Markets Hold Up Last Week
Federal Reserve chair Jerome Powell has delivered what the markets were hoping for
On Episode 662 of The Core Report, financial journalist Govindraj Ethiraj talks to Rama Bijapurkar, Author of ‘Lilliput Land: How Small is Driving India’s Mega Consumption Story.’
SHOW NOTES
(00:00) The Take
(05:57) Markets hold up last week..stability ahead.
(11:52) India’s aspirational middle class is exhausted.
NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on [email protected].
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Good morning, it's Monday, the 25th of August, and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital. We've got a long discussion ahead later in the show, but please stay tuned as it is something that you will like.
The Take: Middle-Class Values Clash With Venture-Funded Dreams
Last year, as I was driving through South Delhi on my way to the airport, I noticed randomly stuck posters with images of BJP leader Vijay Goel and a bilingual slogan that simply said ban online gaming. Now, Goel has held several positions, including as a minister of youth affairs and sports in the BJP-led government, and is fairly active in Delhi on city issues, most recently on stray dogs. Now, the posters struck me as somewhat unusual, not so much because of the issue they raised, but he was calling out his own government, an act not easily forgiven or condoned in India's centralised political party systems, and yet by all accounts, he laboured on.
Last November, after he launched the poster campaign and staged a protest at Delhi's Jantar Mantar, he wrote a letter to Ashwini Vaishnav, Minister for Electronics and Information Technology, pleading for online gaming to be banned. Goel argued that many youngsters were taking loans for these games, and the repeated losses were leading them into debt traps. In extreme cases, it even led to suicide.
Parents were mostly unaware that their children were engaging in gambling as opposed to gaming, he said, hitting out also at film actors and cricketers for promoting these apps. Did Goel's untiring efforts lead to the dramatic passing of the Promotion and Regulation of Online Gaming Bill 2025, which criminalises the online gaming industry in one shot? It's possible, but typically in such political actions, there could be several other factors, known and unknown, which led to the final stroke, or in this case, the bill. Incidentally, 30 years ago, Goel won another similar battle, this time against single-digit lotteries, which formed a bulk of lotteries at that time as part of a broader campaign.
What is quite clear, as I discovered over the weekend, was that the coming of the bill was not known to most, including some of the highest echelons of India's banking system, who now stand to be penalised if such transactions were allowed. So the bill was a surprise for the stealth with which it was introduced and the speed with which it was passed, including the president of India's assent after the lower and upper houses cleared it, all in roughly 48 hours. So what triggered the move to bring down the 20,000 crore rupee-plus per annum industry, which also creates thousands of jobs, according to the industry, and swells the tax kitty? As per the government's own statement, the legislation is designed to curb addiction, financial ruin, and social distress caused by predatory gaming platforms that thrive on misleading promises of quick wealth.
It also points to a money-laundering angle. It is, however, careful to distinguish real-money gaming, or RMG, as it's called from other forms of gaming, like esports and what it calls social gaming, both of which it wants to promote and encourage. The question that comes up is, why did the government move on this so suddenly? The arguments for allowing real-money gaming have been known.
The industry remains legitimate under the government's watch. It also prevents money from moving offshore via betting platforms, mostly for cricket, via, for example, cryptocurrencies. But the government's view, stated or otherwise, is it knows all of this and has taken a social and perhaps moral call.
I would term it a little differently. I would call it a middle-class, values-based decision. Now, Goel could have had a personal reason for sticking to this issue doggedly of gambling, as he has seen it for decades, and even evidently went solo in his protests.
I would argue, actually, that most middle-class parents in India would think exactly the same way as Goel has and did. No one would like their children to swipe away their family savings on slick betting apps, quite literally, on their dinner tables, instead of building their lives and careers. And the BJP is fairly aligned to middle-class issues and concerns and is known to respond, and perhaps more so than previous governments.
