Is this the start of the end of Dollar & US hegemony ?? Implications for investors

 

Title : Is this the start of the end of Dollar & US hegemony ?? Implications for investors 

Hello friends

 

  This innocent looking table(Published in Economic Times this week) startled my mind & forced me to dig deeper . After digging deeper & doing some research through credible sources & AI tools , my earlier belief became stronger that “ This is the beginning of end of Dollar hegemony & consequently US hegemony & domination over global economy & markets” . Why do I say so? Just have  a closer look on the table & few observations.

·         Is US Fed losing confidence in its own currency ? Does it not consider its own creation US Treasury bills  as a “safe haven” ? Why US Fed has quadrupled its gold reserves in tons in last 8 years , increasing its Gold holding share to almost 80% of its reserves( highest among all big economies)? Does it know something about USD outlook which it is hiding ?

·        Why the developed world & US allies (Germany, Italy, France etc) hold Gold as the major reserve asset/ currency (>75%) ?  Do they not consider USD/T-bills as the safest haven asset?  Has Gold replaced USD/T-bills as the “safest haven”? Do they know something about USD outlook , which other nations don’t know?

·        Why Japan & China has hurriedly reduced their USD/ T bills holdings to half , by massive 1.7 Trill $ in 8 years ? Do they know something more than other nations about USD outlook?

·        Has Gold replaced USD/ T-bills as the safest haven ?  Central banks have been madly hoarding Gold in last decade or more .  Only these top 10 economies have hoarded average of 1000 tonnes of gold every year(@130 billion $ > 3% Indian economy size every year) . No wonder Gold has done so well in last 5 -10 years(15-18% CAGR), better than equities.

·        Why India is still over-invested into T-bills and under-invested into Gold(14% share only) with respect to US & developed nations? Should the RBI wake up and follow the US Fed & developed world ? Are we trying to be “ Holier than Thou” & impressing somebody in US ?

 

This wet my appetite as this will have implications on our investments, asset diversification  & their returns , which I will cover later…  I started digging more into this affair through AI tools like Chat Gpt , Google Gemini to get some credible data & deeper trends through credible sources.

 

·        Share of US treasuries in Global central bank treasuries  has dropped from 72% in 2001 to 62% in 2010 & 54 % now (that’s 18% drop in 24 years@ 0.75% per year) . By this rate , it will be less than 50%(no more majority of reserves) in 5 years(by 2031) and less than 40% in less than 20 years(by 2044) . See the declining trends(Source Chat GPT query)

 

·         While the share of US T-bills have fallen by 8% (from 62 to 54%) in last 15 years in central bank reserves, Gold holdings% has gone up by 6% (from 10% to 16%) .Has Gold replaced US T-bills as the “safest haven” ?No wonder, Central banks have been madly hoarding Gold in last decade or more . Only these top 10 economies have hoarded average of 1000 ton of gold every year(@130 billion $ at current prices). No wonder Gold has done so well in last 10 years(15% CAGR), much better than equities (Nifty at 12% & NYSE at 11% in 10 years). Pl see graph below(Source Chat GPT)

 

·        Foreign investor share of US Treasury holdings have reduced from 50% in 20008 to 30% in 2025 , including the major holders like Japan & China, which have almost halved their US T-bill holdings since 2017 by about massive 1.7 Trillion $ ( Pl refer the first table in the blog).

 

 

·        Even the share of USD in global transactions (trade , Forex and capital ones) have come down from 52% to 42% in 2 decades(2004 to 2022) , which is measured by SWIFT payments(inter bank transactions). This shows that share of Dollar/ T bills coming down for both reserve currency as well as transaction/ trade currency.

 

This led me to think & research more about USD outlook & its implications on our investments, asset diversification  & their returns. I had raised concerns about strength of US economy & USD earlier too in my blog recently (late September) with the headline.

 " Interesting Global marathon for economic & market power between 3 players - US , China & India" 

I am putting the blog link here ..

https://indiavalueinvesting.blogspot.com/2025/09/interesting-global-marathon-race-for.html

 

Putting some relevant portions from the blog on US economy & equity markets related concerns..

“For over a century, the U.S. economy has been the backbone of global growth and financial markets. Even today, it accounts for nearly 25% of global GDP and houses the world’s deepest & most liquid capital(bonds, T bills & equity) markets. 

 

•             Strengths: The U.S. thrives on its innovation engine — Silicon Valley, biotech hubs, green energy, and AI leadership. Consumer spending, which makes up about 70% of GDP, continues to power growth. Institutions remain strong, attracting global capital.

•             Challenges: The fiscal debt burden is climbing above 125% of GDP, demographics are aging, and productivity growth is uneven. Rising geopolitical competition also weighs on its long-term outlook. Other nations & central banks  are slowly but steadily moving towards de-dollarization & chosing Gold as the safest haven, instead of USD/ T Bills in earlier times , which could challenge the Dollar status as world reserve currency. Another big risk is heavy concentration of market growth in a handful of large tech companies, often referred to as FAANG or the "Magnificent Seven". The top 10 stocks, primarily tech giants, can represent over 37% of the S&P 500's total value. The "Magnificent Seven" (Google, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla) have driven a majority of the S&P 500's gains in recent years. This creates a scenario where if these stocks perform well, the index looks healthy, even if the other 493 companies are struggling. This masks broader economic weakness.” Magnificent seven stocks are mainly going up , based on their AI related investments and earnings projections ( accounting for >50% of market cap gains of S&P 500 this year )and hence their could be a bubble/ over-hype  situation , if  they don’t deliver on AI projections.”

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US Dollar as a Global Reserve Currency

The USD remains the preeminent reserve currency, comprising approximately 54% of disclosed global official foreign reserves as of 2025, far surpassing the Euro (≈20%) and others. However, its share has been on a gradual, long-term decline from a peak of 72% in 2001 to 54% now & probably less than 40% in next 20 years( as per the current trends).

