This is an audio transcript of the FT News Briefing podcast episode: ‘Are Indian investors sitting on a bubble?’
Marc Filippino
Good morning from the Financial Times. Today is Thursday, July 25th and this is your FT News Briefing.
US President Joe Biden addressed the nation for the first time since dropping his re-election bid, and a brand new security agreement between China and the Philippines isn’t instilling a ton of confidence in the region. Plus, young people are piling into India’s stock market. But is it a bubble that’s just waiting to burst?
Chris Kay
A lot of people have described this to me as the only legal form of gambling in India, and the odds are very much stacked against these young traders.
Marc Filippino
I’m Marc Filippino and here’s the news you need to start your day.
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High-flying US tech stocks are, well, they’re flying a lot lower these days — and yesterday made things even worse. The Nasdaq Composite fell more than 3.5 per cent on Wednesday. That’s in part because of bad earnings reports from Tesla and Alphabet the day before. But it’s also part of a weeks-long slump that the tech sector is going through. Investors have been worried that the overall market has become too reliant on big tech stocks. And now it looks like the Federal Reserve might lower interest rates soon. That makes investors feel safer about investing in smaller companies or small-cap stocks. Just look at the past month. The tech-heavy Nasdaq has sunk 2 per cent, but the Russell 2000 index of small-cap stocks, that’s up more than 9 per cent.
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Joe Biden says it’s time to pass the torch to a new generation.
Joe Biden
You know, there is a time and a place for a long years of experience in public life. There’s also a time and a place for new voices. Fresh voices. Yes, younger voices.
Marc Filippino
He gave a speech from the Oval Office last night. It was his first public address since dropping out of the 2024 presidential race.
Joe Biden
I revere this office. I love my country more. It’s been the honour of my life to serve as your president. But in the defence of democracy which is at stake, I think it’s more important than any title.
Marc Filippino
Biden made it clear that he was going to finish out his term. And he also used the speech to try and cement his legacy.
Joe Biden
We are literally rebuilding our entire nation, urban, suburban, rural, tribal communities. Manufacturing’s come back to America. We’re leading the world again in chips and science and innovation. We finally beat Big Pharma after all these years to lower the cost of prescription drugs for seniors. And I’m going to keep fighting to make sure we lower the cost for everyone, not just seniors.
Marc Filippino
There are also a lot of foreign policy challenges for Biden over the next six months. He’s meeting today with Israel’s Prime Minister Benjamin Netanyahu. Biden is trying to get a Gaza ceasefire deal over the line, which would be a huge boost to his legacy.
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China and the Philippines struck a deal this week. And believe it or not, it has to do with a rusty warship that’s been marooned for years on a reef in the South China Sea. No joke. You see, Manilla uses the ship as a military outpost, and Beijing hasn’t been too happy about that. That’s led to recent skirmishes between the two countries. Now, the hope is that this agreement can reduce some of the tensions. But the big question is, can the deal last? Here to explain is the FT’s Kathrin Hille. Hey, Kathrin.
Kathrin Hille
Hello.
Marc Filippino
So can you tell me a little bit more about what the deal says and the ship that’s involved here?
Kathrin Hille
Well, I would love to tell you more about what the deal says, but we don’t actually know. So the Philippine Department of Foreign Affairs issued a statement this week saying that a provisional arrangement had been agreed around the Philippines resupply missions to the Sierra Madre. So that’s the name of the former US warship that sits on this reef. The ship has been sitting there since 1999, which is when the Philippine military ran it aground on purpose to put a group of Marines there as an outpost. Now this place has become, quite unusually, actually one of the biggest flashpoints in Asia, because whenever the Philippine military tries to resupply the soldiers who are based there, the China coast guard then comes and tries to disrupt these missions. So we don’t actually know for how long this agreement will hold.
Marc Filippino
OK, so this deal, at least in principle, is supposed to allow for the Philippines to make these resupply missions to the warship. Do me a favour, Kathrin. Remind me why this area is so important.
Kathrin Hille
The South China Sea is claimed by a number of countries. It’s a geographically important area because a lot of shipping traffic needs to go through it. It’s important for fisheries has been important for fishery resources for a number of countries for a long time. And it also has oil and gas deposits. So this reef we’re talking about, and this rusting warship sits within what is called the exclusive economic zone of the Philippines. But that clashes with China’s claim and the increasing level of confrontation over the past year, more of the past year actually is one of the reasons why this is getting everybody so worried now.
Marc Filippino
And that brings us back to this recent deal between China and the Philippines. What could threaten it?