But like all techno-social booms, gambling apps have crept up and become larger-than-life than before we even knew it. Unlisted Dream 11, for example, was valued at close to 67,000 crore, according to a 2025 Burgundy Private Hurun India 500 list, and its value went up about 13% year-on-year due to increasing engagement. And that's an almost $8 billion valuation.
When something is as big and ubiquitous as a jersey sponsor for the Indian cricket team, the greater the acquired legitimacy of the brands, in this case, Dream 11. The lack of clear regulation on this sector also led to billions of dollars of venture capital money flowing in. So should venture capitalists have thought twice before investing in an area with opaque regulation? Actually, that's precisely the area they would invest in, hoping size and brazen advertising would force regulation in their favour, and it has worked in some places in some conditions.
But unlike ride-hailing apps, for example, like Uber and Ola, which also test most countries' regulatory frameworks, there is no middle-class value question at hand. In the case of real money gaming or gambling, there clearly is, and the government has evidently taken a call that values are a threat here, and that really represents a problem for its constituency. The term middle-class, by the way, is mine, and used for its social and not economic import, though it could well mean both.
More importantly, this is also a lesson for businesses and ventures in general, which are set up in a manner that could militate against India's middle-class values, or for that matter, India's values. In changing times, no response is immediate because a values ecosystem takes time to process the true impact of something, first financial and then social. But with hundreds of thousands of crores lost in derivatives trading and real money gaming by mostly young Indian youth, a snapping point was bound to come.
And that brings us to the top stories and themes for today.
The stock markets could edge up as Fed Reserve Chair Jerome Powell delivers a potential rate cut.
India's aspirational middle-class is exhausted.
The Markets Could Edge Up
Federal Reserve Chair Jerome Powell has delivered what the markets were hoping for and US President Donald Trump was insisting on, a rate cut or at least clear signs that there would be one. And that came on Friday as Powell at his Jackson Hole Symposium and Wyoming speech hinted at a possible interest rate cut at the central bank's meeting next month, saying risks to the job market were rising, but he also noted that inflation remained a threat and that a decision wasn't set in stone.
Investors, however, picked up the cue on risks to the job market rising and bet that the Federal Reserve will reduce its policy rate by a quarter of a percentage point at its September 16th, 17th meeting. Hence the party has started or maybe resumed. On Friday, the blue chip Dow Jones hit a record closing high.
The S&P 500 gained about 1.5%, again hovering near record high levels and small caps, which typically rely on borrowing to fund their growth, were up with the small cap Russell 2000 rising close to 4%, all according to Reuters. Now, there were mixed feelings about the likely rate cut with some treating it as a welcome sign and others worrying about the underlying weakness in the economy. The question for India, of course, is whether this will trigger fresh flows from foreign portfolio investors whose hands have largely been on the reverse gear for most of this year.
It is possible, of course, but that also means putting aside some other concerns, including the tariff issue and of course, weaker earnings in recent quarters. But from a flow point of view, this could mean that there could be additional flows to emerging markets, which usually happens as rates go down. Speaking of tariffs, the 50% tariffs or the additional 25% tariff will kick in this week, unless there is some diplomatic slate of hand or better still a change of mind on the part of President Trump.
Speaking of diplomacy, Trump has nominated his 38 year old confidant and loyalist, Sergio Jor, as US ambassador to India at a time when relations between the two nations are considerably strained. Jor was born in Uzbekistan in the US while the Soviet Union has no diplomatic experience, but that is not a necessary condition. Along with being nominated as the ambassador to India, Jor has also been appointed special envoy for South and Central Asian affairs and unusual clubbing, according to the Indian Express.
Either way, Jor is unlikely to come to India in a hurry to do something about the deadline day after tomorrow as the process of appointments can take months. Back to Powell's address, it did send the dollar sharply lower on concerns over a slowing economy, with worries around the independence of the Federal Reserve compounding the sell-off, according to Reuters, adding that lower interest rates can make the dollar less attractive to investors who may seek better returns in other currencies, reducing the demand for the dollar. The dollar index was down about 1%.