Key Long-Term Risks to Dominance (Erosion of Trust)

• US Fiscal Health: The biggest structural risk is the US's growing national debt(at 38 Trillion $@125% of GDP) and persistent fiscal deficits (projected at ≈6.5% of GDP). This can undermine the "safe haven" status of the USD and US Treasury securities, potentially leading to a higher cost of borrowing or a weaker dollar if the Federal Reserve is compelled to intervene.
• Diversifying central bank reserves: Growing concerns on dollar stability & US fiscal health has led to central banks reducing their USD/ T-bill holding from 72% to 54% (last 24 years) and increasing their other categories (primarily Gold @16% and Euro@20% share)
• Weaponization of the Dollar: The use of financial sanctions (e.g., against Russia) has prompted some countries, particularly strategic rivals and certain emerging markets, to actively seek alternatives for trade and reserves to reduce their vulnerability.
• BRICS challenge – As of 2025 , 10 BRICS countries( Led by Brazil , Russia, India , China , South Africa) & 13 partner nations are developing the BRICS Bridge payment network to settle transactions using Central bank digital currencies. This might become a big challenge to USD hegemony in future.
• Political Instability: Increased political polarization and recurring issues like debt limit confrontations in the US ( leading to current US Fed govt shut down) can raise doubts about the stability of US governance, which is a core pillar of the dollar's credibility.

 

 

Key Factors Supporting Dominance (Structural Advantages)

• Deep and Liquid Markets: The sheer size, openness, and sophistication of US financial markets (equities and bonds) are unmatched globally. This provides the world with a vast supply of safe, liquid, dollar-denominated assets, which no other currency can currently rival.
• Network Effects: The dollar's dominance is deeply entrenched in the global financial architecture (banks, clearinghouses, and payment systems). The cost and institutional shift required for countries to fully divest are prohibitively high, creating a strong inertia that favors the USD.
• Lack of a Viable Alternative: The decline in the USD's share has not led to a corresponding surge in a single competitor ,like the Euro or the Chinese Renminbi( which currently holds only ≈2% of reserves). Instead, reserve managers are increasingly diversifying into Gold(from 10% to 16% in last 15 years) & a wider range of smaller, "nontraditional" currencies (e.g., Australian Dollar, Canadian Dollar).
• Rule of law and institutional depth: US legal, regulatory and financial infrastructure (settlement, custody, accounting standards) Favors USD usage.

 

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🌍 US Dollar as a Global Trading Currency

The USD's role as a medium of exchange and unit of account in international trade is also likely to remain dominant but face gradual erosion from de-dollarization efforts and technological advancements. Share of USD in global transactions (trade , Forex and capital ones) have come down from 52% to 42% in 2 decades(2004 to 2022) , which is measured by SWIFT payments(inter bank transactions). Hence, it has already lost its majority share(>50%) of all SWIFT transactions(Trade related, Forex deals & capital flows)

 

Factors Causing Erosion

• Commodity Pricing: There is a visible, growing trend of commodity contracts, particularly in energy, being priced in non-dollar denominations as countries like China and Russia push for alternatives.
• Regional Trade Blocs: A global shift towards greater geo-economic fragmentation and the formation of regional trade blocs could lead to more trade being invoiced in the currencies of the dominant regional economies, diminishing the USD's role.
• Digital Currencies (CBDCs): While private cryptocurrencies like Bitcoin are not seen as a threat to reserve currency status, the development of Central Bank Digital Currencies (CBDCs) by other major economies (which the US has been slow to pursue) could eventually offer an alternative for cross-border financial transactions.
• Growth differentials: Faster growth in Asia (China, India, ASEAN) increases trade and financial flows in non‑USD currencies over time.
• Rise of alternatives: Euro, Chinese renminbi, and basket/Special Drawing Rights (SDR) can grow share, especially regionally; but each has material constraints.
• BRICS challenge – As of 2025 , 10 BRICS countries( Led by Brazil , Russia, India , China , South Africa) & 13 partner nations are developing the BRICS Bridge payment network to settle transactions using Central bank digital currencies. This might become a big challenge to USD hegemony in future.

 

Sustaining Factors

• Trade Invoicing: A large majority of global trade, even between non-US countries, continues to be invoiced in US dollars, sustaining high global demand for the currency.
• SWIFT System: The USD remains the most dominant currency in the SWIFT global interbank payment system, indicating its ongoing role as the primary medium of exchange.

 

Key risks that could accelerate USD decline

• A sustained loss of confidence triggered by runaway inflation, US fiscal crisis, or inability of the US to roll/refinance debt at affordable rates.
• A concerted geopolitical/financial bloc formation like BRICS etc that shifts trade and reserves to another currency or basket.
• Rapid, large‑scale liberalization and internationalization of China’s financial system combined with confidence in Chinese institutions.

 

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Is this is the beginning of end of Dollar hegemony & consequently US hegemony & domination over global economy & capital markets” ? Lets not forget that we had such changes in Global Foreign reserve currency  & trading currency earlier too( from Portuguese Real in 1450s  to Spain Dollar  in 1530s  to Dutch in 1640s to British Pound in 1780s  historically). Last such change was in 1944 at Bretton Woods meeting with Global reserve & trading currency passing from British Pound to USD , after Britain almost bankrupted after the 2 world wars with Debt/ GDP > 250% . Is USD going the same route in 1-2 decades? Is this the beginning of the end?

 

what is current outlook for US Dollar as a global reserve currency & trading currency for long term(next 10-20 years)?

The long-term outlook (next 10-20 years) for the US Dollar (USD) as the world's primary global reserve currency and trading currency suggests a future of gradual decline in its market share but continued dominance due to structural advantages for probably 1-2 decades . A dramatic or sudden "de-dollarization" event is widely considered unlikely, but the system is evolving into a more multipolar financial system.

The most likely scenario over the next 10-20 years is a "rising tide" where other currencies gradually gain share due to global diversification and the strengthening of their own financial markets, rather than a rapid, shock-driven "unforced error" where the US abruptly loses confidence due to its own actions. The USD will likely remain primary, but with a diminishing share of the global pie.

 

 Some issue/concerns on recent US equity market trends.

·        Big risk is heavy concentration of market growth in a handful of large tech companies, often referred to as FAANG or the "Magnificent Seven". The top 10 stocks, primarily tech giants, represent over 37% of the S&P 500's total value. The "Magnificent Seven" (Google, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla) have driven a majority of the S&P 500's gains in recent years. This creates a scenario where if these stocks perform well, the index looks healthy, even if the other 493 companies are struggling

 

·        Magnificent seven stocks are mainly going up , based on their AI related investments and earnings projections (contributing 45-50% of market cap gains of S&P 500 this year )and hence there could be a bubble/ over-hype  situation of they don’t deliver on AI projections.”

