its own LFP – three months after Warren Buffett bought $230 million of BYD stock. 2009-2012: Commercial testing was critical to scale up the technology. But car owners were not ready to buy EVs. Chinese govt backed the technology with “10 Cities, 1000 Vehicles” program, which put LFP on municipal buses and taxis. 2016-2018: The Darkest Years: Conventional NMC technology raced ahead due to govt subsidies. Competition intensified. Industry slogan became: “LFP is dead; stop burning money.” 2019: Near-Death Experience: BYD's net profit to shareholders fell to $267 million, while R&D expenses swelled to $1.25 billion. BYD had bet its last shirt on the technology. 2020: Redemption at Last: BYD’s legendary Blade Battery was born. It worked like a dream, having survived years of failures, bottlenecks, countless iterations, rebuilding of entire production lines, and a devastating lab fire. R&D: How to Conquer the World a. Dozens of Chinese EV and battery startups living off govt subsidies disappeared. BYD and CATL emerged as the survivors of a domestic bloodbath. b. In 2025, the world’s largest EV seller BYD spent 9% of its sales revenue (not profit) on R&D. CATL spent 6%. To understand the scale: In 2025, CATL had 20,000 research staff and 43,000 patents & applications. 2025 BYD R&D Expense: $9B 2025 BYD Profit: $4.5B (Half) c. China has innumerable companies today with such suicidal R&D expense ratios. India has ZERO because with a license raj DNA, the Indian promoter has no mad desire to change the world. He just wants to die rich. India's Ambani-Adani Equation The following equation sums up India's economic curse: When you have zero R&D, your profit becomes: $4.5B + $9B = $13.5B India's family-owned conglomerates, thriving on protectionist policies, do not wish to waste even one dollar on R&D and innovation. Their vision for India is to leave billions to their children. And the children think licensing another's IP is their birthright: “China has weaponized battery technology against us.” @arabicatrader

India's Got Talent: IIT/IIM/Ex-London Trader IAS Divya Mittal Resigns (a) Brought water to a hilltop village in UP after 75 yrs (b) Village elders blessed her; politicians hated her (c) Rewarded with transfer to a desk job for file-pushing. Guide 101: How to Derail India a. Lahuria Dah, a semi-arid village in Mirzapur, UP suffered from water scarcity since independence. Villagers depended on a distant reservoir and a broken well to fetch muddy water. Ministers, MPs and MLAs gave only fake promises for 75 years to grab votes. b. Divya Mittal, IIT Delhi, IIM Bangalore, Ex-JP Morgan Exotic Derivatives Trader in London returned to India and joined IAS (AIR 68). With help from local admin, she achieved victory in a technically complex project, and brought the water pipeline to the village. “Jai Hind,” Divya wrote on X to share the news. c. At the jal pujan ceremony on Aug 30, 2023, village elders who had never seen fresh water flowing from a tap got emotional and gave their blessings to Divya Mittal. A local political functionary wrote to the UP chief minister that the area’s MP/MLA were not invited to the jal pujan (to take all the credit.) d. Two days later, Divya’s transfer orders were issued, and she was put on a “wait-list” with no posting from Sept 2023 to Feb 2024. The village celebrations turned into a disappointment. Meanwhile, the local goons damaged the pipeline, cutting off water supply again. e. Normally, the “wait-list” would deliver the right message to an officer to “stay within limits.” But Divya was not ready to bow under pressure. In July 2025, as the DM of Deoria, in a meeting chaired by a sitting MP, Divya said on camera that no minister, MP, or MLA has the authority to push an officer’s transfer (which must be governed by rules, not influence.) f. UP Minister S.P. Shahi publicly responded that officers should not be lecturing to elected representatives on where the boundaries lie. In hindsight, one can see Divya’s fate was decided the moment she spoke on the politicians’ “power to transfer,” which is their real weapon to teach a lesson to officers. g. On May 3, 2026, UP carried out a reshuffle of 38 IAS officers. Divya was transferred as Special Secretary, Revenue, Lucknow. Special Secretary has no decision-making authority. They share files, make notes, drafts, and replies. Files go up to the Secretary, Principal Secretary, and Minister, who hold the power to bring change. On Aug 30, 2026, exactly 3 years after the jal pujan in Lahuria Dah, Divya Mittal resigned. The Mafia Never Forgets In Italy, there is an old saying: “The mafia never forgets, never forgives.” In India, the system does not argue with you. It simply breaks your spirit to be a changemaker. @arabicatrader