On Friday, Indian indices, that's the Sensex and Nifty, were also down, snapping their six-day gaining streak, which in turn was driven by optimism over lower prices to consumers because of a reduction in goods and services tax. One reason for the fall in the Indian indices on Friday was because of lack of clarity on what Federal Reserve Chair Powell would say at the Jackson Hole Symposium later in the day, but as we know now, he did hint at an interest rate cut. The Sensex was down 694 points to 81,307, and the Nifty 50 was down 214 points to 24,870.
On the brighter side, the indices were up for the week, with both indices having risen about 1% despite the fall on Friday, thanks to gains in auto and consumer stocks because of that potential GST rate cut. The rupee on Friday was lower against a stronger dollar, down about 0.3% to Rs. 87.53 against the close of Rs.
87.27 in the previous session. It was down 0.02% for the week, according to Reuters. And of course, if the dollar stays weak today, then the rupee might be stronger.
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Algorand Teaser
Today is Monday, and on Thursday, as part of our Build on Blockchain series supported by Algorand, we are featuring Chetna Sinha, founder of Mandeshi Foundation and Mandeshi Bank, and how they are using blockchain technology to empower their customers. Here is a teaser of what's to come.
TRANSCRIPT
Chetna Sinha: So our women with whom we are working, Mandeshi Foundation is working and later on Mandeshi Bank provides the loan. These women start the business from their household because they don't have any shops or they cannot even afford to do that. So these businesses are like catering business, paper cups, paper plate business, tailoring business, making pulses from the pulses, making dal, making old press oil.
So variety of the business. So generally you will see women having a small business. It is in textile fashion and catering food, you say, or a catering business.
So we are working with DigiLocker at one end and with the software company, Diom, which Algorand has introduced us to. So they are putting all the data of these women and tokenising all these certificates and KYCs, everything, including sometimes assets like, you know, they have their machineries and bills of gold or the gold bills and all, which they can tokenise and put it on the blockchain so that there is a value added to the business of women or actual valuation can be done by the lender and based on that, they can decide how much credit can be availed to her.
Middle Class Fatigue
We talked about middle-class values, and now let's come to the middle class. The Indian middle class is exhausted from generating the energy needed to find meaningful work and navigate their way up the socioeconomic ladder in the absence of facilitating structures, business advisor and author Rama Bijapurkar has argued in a column in Business Standard a couple of weeks ago.
According to her, the middle class is in search of white-collar respectability, stability, security, predictability, social mobility, recognition, which the old middle class had. Their holy grail, ironically she says, is a government job. Their deepest desire is a less exhausting life, lower aspiration levels, dreams that are bonsai with little struggle and uncertainty.
How could all of this impact consumption? Well, we'll come to that. And the question really is, is India's famed aspirational middle class giving way to the next, the exhausted middle class, asks Rama Bijapurkar. Moreover, the stability and homogeneity we assume in the growing numbers of the middle class actually is a mass of heterogeneity and has inbuilt income and occupation volatility, she says.
I reached out to her and I began by asking her in this longish conversation that follows, which I would urge you to stay tuned, about why she was calling the middle class exhausted.
INTERVIEW TRANSCRIPT
Rama Bijapurkar: Either you have to increase income or you have to decrease prices for people who want to buy a little more. So it's as simple as that. I was also looking at the numbers and I think different segments.
I'm going to separate out the stock market from the real markets. The stock market's looking for good news. So any bit of good news in this pile of bad news will start doing well.
But I think we will see a lot of postponed purchases, particularly the durables prices and the fact that the festival season is coming. I think we will see some of the, you know, there's been a lot of postponement. So I think everybody has a bucket list of stuff that they definitely must have.