 

·        US market cap/GDP ratio(favourite Warren Buffet indicator measuring over-valuation at >100%) has touched a record 222%( 67 Trillion market cap to 30 Trill GDP). This is definitely in over-valuation zone(bubble zone for any other country)

 

·        Is Hyper expectations(hype) over AI leading to bubble in US markets?

 

Pl look at the table below from Economic Times( this week)

Just these Big tech club of 5 companies(Nvidia, Apple, Microsoft, Google/Alphabet & Amazon) , together command a market cap of 18 Trillion(about one third of S&P 500 index market cap) and gained 3.3 Tril (22% up) , representing 40% of market cap gains this year. And all these Big 5 companies are growing on AI related expectations/hype .  Leading US Tech companies have pledged more than 500 Bill $ on AI & data centre investments in 2025 , with projected AI revenues at 217 Bil in 2025 and >1300 Bil in 2032(6.5 times growth in 7 years) , which is > 30% CAGR on revenues in 7 years , which looks like a tall order . What if AI led growth turns out to be a over hyped and bubble ? How will it impact the markets , when market starts looking for projected revenue growth , profitability & cash flow versus real numbers , in few quarters? Would it lead to US market crash , which will have negative impact on other national markets too ??

 

Implications for investors and policymakers

• Investors including retail ones: Review USD assets as core safe‑haven exposures & consider FX diversification benefits — consider allocation to non‑USD assets, hard assets (gold), and regionally balanced portfolios. Hedge USD exposure where appropriate for specific liabilities. Retail investors , specifically ,should be mandatorily investing at least 10-20% of their portfolio on Gold ETF ( It has given better returns in last 5 to 10 years@ 15-18% than equities( Nifty @ 12% & NYSE at 11% CAGR in last 10 years)
• Corporates: Prepare for more multi‑currency invoicing and hedging, especially in Asia‑centric trade.
• Policymakers: US should address long‑run fiscal/debt sustainability, maintain deep markets, and manage geopolitical relationships to preserve dollar credibility. Other countries wanting greater currency internationalization must liberalize capital accounts, strengthen legal/financial institutions, and build market depth. RBI should be significantly increasing its Gold holdings to few more times than current 14% , like US & other big developed countries.

• Indian economy & equity markets are on the threshold of doing very well /outperforming in medium term (next 1-2 years) as well as long term , after consolidating in last 12 months.  I have given some relevant recommendations including some strong sectors and trends for India  in my last blog . Putting the link below

https://indiavalueinvesting.blogspot.com/2025/10/current-equity-market-outlook-abhi-to.html

 

Hope you found it interesting , productive & useful. Pl provide your feedback/inputs

Happy Investing.

Cheers

Amardeep

 

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Current equity market outlook – Abhi to party shuru hui Hai - Diwali wali ( Party has just started)😎

 

 Current equity market outlook –  Abhi to party shuru hui Hai - Diwali wali( Party has just started)😎

 

Samvat 2082: The Great Indian Market Rebound – From Consolidation to Compounding

Diwali, the festival of lights, marks the traditional start of a new financial year, or 'Samvat,' for the Indian business community. As we usher in Samvat 2082 (Diwali 2025 to Diwali 2026), the mood on Dalal Street is shifting from cautious consolidation to fresh optimism, following a challenging year of mostly flat returns for the headline indices (Nifty 50 grew by 4%).

Samvat 2081 saw the Nifty 50 and Sensex trapped in a range-bound phase, despite pockets of sharp gains in specific segments like Defence and PSU Banks. This period of "time correction" has served a crucial purpose: cooling off valuations and setting the stage for an earnings-led bull run. The consensus among market experts is clear: the next leg of growth will be driven by corporate profitability, not just liquidity. By the way , I have become a consistent equity investment blogger( my passion) since start of this year , after a gap of few years , after starting to blog in 2011. Pl check my earlier & recent blogs @ Value Investing in Indian markets 

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I. Indian Equity Market Outlook for Samvat 2082

A. Historical Context vs. Current Setup

Historically, periods following consolidation often precede strong market uptrends. Samvat 2081 saw the Nifty deliver low returns (@ 4%) , but such pauses are essential for a sustainable rally.

• Valuation Normalization: India's valuation premium over emerging market peers, which was unsustainably high, has significantly moderated. The forward P/E for the Nifty 50 has normalized below 20x, offering a more palatable entry point compared to the highs seen the previous Samvats.
• Earnings Bottoming Out: The corporate earnings downgrade cycle has largely bottomed out. Analyst forecasts project a return to double-digit earnings growth—around 12 % in the coming year, accelerating further into FY27. This revival is the primary catalyst for the new Samvat. Earnings growth is coming back with latest quarter(Q2 FY26) in double digits till now
• Macro Stability: India's macroeconomic backdrop remains robust, supported by easing inflation, anticipated interest rate cuts globally and domestically, policy continuity,  strong domestic investor flows (SIPs) and FIIs coming back . FIIs inflows have been positive for this month(October unlike past 12 months when they removed >2 Lac crore-25 Bil $) as they clearly had oversold Indian equities(Their Long to short ratio was at historic lowest)

B. Nifty 50 Target for Diwali 2026

Based on the expected acceleration in earnings and valuation comfort, brokerage reports are projecting significant upside for the Nifty 50.

Brokerage	Nifty 50 Target (Diwali 2026)	Implied Upside from current levels (approx.)
Prabhudas Lilladher	28,781	High Single to Low Double-Digit %
ICICI Securities	27,000	Mid Single to High Single-Digit %
Choice Broking	26,500 – 28,000	Mid Single to Low Double-Digit %
Hedged.in	Above 28,000	Low Double-Digit %

Consensus Target: The broad market consensus for the Nifty 50 target by Diwali 2026 is between 26,500 and 28,000. A break above the 28,000 mark is possible if global liquidity improves significantly and corporate earnings growth surpasses conservative expectations. From my perspective , these Nifty target estimates are on the conservative level . I am more bullish with EPS growth estimates of 14-15% ( given the measures/actions  like GST rationalization, Income tax reduction , liquidity related monetary actions by RBI , low inflation , good monsoon etc) . With an fair valuation PE of 22 , this will about 30,000 , which is 16-17% upside from current levels . If you do a good job on portfolio selection and management , you can beat Nifty with 20% returns in this Samvat(1 year). High quality & consistent growth Large caps businesse & selective mid caps with consistent management track record , available at fair/ attractive valuation should be preferred( small caps should be avoided now for valuation froth and market uncertainty related reasons

