Insufficient Investment Fuels Inflation in India

The whole world is suffering from collapsing aggregate demand. Monetary authorities everywhere are struggling with liquidity traps as they experiment with alternative ways of injecting money into the system after taking short term interest rates to zero.

China stimulates its economy fiscally by planned and targeted capital investment (fraught with gross capital misallocation albeit).
India is suffering from a completely different problem. India has structural and too much aggregate demand. Its demographics are driving demand that is relatively price inelastic. In India, inflation is not being driven by the classic monetary reason of too much money chasing too few goods but is being driven by too many people chasing too few goods. More...


Investors are like deer in the headlights

This post rhymes with my earlier post on investor fatigue. Fear and uncertainty are at all time highs. The frequency, intensity and persistence of negative news has frozen people into inaction and made them disengage from financial markets.

We see this phenomenon clearly playing out in the Indian markets. As investors have disengaged, underlying cash market volumes have plummeted. Many stocks outside the top 200 have not traded in weeks and some in months (beyond a few hundred token shares). More...