Whether you're replacing your two-wheeler that's falling apart or you want to buy a new air conditioner and you're dragging your feet on it. So I think that that definitely is going to start looking up. But I think we must, as always, be careful not to project the release and pent-up and delayed demand that projected going forward.
So I think right now there will certainly be a release of a certain amount of postponed purchases which will come through. So I think that is good news. Yes, people will probably consume a little more.
I mean, you know, the way the Indian consumers walk on a shoestring budget is they do all kinds of things. They optimize their portfolio. They sort of always have two or three different kinds of brands to serve the same need.
One at the high end, one at the low end. Another favourite thing, particularly in food, is that you postpone purchase. If you find that tomato sauce has got over or cheese has got over and it costs a lot of money, you will replace it maybe a week later.
So I think some of that will actually get better. Eventually, the silver bullet has to be a healthy economy. But I think price is coming down and particularly the telecom industry gets its way.
Then I think it is going to be good for us. Yes.
Govindraj Ethiraj: Right. And if you were to look at previous cycles when we've seen slowdowns in consumption, what would have been the key trigger? I mean, there are usually many, but key triggers for demand to pick up again.
Rama Bijapurkar: You know, I always and I have been reeling about this for a long time, that it's amazing how we disconnect investment from income and income from consumption. And I think that whenever we had no investment, whenever it's been slow, especially given that most people are not employed in a formal sense where they get a regular pay cheque, everybody starts hurting when there's a little bit of a slowdown. So in the past, things that have done a demand fix, for example, we went through a period where every unit of infrastructure increased, unlocked a lot of latent demand, more than a unit of income increased.
In 2008, if you remember, I think it was a combination of agricultural loan write-offs, improvement in rural road connectivity, a good monsoon, minimum support prices going up. That combination worked together to boost incomes. So I think the broad formula doesn't go away.
The prices have to come down. I also think in the past, and I've always said this, that we can't discount supply side behaviour. I think the marketing community is as bullish and bearish as the stock market.
So the minute it goes into bad times, then they start saying, we're going to premiumize. And they act like the customer's premiumizing, which is actually a misnomer. It is a company that's saying, hey, I want to serve the rich guys at a higher price point, at a higher price performance point.
And I don't really want the margin and the hard work of those who are at lower price performance points. I don't want to absorb the cost of raw material increase and punt on a volume increase, unless I'm feeling good. So there are times when the top line grows, the bottom doesn't.
There are times when the bottom line grows, the top line doesn't. There are times when portfolio change and price change, which is choosing to serve the richer, have actually held up consumption. And I think that's a cycle we've been going through for a while, because I think we all know that post-COVID amount of income share of the rich.
I mean, basically, which goes back to the point of what is a genuine middle class, that if you have resilience, if you have a way of earning a living, if you can ride out the hard times, you know, if you're a construction worker, you don't get paid. If you're sitting and working from home, you do get paid. So I think that the rich have gotten richer and companies have also started targeting them.
So will that cycle change now? It depends if it is tied up along with good monsoons and good rural incomes, then we'll start making another theory out of it. Volatility is the nature of the beast.
Govindraj Ethiraj: Right. And you talked about the Indian middle class, or rather the need to rethink the India middle class story and how it's really moved from being aspirational to exhausted. So what were you referring to?
I mean, what was your theme here?
Rama Bijapurkar: I was referring to the fact that our conception of the middle class, firstly, I think I have said this on your programme as well in the past, but the idea that income X to income Y equals a middle class with no further criteria. And the more we broaden the definition, the larger our size of middle class, our thinking has to change a little bit. And I was referring to the fact that as public employment is decreasing, as government employment is decreasing, and as people are earning more through various other sources as well, the middle class that we have is a middle class that does not have a regular job, does not have regular stability and predictability of income.
But as we are seeing right now in the previous conversation we've had, if everybody's a gig worker, then the slightest bits of volatility affect the truck driver, the truck cleaner, the chicken supplier to the dhaba, the dhaba cook, I mean, you name it. So we have a bunch of people, and this is what our young people study also bears out, who are struggling to keep incomes going. They are, there's a huge amount of entropy.