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II. Attractive Sectors: 1-Year & Long-Term (3-5 Years) Perspective

The investment focus must shift from chasing momentum to identifying sectors with sustainable earnings visibility and policy tailwinds. With current global slow down & tariff uncertainty, domestic focussed sectors should be preferred . Apart from these sectors from equity related long term investment, I would strongly advise to invest in Gold ETFs from asset allocation / diversification, safe haven & better returns perspective. Gold is now a strategic diversifying asset, apart from safe haven asset & has given equal or more than equity’s returns in last 10-15 years (about 14-18% returns versus 12-14% Nifty returns) and one should invest 10-20% of your portfolio into Gold ETF

A. 12-Month Outlook (Samvat 2082 - Focus: Cyclical Recovery & Easing Credit)

Sector	Rationale for 1-Year Returns & Upside
Financials (Banks & NBFCs)	Strong credit expansion, RBI liquidity & rate cuts , improved asset quality (reduced NPAs), comfortable capital adequacy & GST reforms. Private & select PSU Banks are well-positioned for strong profit growth. NBFCs focused on MSME, Housing finance , and Gold financing should also benefit.
Automobiles & Auto Ancillaries	Cyclical upturn led by rural recovery, festive season demand,  pent-up demand & GST rationalization. Valuations have moderated, making market leaders in 2-wheelers and 4-wheelers attractive.
Capital Goods & Infrastructure/ Cement	Sustained government focus on Capital Expenditure (Capex) and infrastructure building. Companies in EPC, construction, capital goods and related services have strong order books. Leading & profitable cement companies also will do well cause of Infra push / capex .
Power & Utilities	Structural theme benefiting from policy push (green/ renewable energy target of 500 MW by 2030), transmission & distribution) and improving plant utilization. Expected to generate significant alpha. Leading Power Finance companies will also have a big benefit from this push.
Travel & Hospitality	This sector is looking strong with discretionary consumption going up and Room occupation of leading hotels going up significantly . GST reforms & festival fervour have added to this , with mid-range rooms GST going down.
Heath care	Aging population, domestic healthcare spend rising; Health Insurance penetration going up significantly after Covid , This is making leading healthcare groups with good brand and network doing well
Defence & manufacturing	With govt reforms & industry focus on manufacturing & defence &  with "Make in India" initiative & PLI initiative(attracting investment of 2 lac crore in 14 sectors), companies in manufacturing and defence are expected to perform well. India defence production went up by 18% in FY25 due to Govt focus on indigenization & export potential. (exports reached Rs 1.5 Lac crore )

B. Long-Term Outlook (3-5 Years - Focus: Structural Growth & Policy Drive)

Sector/Theme	Rationale for Long-Term Returns & Upside
Manufacturing & Defence (PSUs)	Policy-driven thrust for 'Make in India' and self-reliance (Aatmanirbhar Bharat). Long-term order visibility in Defence, Aerospace, Railways, and strategic manufacturing ensures compounding growth.
Capital Market Plays	Structural financialization of savings, with domestic flows (SIPs) remaining robust. Demat accounts have been increasing rapidly . AMCs, Depositories, and Wealth Management firms stand to gain from rising investor participation.
Consumer Discretionary/Staples	India's long-term consumption story remains intact. A gradual rural recovery and sustained urban consumption will boost market leaders, especially those with moderating valuations and focus on high-margin growth.
Pharma & CDMOs	Shift towards high-value activities like Contract Development and Manufacturing Organizations (CDMOs), complex generics, and biosimilars. Companies with strong R&D and global supply chain presence offer structural growth.
Telecom	This sector is a long term consistent bet with 5G penetration going up , ARPIs going up cause of price increases , data consumption going up consistently , Digital transformation going up , 2G to 5 G migration etc

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III. Indian vs. Global Equity Market Outlook (12 Months & 3-5 Years)

India is expected to maintain its relative outperformance against global peers, particularly in the long term, due to distinct structural factors.

Market	12-Month Outlook	3-5 Year Outlook
India	Cautious Optimism/Outperform. Set for an earnings-led rally after consolidation. Domestic liquidity provides a strong floor. Global rate cuts and FII return are key catalysts.	Strong Outperformance. Driven by superior GDP growth (projected 6.5%+), sustained corporate earnings growth, demographic dividend, and policy continuity (Capex, Manufacturing push , Make in India). Expected Earnings growth in 14-18% range
United States (US)	Neutral to Mildly Positive. Resilience in corporate earnings (especially 'Magnificent 7' tech stocks) and a soft landing scenario. Risks: High valuations outside big tech, skewed rally almost caused by few IT / AI related firms  fiscal debt strain(Debt/ GDP =120%, leading to De-dollarization, and trade policy uncertainty. Expected rate cuts are supportive.	Moderated Growth/Neutral. Growth likely to slow down relative to past decade. Valuations are high. Key theme: AI and Electrification capex. The pace & consistent  earnings growth will be a critical determinant. Huge investments in AI should payoff
Europe (Eurozone)	Cautious/Neutral. Modest growth underpinned by easing energy costs and potential monetary policy easing. Challenges: Export dependency (trade war risks), low productivity,  demographic/ ageing concerns and public finance concerns in some member states.	Moderate Growth/Neutral. Structural reforms are needed. Dependent on global trade stability. Structural policy focus on defence spending and green transition.
China	Cautious/Opportunistic. Extremely cheap valuations. Positive: Stimulus measures and early signs of property market stabilization, which could boost consumption. Risks: Geopolitical & tariff tensions, structural slowdown, and a fragile property market(debt crisis). Inflation remains subdued at around 1%(almost deflation) & Manufacturing is showing a contraction for last 5 months(PMI below 50) indicating economy/ demand slowdown	Neutral/Value Play. May remain cheap until regulatory and geopolitical risks subside. Could be a tactical value play, but long-term structural headwinds persist, leading to lower growth expectations compared to India. Low inflation/ Deflation & property debt crisis need to be solved

Conclusion on Global Comparison & diversification/ asset allocation:

In the short term (12 months), global markets may offer a liquidity-driven rally due to anticipated Fed rate cuts. However, India's long-term story (3-5 years) is structurally superior. While US markets are betting on innovation (AI), India is betting on fundamentals—demographics, domestic consumption, and manufacturing scale. India remains the most compelling long-term allocation among major economies. However , one could have a 10-15% portfolio allocation on few resilient & consistently growing global Index funds ( like Nasdaq, S&P 500, MSCI Emerging markets Index funds ), from a risk diversification/ asset allocation perspective.  Also , as mentioned earlier, invest 10-20% of portfolio in Gold ETFs mandatorily as Gold has become a strategic & productive diversifier in last 10-15 years , apart from being safe haven.

