Catching up on markets – the last three years

 (Speaking notes for an address at the Forex Association of India (FAI) Education Seminar – Mumbai, November 15, 2025)

Good morning, friends.

It is wonderful to be back with the Forex Association of India (FAI), at your education seminar. I must begin with an honest confession. After three years at SEBI, I am thoroughly out of touch with currency and macro markets. Regulation, enforcement, adjudication, board notes, and circulars tend to relegate currency markets far into the background. So, you can imagine how daunting it is for me to speak to a room full of macro market experts.

Nevertheless, when FAI invited me, I accepted immediately. It certainly was not because I had discovered any new macroeconomic wisdom hidden inside a SEBI file. I accepted because this is the perfect opportunity for me to catch up on the world I have missed for three years. Once a dealer, always a dealer.

Let me briefly outline what I will speak about this morning.

First, I will recapitulate what has happened in markets over the past three years — a period chosen purely because it coincides with my stint away from macro markets.

Second, I will offer my own quick and somewhat simplistic interpretation of these developments.

Third, from my SEBI experience, I will talk about India’s savings and capital-markets story, and what it teaches all of us about personal finance.

Fourth, I will end with a few thoughts on risk appetite and asset allocation for ordinary Indian investors — including currency risk, which investors often underestimate or ignore.

1. What has happened over the last three years?

Let me start with the scoreboard since October 2022.

The dollar-rupee rate has moved from roughly 82.4 to 88.7, which implies an eight percent depreciation of the rupee. Meanwhile, the Dollar Index DXY has fallen from 112 to 99, a 12% decline of the USD against other majors. This means the rupee has weakened much more against currencies such as the euro and the pound, where the depreciation is incidentally closer to 25%. 

US ten-year yields remain close to 4%, where they were three years ago, while Indian ten-year yields have eased from around 7.5% to 6.5% percent.

But the real story is not in currencies and fixed income. The real story is in asset prices.

Over the last three years, Nasdaq is up 110%. S&P 500 is up 90%. The MSCI All-World Index is up 80%. Indian equity markets are up 45% over three years, and up 100% over five years. Gold and silver are up 240%. Bitcoin is up five times.

The price of practically every asset has risen sharply the past three years. In other words, one could argue that there has been a debasement of fiat currencies.

2. So what exactly is happening?

Here is what I think is going on.

a) Public debt has exploded, especially after the pandemic.

According to the IMF’s Global Debt Monitor, world debt-to-GDP was below 100% in the 1950s and rose to around 200% in 2005. It further rose to 220% in the 2010s, after the Global Financial Crisis (GFC). Today, after Covid-19, it stands at 235% of GDP. 

Public debt alone has expanded from 80% of GDP in the 2010s to 95% today. 

Note that during this period, World Bank data shows that global nominal GDP itself has risen from $ 35 trillion in 2000 to $110 trillion in 2024. 

US M2 money supply went from $4.7 trillion in the year 2000 to $15.5 trillion in 2020. It then jumped by over $6 trillion during Covid, reaching $22.7 trillion by 2022. 

Global M2, per World Bank, has gone up from 100% of GDP in 2008 to closer to 140% of GDP in 2024.

In short, developed markets have created a massive amount of fiat money, starting with USD, especially after the pandemic - largely led by government spending.

b) At the same time, trust in currencies has weakened.

Money supply has expanded aggressively even as the world is dealing with greater use of financial sanctions, concerns around SWIFT access, unpredictable tariff and trade tensions, and volatile geopolitics. These changes have made Central Banks far more cautious, particularly about the US dollar.

Yet the dollar remains dominant amongst fiat currencies. According to the 2025 BIS Triennial Survey, global FX turnover is at $9.6 trillion per day. The dollar is on one side of 89% of all FX trades. The euro is involved in 29% of trades and its share has declined since the last report. The Chinese renminbi accounts for just 9%, though its use is rising. The Indian rupee accounts for just 2% of all FX trades.

So, distrust of the dollar may have increased, but the world has no viable alternative fiat currency yet. And when there is doubt about fiat currencies, human beings do what we have done for thousands of years: we buy gold.

c) Inequality has continued to rise.

