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Govindraj Ethiraj: These are the interesting discussions that we've been having in the last year. So this is the second part of the Navigating Risk and Market Risk series. I'll give you a little bit of background, and then, as things should be, I will not speak much beyond that.

Let me take a step back. I don't know how many of you have been in the cockpit of a Boeing 747, but it's changed.

A friend's father, a very dear friend's father, used to work in the 60s and 70s. His job was not to fly the plane; it was to navigate. The reason he existed, the reason his job existed, was because there was no GPS. So they had to physically plot and match and see where the aircraft was going, or had to go, and map out the headings and things like that. Over time, as you know, technology replaced that role, and essentially it's the pilots who do the navigation and they use far more navigation aids than ever before.

But the role of the pilots continues to be important. I don't think we've reached a point where anyone can dream of, or even dare to, board a plane with no pilots, though many people talk about it conceptually.

Which brings us to our discussion today. In navigating markets and market risk, you need to be in the hands, at least in my mind, of good pilots, even if there is no navigator.

On that note, I'm going to hand over to our two pilots here, who will navigate us through what it means to fly through skies like this: turbulent, unpredictable, with sudden winds. And how it all comes together in a way that not only keeps our flight safe and secure, but ensures we land in one piece.

I'll quickly introduce both of them. You know our guests today, but Radhika is, of course, the Managing Director and CEO of Edelweiss Mutual Fund. She has a very long bio and is accomplished in terms of what she's studied and done. One interesting thing I noted is that before she joined Edelweiss, she was actually an entrepreneur. Her firm, Forefront Capital, was acquired by Edelweiss, and that's how she came into the fold. She then grew the business and has written several books.

Navneet is someone I've known for a while. He's the Managing Director and CEO of HDFC Asset Management. He's a CFA and a CAIA, and comes from the world of accounting and finance, as opposed to management, which is why these perspectives become quite interesting. Both of them have played various roles within the mutual fund community and have helped the industry grow.

Between them, they manage roughly... yes, you haven't written a book.

Navneet Munot: Good.

Govindraj Ethiraj: So if there are any publishers, we can meet them after. HDFC manages roughly, and I'm sure Navneet will correct this to the current number, about nine and a half lakh crores of assets, and Edelweiss manages roughly about 1.9 lakh crores. So between the two of them, you're looking at about 11 lakh crores of assets.

What I'm going to do now is hand over to them and ask them to speak for about six or seven minutes each on how they view navigating risk, if they were the pilots in this 747 cockpit today, flying from Mumbai to London over the Strait of Hormuz or around it, avoiding Iran, avoiding many other things.

I'll also ask them to start by sharing one thing about themselves that is not in their bios.

On that note, do you want to go first?

Navneet Munot: What was that you said? What is not there on the...

Govindraj Ethiraj: One thing about yourself that's not in the bios, and then we can get down to the business of navigation.

Navneet Munot: I've mentioned it several times. I come from a small town in Rajasthan called Beawar. I grew up there. You talked about my CA, so I did my CA articleship from there and gave my exams there. The first time I took a plane, and you talked about the cockpit, I was, I think, 22 or 23. I hadn't seen a physical plane before that. That's my background.

The other thing, and this is not so much something unique about me, but very relevant for the world we are in today and for navigating it: I've done Vipassana twice. Millions of people in the world have done it. Those ten days are really worth it if you want to navigate the world we are in.

Radhika Gupta: At this point, I feel like everything about me is on the internet, especially after doing reality television. So what about me is not on the internet?

Yes. I am potentially the best Antakshari player in this country. I can't sing to save my life; I sing like a frog. But because my father lived abroad for most of my life, I didn't learn Hindi in school. I learned Hindi by reading Bollywood song lyrics. I once told Javed Akhtar, "Sir, whatever good Hindi I know, I have learned by translating the lyrics of your songs." So I know the lyrics to every song cold, even though I can't sing to save my life. I'm a killer Antakshari player because I used songs to learn Hindi.

Govindraj Ethiraj: We have a director from a very large production house here who may want to reach out to you. I'll introduce you later.

Govindraj Ethiraj: Let's come back to the theme: navigating market risk, seeking new opportunities. We're trying to look at what could be the new opportunities, what kinds of opportunities one can explore even as we wade through this present phase. That's really the theme. Let me ask Radhika to speak for about five or six minutes, and then Navneet.