Happy Diwali & Happy Investing 😊

Cheers

Amar

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Interesting Global marathon race for economic & market power between 3 runners - US , China & India – Who wins? Long term economic & market returns outlook

Interesting Global marathon race for economic & markets power between 3 runners - US , China & India – Who wins?  Long term economic & market returns outlook 

       Hey friends, my passion for equity market watching and long-term equity investing, made me an avid watcher of leading economies also (market watcher turning into an interested economist 😊) as both are linked in long term . For example, I recently was the lone wolf crying that India will do about 8% growth in FY26(since beginning of this year), while big institutions like world bank , IMF & own RBI with all the data , resources and models incorrectly predicted that Indian economy is slowing down at 6.2 to 6.5% for FY26  , with potential slowdown in corporate earnings , leading to FII exit and markets correcting badly  . I stood correct when the actual numbers of Q1 of 2026 came at 7.8% .

     

  While , Over short term , one might not see strong co relation between economy & markets cause of short sighted and overreactive market participants😊, both show a good co-relation in long term. Benjamin Graham...guru of Warren Buffet used to say that  " markets are voting machine in short term & weighing machine in long term" 😁. In long run , GDP growth correlates with corporate earnings growth which in turn corelates with market/ index  returns . For example in India , nominal GDP growth ( real GDP plus inflation) has been about 12 % in last  25 years , leading to about 15% earnings growth for Nifty 50 companies which is turn have generated 14-15 % returns ( including dividends) for Nifty 50 index.  

Picture a global marathon with three very different runners.

The United States is the seasoned veteran — tested, resilient, and still holding pace even after decades of leadership. China is the strategist — disciplined, powerful, but carrying extra weight from past choices with age catching up. And then there’s India — the rising challenger, youthful and full of energy, sprinting with ambitions to catch up & vanquish the rivals

This marathon is the race for medium- and long-term economic growth and equity market returns. Each of these economies offers unique strengths and faces pressing challenges. Together, they define the trajectory of global markets in the next 10–30 years.

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United States: The Resilient Veteran

For over a century, the U.S. economy has been the backbone of global growth and financial markets. Even today, it accounts for nearly 25% of global GDP and houses the world’s deepest capital markets. 

• Strengths: The U.S. thrives on its innovation engine — Silicon Valley, biotech hubs, green energy, and AI leadership. Consumer spending, which makes up about 70% of GDP, continues to power growth. Institutions remain strong, attracting global capital.

• Challenges: The fiscal debt burden is climbing above 125% of GDP, demographics are aging, and productivity growth is uneven. Rising geopolitical competition also weighs on its long-term outlook. Other nations & central banks  are slowly but steadily moving towards de-dollarization which could challenge the Dollar status as world reserve currency. Another big risk is heavy concentration of market growth in a handful of large tech companies, often referred to as FAANG or the "Magnificent Seven". The top 10 stocks, primarily tech giants, can represent over 37% of the S&P 500's total value. The "Magnificent Seven" (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla) have driven a majority of the S&P 500's gains in recent years. This creates a scenario where if these stocks perform well, the index looks healthy, even if the other 493 companies are struggling. This masks broader economic weakness

• Equity markets: Despite concerns, U.S. equities have delivered an impressive 10%+ annualized return over the last century. In the next decade, returns are likely to moderate, but 6–8% annualized growth remains plausible, underpinned by innovation-driven companies, banking on IT and AI push.

The U.S. may no longer sprint, but it has mastered the art of consistent long-distance running.

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China: The Strategist at a Crossroads

China’s economic story has been the most dramatic in modern history — lifting over 800 million people out of poverty and becoming the world’s second-largest economy in just four decades. But the marathon has hit a rough patch.

• Strengths: China still leads in manufacturing scale, supply chain dominance, and green energy investments. It has also nurtured global giants in e-commerce, EVs, and renewable technology. Its growing middle class remains a powerful consumer base.

• Challenges: The key property/real estate sector is under severe debt crisis(e.g. leading builder like Evergrande defaulted over $300 billion), demographics are in decline(population shrank in 2022 for the first time in 60 years with median age at 39 years w.r.t. to 28 for India), and private enterprise faces tighter regulation. Foreign investors are cautious due to policy unpredictability. The overall debt-to-GDP ratio remains high at 270%, necessitating caution. Inflation remains subdued at around 1%(almost deflation) which is not  a good sign for a strong & growing economy. Manufacturing is showing a contraction for last 5 months(PMI below 50) , which is again pointing to slow down.

• Equity markets: Chinese equities have been highly volatile, often moving with policy cycles. While long-term potential exists in technology, green energy, and consumer upgrades, the medium-term outlook depends heavily on reforms and confidence-building measures.

China remains a strategist who can win bursts of speed — but whether it stays competitive in the long haul depends on its willingness to adapt..

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India: The Rising Challenger

India is the youngest of the three runners, with over 65% of its population under 35. Its marathon has just begun, but the momentum is building quickly.

• Strengths: India combines demographics, digital transformation, and reforms to create a powerful growth cocktail. From UPI’s digital payments revolution to rapid infrastructure expansion, India is unlocking new engines of growth. Services remain strong, while manufacturing and renewable energy are gaining traction. While PLI (Production linked Incentives) scheme has been successfully firing the manufacturing cylinders, Govt has belatedly but surely started making some strong moves on AI research & semiconductors by deploying many billion$ in AI labs and semiconductor fabs

• Challenges: Infrastructure still lags demand, income inequality is significant, and policy consistency will be crucial. Managing urbanization and job creation for its youth will test its resilience.