Global Gini coefficients and top-one-percent wealth shares continue to move upward. When inequality increases alongside debt and money supply, asset prices tend to inflate much faster than the prices of goods. The wealthy make more, and their savings chase assets.

d) The result of all this is inflation in goods and even greater inflation in assets.

The creation of more fiat money, less trust in the USD, the absence of alternatives (yet), and rising inequality has all meant both consumer and asset price inflation. Global CPI rose from an average of 2.2% in 2019 to average 5% between 2021 to 2024. As we noted earlier, the inflation in asset prices — equities, metals, and crypto — has been several multiples of that.

3. What lies ahead?

We live in a world shaped by high public debt, volatile geopolitics, technological disruption, supply‑chain reconfiguration, and climate risks. These forces point to a future of elevated volatility across markets and currencies.

Fiat currency debasement may continue—but not in a straight line. Governments are not reducing their debt or spending, and money supply is unlikely to shrink decisively. At the same time, structural forces such as AI and demography could exert disinflationary pressure.

In short, uncertainty is likely to remain elevated for years to come. The elastic bands (of some asset prices) have been stretched so much that investors are right to worry about whether some of them might snap or at least retrace.

4. India’s personal-finance landscape — an extraordinary story

Amidst global uncertainty, something remarkable is happening in Indian capital markets. Household savings are flowing aggressively into capital markets.

In FY25, domestic mutual funds invested INR 6.1 trillion into the primary and secondary equity markets. Provident funds, insurance companies, and retail investors added another INR 2.7 trillion. Total domestic demand for equities in FY25 therefore stood at INR 8.8 trillion, or about $100 billion. This is a record high and almost double the previous high. 

From around 4 crore unique investors in March 2019, we now have 13.6 crore unique investors in our securities markets.

Foreign portfolio investors withdrew INR 1.3 trillion from equity markets in FY25, yet the high domestic demand still resulted in a net equity demand of INR 7.5 trillion. On the supply side, equity issuance in the form of IPOs, FPOs, QIPs, OFS, and rights issues reached a record INR 4.6 trillion. Even then, the gap between demand and supply was INR 2.9 trillion, supplied largely by owners of businesses. This trend has persisted for three years, and it has naturally contributed to worries about pockets of higher valuation and price-earnings multiples. Many Indian stocks have risen more than hundred-fold since Covid.

SEBI’s priorities in this environment are very clear. First, SEBI wants to strengthen investor education so that investors – especially the new entrants - better understand all types of risk. Second, SEBI wants to close the supply-demand gap by simplifying IPOs and deepening markets beyond equities, including debt markets, REITs, InvITs, municipal bonds, and commodities. Third, SEBI wants to encourage more FPI flows into India – we need to draw our fair share of steady risk-seeking global savings, towards capital formation.

5. Lessons for investors — especially this audience

FX market participants understand risk better than most other participants.

The first lesson is simple. Every investor must know their own unique risk appetite. In FX option parlance, know your volatility threshold. 

The second lesson is that diversification is the closest thing to a free lunch. Harry Markowitz said this decades ago, and it is still true today.

The third lesson (refer Brinson, Beebower & Hood) is that asset allocation explains 93% of long-term differences in portfolio returns. Improving the risk-return mix is not about stock-picking. It is not about market timing. It is certainly not about trading every day. It is about disciplined, thoughtful asset allocation, followed by periodic rebalancing of the portfolio.

The fourth lesson is that Indian investors must prudently diversify across assets, and importantly, across currencies. In fact, our households should perhaps take over some part of the currency reserve management that the RBI currently performs on our behalf.

6. In summary

There has been fiat currency debasement, perhaps on the back of high public debt and excessive money creation, amidst questions around the USD amongst Central Banks, and rising inequity. 

Uncertainty is extremely high across geopolitics and technology. Markets are nervous.

The rational path for financial planning for the average retail investor is to understand your own unique risk appetite, prepare for a rough ride, build a diversified portfolio across assets and currencies to improve your risk-return mix. Avoid overtrading!

Thank you once again for your patience.