You have to do four or five different things. You don't have a particular line of work, a pesha, a skill very often. A lot of them are account workers.
So while we celebrate the rise of the Swiggy boy as the gold marker, another example of the Indian middle class, the fact actually is that people are not feeling very good and not feeling like ordering in a lot and prices are going up, incomes are not going up. Then this whole lot of people don't get to do as much work as they can to earn income. So they will go and do something else.
So our study of young people also shows that they're doing four or five things at the same time. They're trying something, they're trying something else while they are in the hope of earning a predictable income and getting a regular job at some point in time. And so they are actually exhausted.
They're exhausted because what it takes to earn a living is actually a lot of hard work and it doesn't come with guarantees. It doesn't come with social security. So in our normal conception of a middle class, which is government servants, public sector servants, formerly employed people, civil servants, and so on, these are people who had incomes, they had inflation indexed incomes.
As we know, every time we have a pay commission increase, these are also people who have healthcare, who have social security, pensions at the end of the day, TADA, whatever you call it. So that lot is actually decreasing in number and is a very small proportion. So I was saying that what it takes for us to earn the income that we earn is a lot, more so for young people.
Govindraj Ethiraj: And you've said, you know, that the majority of this new middle class or the current and the future middle class would be quasi formal or quasi informal and small private companies, small entrepreneurs. And I guess that changes or should change the way we look at consumption slabs now on the consuming side. So what does this lead to?
Rama Bijapurkar: So one thing is that the idea of a genuine consumer at a particular income level doesn't make any sense to me. I mean, again, we've talked about the GST coming down and prices coming down and they crash quite significantly. You know, if it actually made a nano work at the price at which a nano was intended to work, I think a lot more people would be owning cars at the entry level than we would have thought they would have, right?
Similarly, if you have secondhand motorcycles doing extremely well, and we are actually having a lot of organised dealerships of secondhand motorcycles, then you will actually find that more people will be able to consume it. So the two things that I said, one is income and one is price point. So I think that rather than say which slab they become real consumers, let's assume for a moment that everybody is a middle class consumer.
I mean, what's in a label, right? I mean, everybody has a right to consume. Everybody wants a car, a bungalow, a colour TV, preferably an air conditioner, preferably an Indigo ticket to go to your hometown and so on and so forth.
So some can afford it, some can't afford it. But even amongst those who can afford it, at whatever price configuration you're working at as a company, I think you have to be prepared for much greater volatility. If the discourse of the great middle class that is now growing, I mean, you know, some estimates say that, oh, by 2047, 60% of India will be middle class.
I'm saying 100% of India will be middle class. That's okay. It will consume at some point.
And that's also the reason why Hindustan Libra top line doesn't decide consumer product demand, right? It's fragmented, it's small, it's a lot of small companies. So I think that everybody has to be prepared for the fact that there is more volatility, there will be more price performance points at which it works, there is more heterogeneity.
And so your cost of complexity of serving the middle class is actually going to be higher than ever before. So you can't do one model and assume that it will now get all these legions who are ready to buy, because they're not homogenous anymore.
Govindraj Ethiraj: And you've talked about a two-tiered middle class or a two-tiered approach, economic development driving genuine middle class. And then there's a consuming capable class, as you've called it.
Rama Bijapurkar: Yes, because I've been looking along with someone I work with, he used to be the chief economist of Mastercard, you are, and you are Hedwig Wong. And I used to ask him, you know, let's go back to social science and say, why is the middle class so important? Why are we all obsessed with the middle class, not to count up the number of TV sets?
I mean, crash prices secondhand, then you will have a larger middle class. And I think the idea of a genuine middle class is one that will power economic development and social development. And they must have a set of criteria, what we call a genuine middle class.