• Equity markets: Indian equities have historically traded at higher valuations — often justified by faster growth. Over the next 10–20 years, returns of 12-15% annualized (like earlier) are within reach, though accompanied by volatility and political risks.

India is the sprinter with a long runway — capable of delivering outsized returns, but also vulnerable to stumbles if reforms falter.

 

Here’s the equity market returns chart 📊 comparing the last 20 years of S&P 500, MSCI China, and Nifty 50.

Here’s the demographics chart 🧑‍🤝‍🧑 showing median age vs. working-age population share for the U.S., China, and India.

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Comparative equity market Outlook: Who Leads in the Next Decades?

The race ahead is not about one economy winning outright, but about how each contributes to the global growth mosaic.

• United States → Stable, resilient, and still the world’s innovation hub. Expected equity returns: 6–8%.

• China → Uncertain, policy-dependent, but with niche opportunities. Expected equity returns: 5–7% with higher volatility.

• India → High-growth potential, demographic advantage, reform-driven. Expected equity returns: 12-14% with volatility.

 

 

Global megatrends will shape all three:

• Deglobalization and regionalization of supply chains.

• The green transition reshaping industries.

• Artificial Intelligence as the next productivity revolution.

Together, these shifts will decide whether the runners maintain their rhythm or stumble along.

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Investor Takeaways: Running With All Three

Think back to our marathon. The U.S. runner will likely maintain steady pace. China may sprint or slow unexpectedly, depending on choices ahead. India is accelerating, but needs stamina and consistency.

For investors, the message is clear:

• Diversify across geographies. Each economy has a role to play in balancing stability and growth.

• Focus on themes, not just regions. AI, clean energy, and digitalization will cut across markets.

• Stay long-term. Short-term volatility is inevitable, but the long run rewards patience.

In this marathon of global growth, no single runner defines the race. Instead, the interplay between the U.S., China, and India will set the rhythm of equity markets and shape opportunities for the next generation of investors.

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💡 Closing Thought:

The finish line isn’t in sight — because in the global economy, the race never truly ends. What matters is who keeps running, adapting, and pushing forward. For now, the U.S., China, and India remain the three runners every investor must watch closely.  

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 A Bonus shot on the sizes of the 3 economies in 2047(@India’s Independence centenary year)

As per the Govt’s “Vikshit Bharat” vision  claims(Niti Ayog paper) , India would be 30 Trillion by 2047 ,  $3rd biggest economy after US & China( much bigger than German & Japan). This would mean an effective GDP growth rate of about 9.5 % on average. That seems bit on the higher side.

Effective GDP growth rate(in $) = Real GDP growth + Consumer Inflation rate – Currency devaluation ($-INR) 

Currency devaluation is a function of key factors like Inflation differential , Central bank interest rate differential , Trade/ current account deficit , Capital flows , economic growth & crude prices

India has been showing a real GDP growth of 8% on average in last 18 years (Quadrupling  from 1 Trillion in 2007 to 4 Trillion $ economy now) .  The  current inflation estimate for FY26 & FY27( as per RBI) is 3%. Average INR devaluation has been 3% historically. Hence the Effective GDP growth rate in $ in long term should  be 8% , from a historical baseline data perspective( by the above equation). This will take Indian economy to 23 Trillion$ . Effective GDP growth rate (in $ )of 8.5% to 9% will take Indian economy size to 25 to 28 Tril $  but not to 30 Tril $(till we have Cinderella’s magic wand). My take would be that India will grow at 8.5%(effective growth In $), reaching to > 25 $ Trillion(still more than 6 times the current size in 22 years which is huge).  INR devaluation might slow down cause of much lower inflation currently(from 7% to 2-3%) , better FDI flows , better current / trade account deficit(0.2% in last quarter) & solid / steady  economic growth leading to higher effective GDP growth rate of 8.5% . Besides India’s current push on manufacturing(through China plus 1 strategy , PLI scheme & GST tax reforms) will fire an additional lever to push Indian GDP.

China, which is currently growing at 4-5 % ,  is projected to grow at 3 to 4%( real GDP growth rate) , cause of demographics (declining median age , decline in working population%), severe real estate debt crisis , global economy slow down impacting its export oriented economy, internal policy uncertainties , current deflation environment etc. Adjusting near zero inflation and average devaluation of 1% (seen in  last 10 years),its effective growth rate would be 2.5% and GDP @ 25 Tril $ in 2047(19 Tril $ now)

US economy is at 30 Tril $ today . At projected 2% growth rate , it will reach 46 Tril $ and will continue to be the biggest economy . However , by PPP (Purchasing Power Parity) , Indian and Chinese economies will be bigger than US .

Hence India would be the 2nd biggest by 2047 by exchange value (after US & slightly more than China) & biggest by PPP (overtaking US as INR is undervalued by 3-4 times today with respect to PPP). Currently India GDP is 17 Trill (by PPP) , while its >4 Trill by exchange value . This will be an awesome news for all of us that we will soon become the biggest economy by PPP. This bright long term outlook is definitely going to give a boost to long term equity market returns in India.

Cheers. Happy Investing 😊

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A Tale of Two Markets: Global Headwinds and India's Resilience

A Tale of Two Markets: Global Headwinds and India's Resilience

The global equity market outlook for the medium to long term presents a story of two different narratives. On one hand, global markets, particularly in the U.S/Europe, face challenges of slowing growth, stretched valuations, and persistent geopolitical tensions. On the other, the Indian equity market stands out as a beacon of resilience, driven by strong domestic fundamentals and a robust growth trajectory.

The global economic landscape presents a complex and uncertain picture. Major economies are grappling with the dual challenges of decelerating growth and persistent inflationary pressures, a phenomenon often described as a "stagflationary tilt." Against this backdrop, central banks are walking a precarious tightrope, attempting to recalibrate monetary policy without triggering a recession or re-igniting inflation. Geopolitical tensions and rising protectionism, particularly in the form of new tariffs, further complicate the outlook, tilting the balance of risks to the downside and hindering a cohesive global recovery.