Radhika Gupta: Thank you, Govind, for having me. It's wonderful to be here. In true journalistic fashion, Govind didn't tell me what I was in for. And then I see these faces. Navneet and I were talking at the back, and I have to confess that both of us were a little intimidated, because there are some extremely erudite faces in this group on a Monday morning. At least I don't have an answer as to what Donald Trump is going to tweet tonight, so I'm lowering the bar on what I'm going to say.

On the topic of navigating market risk, we live in tremendously interesting times. My first market correction was in 2008, when I was a young analyst on Wall Street. But I would rate the January-February-March quarter that just went by as one of the three or four most challenging quarters in my 20-year capital markets career, from an equity market point of view, from a bond market point of view, from a commodity market point of view.

In January, we were worried about Trump attacking our exports. In February, we started worrying about AI taking away our livelihoods. And then in March, we were worried about whether we would have an LPG cylinder. All of this happened back to back to back.

I don't think volatility in itself is new. Going back to your plane analogy, for those of us who fly, we have to realise turbulence is part of the process. If you expect to sit on a plane and experience no turbulence, you should stop flying. What is important is resilience.

For me, the critical word over the last three to six months, and through investing more broadly, is: how do you build portfolios that can survive? Survival is really the key. A little turbulence is okay. But an engine failing is a problem. A pilot collapsing is a problem. How do you build portfolios that can survive?

The real answer to that lies in diversification. Diversification is, in my view, a somewhat misused word in the Indian context. As I look at investor portfolios and HNI portfolios, we are exposed to a lot of concentrated risk. It could be equity-only risk, single-country risk, exposure to a rush of liquidity, or exposure to one kind of founder or environment. As we think about portfolios of the future, the question is: how can I build a portfolio that will survive, and how can I get different kinds of exposure?

Let me quickly share a few headline ideas. When I moved back to India in 2011, the first thing I started doing, after a stint as an entrepreneur with some capital to invest, was to look for a global fund. This was not like today, when everyone is searching for a global fund. There were probably four or five global funds offered by the industry then. I always believed that having some non-India exposure is an important part of any portfolio. Whether that is the US, China, or something else, we can debate, because frankly, India is a fantastic market, but there are themes that simply don't exist here as a country. That was one play on diversification.

The second thing I started doing, and I know there are some private equity veterans here, was looking at alternative assets and different places where return profiles could be different. The whole unlisted space, and participating in opportunities not present in the listed market, became an interesting area.

The third is something some of you asked me about casually as we were chatting. Most of our returns in India tend to come from what I call beta. We are either betting on equities doing well, fixed income doing well, or gold doing well. But now you have the emergence of alternative asset classes, including the whole SIF space, where you're trying to earn returns that are not coming from beta but from more absolute-return ideas. I've started exploring some of that. Diversification in its truest form is sort of the key to navigating through the turbulence.

A lot of conversation, and these are some of the last things I'll say, centres on what to buy: this fund, that fund, this asset class. I think sizing of the portfolio is where a lot of mistakes are made. You may like unlisted assets, but suddenly 50% of your portfolio can end up in illiquid positions, and that becomes a problem. Taking the right quantity and size of bets has become increasingly important.

Finally, my learning through all of this is that finance is an increasingly social business. In the era of social media, everybody is making money on Twitter, everybody is having a fantastic vacation on Instagram, and everybody is getting promoted on LinkedIn. Reality is often not that. Finance should not be social. Finance is deeply personal. Portfolio decisions are deeply personal.

In my own 15 years of investing, there have been at least three distinct phases in my personal asset allocation journey, and my decisions have swung very differently, because my needs changed and we are constantly evolving. So the question you should really ask is not just what you are investing in, but why. What purpose does it serve in your portfolio? What are the risks you are knowingly taking and happy to take? Once you do that, the journey becomes a lot more survivable.

Let me stop there. Navneet.

Navneet Munot: Thank you, Radhika. You talked about the volatile world. The only thing I can say about the world we are in with certainty is the continuity of uncertainty.

There are three things about the world we need to keep in mind, whether in investing or in any sphere of life.