They must have, as I keep saying, stability of income and predictability of income. If you have predictability of income, then you know that you can afford to educate your children, you know that you can put aside a certain amount of money, you can basically plan your life, you don't keep getting hit by shocks all the time. And predictability of income requires you to have skills or a line of work, a pesha that you have in your hand and an occupation.
It requires you to have resilience, resilience. And we've shown with data in my book, Lilliput Land, that, you know, look at the, if you take India's households in 10% slabs of income, other than the top 10%, and maybe the next 10%, to some extent, the rest of them, their income collapsed the minute you had COVID, because of the nature of how they earned. So they must have resilience.
And the general norm is that you must have at least 30% of your income left over after you've served your necessities. And that's what you reinvest in your life and in the lives of your children. This is a group of people who are stable, comfortable, upwardly mobile, socially, socio-economically.
And this is the group of people who are going to be powering the linkage, as Subir Gokaran, whose article inspired mine, the late Subir Gokaran, and he said that the linkage between these people and the nature of economic development used to be the non-linkage of the government servant and the public sector servant. You know, I remember judging some scholarships for students who are going to Ivy League colleges and getting second degrees in America. And I was surprised, and this was 10 years ago, how all of them had parents who were either railway, state bank, army, civil service, or state government.
And that's really where the input into the future comes. And so this is the lot that will drive the economy and society. So I'm saying, okay, that is a genuine middle class.
It's not the numbers that we would like it to have. But since the number of the middle class seems so important to us and the foreign media and everybody else, I'm saying, okay, let's take the definition of whether you can afford to consume at the current prices or not. And if you can, it is what I'm calling purchasing power of the moment.
Okay? If we have tariffs on software exports, some of that purchasing power will kind of vanish. But because they have the skills, et cetera, they will be able to be resilient enough until we redirect and find a place to re-export or, you know, to make up for that deficit.
But let's assume it was somebody who didn't have those skills, like the construction labour sector, right? Then you would end up having people who don't have purchasing power at the moment. So I'm saying, okay, let's take two parts.
One is that which has purchasing power at the moment in a good time, at a good point in time. And the other who has all these other attributes I'm talking about, which is a genuine middle class. And our point has been that this small number, which is, you know, 20 percent at best.
And again, if you look at the occupation demographics, only about 50 percent or a little more of them actually have regular monthly pay cheques and occupation is a little worse. But if this lot has been powering us to that great level, imagine if we actually created a more genuine middle class.
Govindraj Ethiraj: Right. Okay. Last question.
You referred to Hindustan Unilever and, I mean, why we should not look at them to interpret how the economy is doing or the consumption economy is doing. There's been a leadership change. Maybe things will change.
But how do you see their challenge in the context of what we've been talking about, either lever specifically or companies like it, which are only a handful in any case?
Rama Bijapurkar: Yeah, exactly. I mean, I think the fact that they are a handful makes me wonder why we are so obsessed with how their top lines reflect the state of consumer demand. The same Nielsen IQ tells you that 50 to 60 percent of most categories of consumer goods are actually small.
They're small, they're local. There are very few entry barriers. And actually, the small guys are really quite smart.
So I think the Hindustan Unilever chairman has in the past often said that the severe localised competition is an issue. So I think we have to decide, as Ogden Nash said, tell me, Octopus, I beg, is this arms or is this legs? Are you going to continue to be the champion of the last one percent increase in penetration of detergents?
Or are you going to say, OK, I'm done here. Let's start serving rich India, which we historically haven't done. Or let's finally make our food business work.
Or let's outdo everybody else in the beauty business and let's go there and seed space. So I think it's what strategic choices they're going to make that will be interesting for me. And whether they're going to make for India or they're going to go back to the global brands and bring them here as extension markets is what I would want to look at.
Govindraj Ethiraj: Rama, it's been a pleasure speaking to you as always. Thank you so much for joining me.
Rama Bijapurkar: Well, as always, thank you for having me.