In stark contrast, India presents a compelling narrative of exceptional resilience and structurally backed outperformance. India has consistently demonstrated an ability to not only withstand global headwinds but also to maintain its trajectory as the world's fastest-growing major economy. This remarkable decoupling is rooted in a robust domestic economy, where growth is primarily fuelled by strong private consumption and strategic government capital expenditure. Unlike many of its peers, India's economic engine is largely self-sustaining and less vulnerable to external shocks. The robustness of the Indian economy is further underscored by recent GDP data. The National Statistics Office (NSO) reported a five-quarter high in GDP growth, surging by 7.8 percent in the first quarter of fiscal year 2026 (April–June 2025). This momentum is significant not only in isolation but also because it occurred amidst challenging global headwinds, including developed economy slow down(US, Europe, Japan),  high U.S. tariff policy uncertainty, high Fed interest rates and geopolitical instability.  

Global Equity Market Outlook

The global economic outlook is characterized by a "widespread deceleration." The OECD projects global growth to slow from 3.3% in 2024 to 2.9% in both 2025 and 2026. This slowdown is particularly noticeable in major economies like the United States, where growth is projected to decline from 2.8% in 2024 to 1.5% in 2025 and 2026. Factors contributing to this include the impact of new tariffs, high policy uncertainty, and tighter financial conditions.

A key risk for global markets is the narrowness of the rally. In the U.S., a significant portion of the S&P 500's gains since early 2023 has been attributed to a few large technology companies, or "hyperscalers," including Nvidia, raising concerns about a potential "AI investment bubble." This concentration of gains on a few stocks suggests a fragile market that could be vulnerable to corrections. A return to broader, more sustainable growth across sectors and regions will be necessary for a healthy bull market.

Indian Equity Market Outlook(Medium term & long term)

In contrast to the global picture, India's equity market is seen as a compelling long-term story. The country's strong domestic consumption, government-led capital expenditure, and a "clean-up" of bank and corporate balance sheets, reforms in GST & FDI are setting the stage for a sustainable private investment cycle & strong & sustainable economic growth . The International Monetary Fund (IMF) projects India's economy to grow at 6.4% in 2025 and 2026, making it the fastest-growing major economy. My projections have always been that India will grow at 8% in FY26( current financial year), which has been validated by the recent numbers for Q1 of FY26(7.8%). This will only improve for next few quarters cause of good monsoon, GST reforms, RBI easy monetary policy(rate & CRR reduction)  & base effect of slower FY25. The negative impact of US tariffs will be manageable(about 0.2%) due to low export orientation of Indian economy & export diversification.

     if you remember my earlier  blogs in early March ( when Trump had just come in) and early April (after he announced his so called “ reciprocal tariffs”) , I had accurately forecasted in both the blogs , that Indian market( Nifty 50) has nearly bottomed out at about 22000(Nifty 50) and going forward , it will go up in the medium and long term and will probably show 20% or more gains in this fiscal year (end of FY26 ) , though it may have short term volatility ( inherent nature of equity markets). Markets have gone up after early March & early April , Nifty 50 is sitting at 24400 today (11% gains) since my earlier blogs, with a good potential to grow more(20% or more gains) by end of FY26. You could revisit those blogs at my blog site (https://indiavalueinvesting.blogspot.com). The learning is that one should ignore the market noises & short-term volatility of “manic depressive” markets and invest with discipline with a long-term horizon and perspective with patience & conviction.

 The Consensus Nifty projections as per analysts(Nomura, JP Morgan , Goldman Sachs, Emkay, Prabhudas etc) is about 26000 to 28000 by end of FY26(March 26) – 7 to 15 % upside from current levels. My projections are a bit more optimistic at about 28000 by FY26 (which means 20% returns in FY26 & 15% from the current levels) , provided, we don’t have any unpredictable geopolitical event like wars or any significant Trump tantrums.

 

Medium-Term (1-2 years) outlook: India is in a more favourable position. While some short-term headwinds, such as a recent slowdown in consumption in FY25(due to largely election year effect) and significant FII outflows, have led to a time correction in the market, the underlying economic fundamentals remain strong. Proposed GST reforms & income tax reduction are expected to boost consumer demand significantly. Steady& Resilient domestic retail inflows, particularly through Systematic Investment Plans (SIPs), provide a solid foundation and a buffer against FII selling, demonstrating the market's growing resilience.  In July , the domestic equity MF flows went up to record of Rs 42K cr(instead of 30 K cr average), showing the maturity and resilience of domestic investors. Valuations for large caps is fair now with Nifty 50(large caps) sitting at 21.5 . Last 4 years PE average (long term) has been 22.4  .  Hence large caps(Nifty 50) is fairly valued with respect to long term averages (5% discount to long term PE). Some market sections like Mid cap & small cap are over-valued & should be touched selectively only. Oil prices have corrected 20% since year beginning & is leading to controlled inflation (1.5% in July) which is going to impact the GDP growth & corporate earnings positively. RBI easy monetary stance( reduced rates by 1% & CRR by 0.5%) will have positive impact on consumption as well as investment cycle

Long-Term outlook(3+ years): India's long-term growth story is underpinned by favorable demographics & structural reforms. A young, digitally skilled workforce and rising urban consumer spending will drive the economy forward. The government's focus on infrastructure development & policies like "Make in India", “ semiconductor mission” will continue to spur economic activity & corporate earnings.

Demographic dividends matter - India’s younger population(median age at 29 years) with a huge proportion in working age , growing middle class with its aspirations & growing urbanization is creating a huge demand for consumption and credit, which is propelling its economy and consequently equity markets in a long term & durable & multi-decadal growth phase . India’s GDP has quadrupled in last 18 years(from 1 Trill $ to 4.2 Trill $ now)@ average rate of 8% growth per year . Consequently, India will become one of the top 2 economies in next 22 years( by 2047- our century of Independence).India will be at 23 -25 Trillion $ size (just after US economy).By PPP(Purchasing Power Parity),method,it will be biggest economy .China will take care of itself ( its slowing down with its primary mover real estate sector in debt crisis) . GDP growth has slowed down from historical 7-8% to 4% this year (because of slowing exports, real estate debt crisis,weak domestic consumption,trade tensions etc)& its economy getting into deflation this year(last few months have been in negative inflation) & its equity markets(China- A share) not doing well in last 6 years.