Number one: everything is unpredictable. I don't have to go back 25 years; just look at the last five. How 2020 started and where it ended. How 2021 started and where it ended. This whole theory about six-sigma events, events with a very low probability of happening but deep impact, they should happen once in 100 or 200 years. They seem to happen every year now.

Number two: everything is faster. I have not seen, in my investing career, macro cycles and investment cycles moving at the pace they are moving today.

Number three, and most important: everything is questionable, because we have information overload. Our ability to process things deeply is actually shrinking. One of the most important books every investor should read is "Deep Work" by Cal Newport. It's not about more data, more information, more knowledge. You make money through wisdom, which is shrinking because people are just consuming news flow, whatever comes in on WhatsApp or Twitter. By the way, I am not on any social media. I post one thing on LinkedIn, and only in the last four or five years. My previous 17 letters are not there.

So: everything is unpredictable, everything is faster, and everything is questionable. There are so many known unknowns. The West Asia crisis, for instance, where we know about the crisis but not the duration. That's a big known unknown. But within all that, there are very large trends that get completely missed because attention is elsewhere. In February, we were looking at India-US deals, India-EU deals, GST reforms, foreign investment flows. Things were looking different. And suddenly everybody's attention shifted to the West Asia crisis, oil, and how badly India's macro would be impacted.

In 2014, I used to show a slide with pictures of global leaders and say: the world is changing, and changing in ways we really don't know. My thesis was that for 40 years, our generation has been one of the luckiest in human history. The world has never seen this much peace and prosperity. This is exceptional. In the 17th, 18th, and 19th centuries, when Europe was doing well, there were only a few million people. When the US did well in the 20th century, it was a relatively small population. Large parts of the world didn't grow for a very, very long time.

In these 40 years, we have created unprecedented prosperity. A billion Chinese, a billion Indians, a billion people in Latin America and other parts of the world were brought into the global economy. The whole wave of globalisation since 1980, the fall of the Berlin Wall, the spread of liberal democracy, led to unprecedented prosperity. That created amazing markets and gave policymakers enormous ability to navigate crises.

The playbook for the last 40 years has been very clear: if there is a crisis anywhere, whether Mexico, LTCM, 9/11, the GFC, the pandemic, central banks print money and governments borrow more, because rates that were at 15% in 1980 fell to 0%. At one point, three years ago, and we've forgotten this, $17 trillion worth of bonds were trading at zero or below zero. We were able to bring down interest rates because of globalisation. Countries like China, Mexico, and Vietnam exported cheaper and cheaper goods. Countries like India and the Philippines exported cheaper and cheaper services. We brought down inflation structurally, made money cheaper, and that created enormous prosperity, particularly in financial markets.

That picture: when I look at the world and I see Abe in Japan, Duterte in the Philippines, Jokowi in Indonesia, MBS, Theresa May, Viktor Orban. Theresa May said, "If you're a citizen of the world, you're a citizen of nowhere." The rise of Trump, Milei, Marine Le Pen in France. I said: something is happening. If there is this much peace and prosperity, why are people looking for such a dramatic change?

Looking a level deeper, why do people want this change? My sense was that globalisation created massive prosperity at a global scale, but also created challenges for certain sections of people because inequality increased. On the whole Piketty debate about inequality, I'm in the camp of Churchill's famous quote: the sin of capitalism is that it distributes prosperity unequally; the sin of socialism is that it distributes poverty equally. We have to choose.

But it wasn't an easy choice. We were in a world where, if you were rich, you got a bailout; if you were poor, you got a handout; and if you were somewhere in the middle, you got left out. A large part of the middle class started feeling left out, because a larger proportion of gains were going to capital and labour was getting squeezed in many places. That had positive implications for labour in India. Millions of jobs were created here. But elsewhere, people were losing their jobs, and perhaps politicians failed to adequately address it.

Now we are seeing a big reversal, and this is just the beginning. We will have to navigate a world we haven't seen before. The world worked in a certain manner post-World War II. You had the UN, WHO, WTO, NATO, institutions of all kinds, and a clear playbook. When you could read the politician's mind and they could read the public's, things followed predictable patterns. Now, with such a massive transition underway, it's very, very difficult.