Kathrin Hille
Well, the basic threat to it is really that the interests and the claims of both sides in this area are really irreconcilable. So China claims almost all of the South China Sea, and there’s no sign that it would want to compromise on that. The Philippines, on the other hand, has a much smaller claim, but it has international law on its side. So the Philippines feels emboldened and backed up. And then maybe the third factor is that the Philippines is also increasingly getting support from some of its friends and partners. Important to note that the Philippines is a US ally, a military ally. So they have a mutual defence treaty. And the Philippines has these worries that if it backs down in one place, China will just keep pushing forward.
Marc Filippino
Yeah, like you said, not a lot of room to manoeuvre for both sides. So I guess I’m wondering then how likely is it that this new deal will hold?
Kathrin Hille
The likelihood of this new deal making a difference will, or should become clearer once we see the next resupply mission to the Sierra Madre. And if it doesn’t hold, then I guess we’ll see more of what we’ve seen over the last year and a half. And the risk is that there will be more escalation, because then, of course, the question of whether the Philippines would request assistance or support from the US comes back. For now, officials in Manilla are very cautious, which suggests that they don’t want to rock the boat, and they still have faith that there’s a good chance that tension can be dialled down a bit by this agreement.
Marc Filippino
Kathrin Hille is the FT’s greater China correspondent. Thanks, Kathrin.
Kathrin Hille
Thank you.
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Marc Filippino
India’s Nifty 50 stock index is now the hottest ticket for a lot of global investors. So much so that the market has doubled over the past five years, and it’s outpacing most other emerging markets. A big reason for that. Well, a ton of young Indians are investing in equities and hoping for huge payouts. But industry watchdogs think this could just be another bubble waiting to burst. Here to tell us more is the FT’s Mumbai correspondent, Chris Kay. Hi, Chris.
Chris Kay
Hi. How are you?
Marc Filippino
I’m doing well. Chris, can you just take me through these new developments in India’s equity markets?
Chris Kay
Yeah. So India’s been a real global outperformer in stocks. A lot of financial market players here really call it repeatedly a Goldilocks moment for India. You’re seeing strong economic growth has been strong corporate earnings and just this surge of domestic investments that we’re seeing. This is a real contrast from say you know, a few decades back when India was really considered a market backwater. Traditionally, a lot of Indian households, if they were going to invest at all, they would invest in things like gold. And that’s really changed, though. In the last few years, you’ve seen growing middle class surplus savings. And on the back of this economic growth, there’s been wider access and uptake to bank accounts, and that’s all been ploughed into the domestic stock market.
Marc Filippino
That shift from gold to equities, it’s kind of become trendy. As I understand it, more and more young investors are really interested in equities right now. What’s driving them.
Chris Kay
So I really wanted to kind of see it in some sort of physical manifestation. And I went to a conference call, the Bharat Option Traders Summit in Bangalore. I wasn’t sure is going to be well-attended given it was on the weekend, but it was absolutely packed. It was full of young Indian men who had travelled hundreds of miles to it, and they were kind of fixated on the speakers. A lot of these, kind of popular influencers.
Marc Filippino
Influencers, financial influencers. yeah?
Chris Kay
Yeah, exactly. It’s mainly in the derivatives market that we’re seeing this. And, you know, they provide these role models that many of them are seeing people getting wealthy, very rich, becoming millionaires pretty quickly in any case. And in a country with, you know, large amounts of unemployment and a massive young population, these people are a real force for showing there’s rags to riches to be made in this country.
Marc Filippino
I feel like there’s a lot of potential for downside, though. What are the risks here?
Chris Kay
So a lot of people have described this to me as the only legal form of gambling in India, and the odds are very much stacked against these young traders. In fact, one of the organisers of the conference that I attended said that only 1 per cent of the crowd would ever make money from trading. And a lot of the people who are encouraging these young Indians aren’t registered financial analysts. They kind of operate in a grey area where they say they’re providing educational services. So India’s market regulator has really sounded the warning over the past year or two.
Marc Filippino
Yeah. What have been some of the consequences and how exactly are regulators responding?
Chris Kay
Yeah, we’ve seen reports of 26-year-olds, 27-year-olds, 28-year-olds who have taken out loans from banks and then poured into options trading, you know, thousands of dollars worth. And that is exactly what the government and the market regulator, Sebi are trying to stop basically now. And they’re beginning to bring in new rules, making it more expensive to trade and basically try to take some of the air out of this, what they see as a big bubble that’s not really benefiting a lot of poor young Indians who are sort of piling into options and derivatives.
Marc Filippino
Chris Kay is the FT’s Mumbai correspondent. Thanks, Chris.
Chris Kay
Thank you.
Marc Filippino
You can read more on all of these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.