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Investing Recommendations for Indian Equities 📈

Given the robust domestic growth drivers & suitable demographics, Indian equity market offers attractive opportunities for investors. Instead of chasing a broad-based rally, a selective, bottom-up approach to stock picking is recommended. Here are some of the most promising sectors

• Infrastructure : The government's significant and consistent capital expenditure over the last decade has been a key growth driver. The Indian infrastructure sector is projected to reach a market size of $200 billion in 2025 and is expected to grow at a Compound Annual Growth Rate (CAGR) of 9.6 percent from 2025 to 2033. With a projected increase in private sector capex, sectors like cement, construction/EPC,  power finance are well-positioned for growth.
• Defence & manufacturing – With govt reforms & industry focus on manufacturing & defence &  with "Make in India" initiative & PLI initiative(attracting investment of 2 lac crore in 14 sectors), companies in capital goods, manufacturing and defence are expected to perform well. India defence production went up by 18% in FY25 due to Govt focus on indigenization & export potential. (reached Rs 1.5 Lac crore )
• Financial Services ("Finsumption"): The combination of a strong financial sector and rising consumption (Finsumption) presents a powerful investment theme. Banks, particularly those with a focus on digital innovation & asset quality, are benefiting from increased credit demand. Similarly, housing finance companies are set to gain from higher budgetary allocations & falling interest rate environment. Gold finance companies & NBFCs are also doing well cause of more retail loans & RBI liquidity measures(rates & CRR reduction)
• Renewable Energy: India's commitment to achieving a net-zero carbon footprint by 2070 and its target of 500 GW of renewable energy capacity by 2030 are driving massive investments. This sector, including solar, wind, and energy storage, offers immense potential for growth, supported by government subsidies and a global push for sustainability. Companies with significant presence in renewable sector as well as leading power finance companies will do  well
• Consumer discretionary – Automobiles, consumer durables , hospitality/ hotels : With a projected 7% percent growth in real household spending in 2025, the domestic consumption story remains a key driver of market returns. The rise of the middle class and a shift from essential goods to aspirational purchases creates significant opportunities in consumer discretionary sectors like Automobiles, consumer durables, hospitality/ Hotels. After a period of pressure, the automobile sector is showing signs of recovery. GST rationalization and reasonable valuations make it an attractive bet. The long-term transition to electric mobility also presents a unique opportunity for both traditional automakers and new players.
• Telecom – with improving digitization/digital transformation, 5G adoption, increased broadband/data usage, improving ARPUs(Average Revenue per user) due to tariff hikes, favourable govt policies, this sector will continue to do well & leaders in this sector should be invested
• Healthcare & pharma – Rising affordability, health insurance, rising medical needs , lifestyle diseases, ageing population, major export potential  leads to a consistent & defensive bet.
• E-commerce & Quick commerce : These new but rapidly growing sectors have good potential to create wealth in long term. Ecommerce already accounts for 5-6% share of total retail market in India but its still about one-third of the share in US (16%) and has a great potential . Similarly , quick commerce which started few years back also is rising rapidly & improving its profitability potential in  last few quarters.
• Real estate – Real estate has entered a growth cycle with rising urbanization, aspiring middle class with their housing needs & higher disposable income, reduced RBI rates. Investing in real estate through equity proxies like best & consistently growing Housing finance companies and best REITs( Real Estate Investment Trust like Embassy office REIT) would be advised for diversification, asset allocation, liquidity & lower taxation purposes.

Actionable Investment Strategies for sustainable Wealth Creation

A disciplined approach is paramount to navigating the equity markets successfully. Here are key recommendations for long-term investors:

1. Systematic Investment Plans (SIPs): For the majority of investors, regularly investing a fixed amount through SIPs in diversified equity mutual funds or PMS or direct equity portfolio is the most effective strategy. This approach, known as rupee cost averaging, mitigates the risk of market timing and instils financial discipline.
2. Asset Allocation is Key: Based on your risk profile and investment horizon, a balanced allocation across asset classes - equity , debt , real estate( through housing finance & REIT) & Gold ETF is key . Gold is a strategic diversifying asset , apart from safe haven asset & has given equal or more than equity’s returns in last 10-15 years(about 12-15% returns) and one should invest 10-20% of your portfolio into Gold ETF. One should invest 10-15% in Real estate(through high quality housing Finance stocks & REITs).  I typically invest only my emergency funds (6-12 months expenses) or some funds one might need in short term(within 1 to 2 years)for urgent / family needs in debt funds. Remaining funds(about 70% or more) goes into equity for me, as it gives the best long term returns for wealth creation
3. Focus on Quality & Growth businesses: Prioritize investing in companies with strong balance sheets, consistent cash flows/ earnings, revenue/earnings visibility , great return on capitals(ROE/ROCE) and good corporate governance, available at fair or undervalued prices  in resilient and growing sectors(like few mentioned above) . Such businesses are better positioned to weather economic cycles and deliver sustainable returns. Avoid speculative bets and companies with poor earnings visibility or stretched valuations.
4. Diversification for risk mitigation - Diversify Across Growth-Driven Sectors

• Allocate majorly in blue chip large caps for now, cause of volatility and valuation reasons
• Allocate a minor portion to mid-cap and select small-cap stocks for now, especially those with strong fundamentals in sunrise sectors.
• Diversify internationally—consider partial exposure abroad to mitigate currency risks ,mainly through Index funds(like Nasdaq , S&P500 etc)
• Don’t over diversify like typical mutual funds which typically diversify into 30-50 companies and end up mimicking market results  . Go for high conviction bets with focussed investing , with not more than 20-25 bets / stocks in equities. This will also help you track/ review/ evaluate the businesses/ stocks better.

5. Maintain a Long-Term Horizon: Wealth creation is a marathon, not a sprint. Short-term market fluctuations are inevitable. A patient approach, with an investment horizon of at least 3-5 years or more, is essential to reap the  magic of compounding. Magic of compounding was declared as the 8^th wonder by Albert Einstein.
6. Review, Don't React: Periodically review your portfolio to ensure it remains aligned with your financial goals & targeted returns . However, avoid making impulsive decisions based on market noise or short-term news flow or short term market gyrations.

7. Adopt ‘Buy-on-Dips’

    Take advantage of dips caused by broad corrections to accumulate quality stocks for long term. 

Conclusion

In conclusion, the outlook for the Indian equity market for 2025 and 2026 is promising, supported by a strong domestic economy and a revival in corporate earnings. While global factors may introduce intermittent volatility, a disciplined, long-term investment strategy focused on quality , growth & adequate diversification/ asset allocation is well-positioned to generate significant wealth.

  

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