What are investors doing? Buying momentum, buying what is going up for whatever reason. We launched a silver fund on 2nd September 2022. Silver prices were at $18. With great difficulty, with the HDFC AMC franchise, our distributors, our 280 offices, thousands of people in sales, hundreds of thousands of distributors, we got 20 crores. Radhika, I feel better knowing that we launched a gold and silver fund that same day, on 14th September, and got 10 crores. When silver was at $30, people were queuing outside offices to invest. This happens with every security, every market in the world.

So the three things about markets today: one is a highly uncertain geopolitical and macro environment; two is macro cycles getting shorter; and three is the gamification of markets. A large part of money is moving to passive funds, which simply buy what is going up. If NVIDIA is going up, they buy more; if something is going down, they sell more. That creates a momentum bias. On top of that, you have a hedge fund industry levered up several times, an algo and HFT industry, and retail investors following the same momentum. There is momentum in every market, and not enough deep thinking about where the world is going.

One more important point: the world has grown enormously because of a massive fertility boom over 40 to 50 years, unprecedented, combined with huge advances in healthcare. That has ended. In my last letter or the one before, I wrote that I belong to a generation that won essay and debate competitions on population control. My child will be writing about the great fertility challenge for the rest of his life. Humanity will have to think carefully about this. I have a different view on AI. AI was my person of the year in 2022. But I think the world will increasingly be discussing a shortage of people, not a shortage of jobs. We can get into the investing implications of that later.

The four big revolutions in human history: first was agriculture, which took thousands of years to reach its current form, and you could still be in any part of the world eating differently. The industrial revolution took several decades. There were textile mills in Manchester, but handlooms were working in Varanasi, and the world was fine with that. Even the information revolution: the telephone came in the early 1900s, but in 1970, in my entire lane, we were the only family with a telephone. For 70 or 80 years, barely anyone had a phone. Now, with the intelligence revolution, you have a billion subscribers in a matter of weeks. This is very different.

Beneath all this disruption, and I am broadly very positive about it, there is a massive supercycle of investment underway. I'll take the last minute.

I wrote this a year or two ago: I can paint a picture that is genuinely worrying from a political perspective. We really don't know what will happen in the evening, what decisions will come out of the Middle East or elsewhere. We've forgotten about many other crises that don't even get headlines. But there are massive investment cycles underway, driven by four big factors.

Number one: defence spending will keep rising for the foreseeable future in every country. The implicit guarantee that America would prevent violence from disrupting the global economy has been withdrawn. From Japan to Germany to India to Saudi Arabia to Mexico, everyone will be investing more and more in defence.

Number two: supply chains. We've been hit so many times, from the China-US trade war starting in 2016, to the Abqaiq attack, to various disruptions, and now the Strait of Hormuz. This means everyone will produce more locally, requiring massive investment for many years.

Number three: climate change. It is real. I'm a strong proponent of ESG, though not in the way people traditionally frame it. Energy transition, EV transition, the world will have to invest heavily in all of this.

Number four: AI and quantum computing, which require enormous investment.

All four together mean that on one side, we can paint a highly uncertain environment; on the other, there is massive underlying investment that will play out over the next several years. This will change the nature of jobs, industries, the way businesses deal with each other, the way countries deal with each other, and the way humanity deals with itself. I just wanted to set that context.

Govindraj Ethiraj: Thank you. Radhika, let me come back to you. You talked about building portfolios that survive. My question is: the portfolio you were starting to construct, whether on your own behalf or for the funds you manage, say about ten years ago, what has changed today in that approach, and what is the reason for the change?

Radhika Gupta: I agree with Navneet's point about momentum. My learning is that predictability is very low. Market cycles have become very short. When I started my career, I was told market cycles move in eight-year waves and you buy and hold, and that would work. I don't think that works anymore.

There are two changes we are making as an asset manager. One is in how we manage existing funds: traditional equity funds, flexi-cap funds, large-cap funds. I agree with Navneet that over a five-to-ten year horizon, I'm very optimistic, particularly on India. But we are a lot more agile in how we manage that money. We try not to have biases, value bias or growth bias. Typically, the first question you ask an asset manager is: are you a value investor or a growth investor? We believe we are simply investors. Value, growth, quality, these are labels the market puts on you. We are very happy to invest in a company that is cheap relative to its pricing, and equally happy to invest in a new-age, high-growth company that justifies its valuations.

The second change is in the actual basket of products we offer. The Indian asset management industry has evolved dramatically in the last 20 years, even in the last eight or nine years since I've been part of it. We had an industry that largely offered fixed income and equity, and not much else. Today, we cater to actively managed funds, passively managed funds, and things in between, smart beta and so on. We offer global funds. We look at listed and unlisted. We have the asset class of real assets, REITs and InvITs, which I'm particularly optimistic about given India's capital needs over the next 15 years. And then you have global investing and hedge funds.

Sometimes we are accused of having too many offerings. But I don't understand why a consumer would say that. My mother doesn't go to D-Mart and say, "There are too many products here." She goes with a list, carefully made based on the needs of the household. We are increasingly becoming a financial supermarket where there are many things available to satisfy different needs, different time horizons, and different market situations.

Govindraj Ethiraj: Speaking from within the organisation, what does it take to build that kind of wide portfolio? Doesn't it stretch your skills and bandwidth?

Radhika Gupta: It's actually not about stretching skills and bandwidth. The greatest challenge, and I wrote a long LinkedIn post about what it takes to build this, is finding talent of different kinds. The person managing a mid-cap fund is a very different kind of talent from the person making decisions on international investing, or the person doing more aggressive trading to run an absolute-return fund. These are actually three different skill sets. The greatest challenge I face today, ironically, in a country where we talk about not enough jobs, is finding talent to build and meet the needs of different buckets.

Govindraj Ethiraj: I'll come to audience questions in a moment. But you've launched several offshore funds: a Greater China fund, a US Value fund, a Europe Dynamic fund, and there's also Gift City. What has your experience been?

Radhika Gupta: We are perhaps one of the oldest sellers of global investing, and I have some amusing stories on this. We acquired these funds as part of our acquisition of JP Morgan AMC. The total AUM of these five funds at the time was 150 crores, and this was in 2016, when nobody cared about global investing. I was told to continue running them, and I was a strong proponent of global investing even then.

Then in 2018 or 2019, the Chinese market had a phenomenal run. In fact, someone wrote an article that the Edelweiss Greater China Fund was the best-performing mutual fund of all time over the past ten years. We talked about momentum: we had queues outside our office. During Chinese New Year week, people would call to complain that their NAV wasn't going up. That's how people chased global investing. Then you all know what happened in China for the next two years. We received a lot of criticism, and so on.

On a serious note, there are two aspects to global investing. For serious investors, it should be part of their asset allocation. There is a segment in India that has realised India is not the only market worth investing in. People are looking seriously at the US, and to a lesser extent at China, though I think that's partly recency bias. But the principle that you should have maybe 10 to 15% of your money abroad is taking hold.

The constraints on how much people can invest prompted us to launch several funds in Gift City, and I'm hopeful that ecosystem develops. My guidance to people is to consider global funds as part of their asset allocation and apply the same five-to-ten year horizon they would apply to Indian equities. Don't invest in my China fund today and come back in a year saying China hasn't made money while India has. The reason multi-country investing exists is that different things do well at different times.

The mindset has certainly opened up. I probably shouldn't say this publicly, but our limits on international funds are currently full. We allow only Rs. 5,000 via SIP mode across our six funds. And there are people, genius Indian minds, who are setting up a new SIP every day to work around the limit. That's a little bit of momentum at work.

Navneet Munot: Radhika is a social media influencer. She had to add the "I probably shouldn't say this." I'm not on social media, but I understand how it works.

Radhika Gupta: If I wanted to say something like that, I would have chosen something else.

Govindraj Ethiraj: Navneet, there seems to be a conditioning and reconditioning of investor thinking that is perhaps called for. Radhika referred to it in saying you have to think about global investing without getting emotional, and make it a scientific part of your portfolio. As you look ahead, how are you thinking about this, and how should investors be thinking about how they allocate? I'm talking about the thinking, not specifically where the money goes. And of course the context is everything you've laid out: supercycles, 40 years of prosperity, and these big shifts, some hidden and some visible. Where does it all come together?

Navneet Munot: Some friends from the CFA community are here, and we were all taught capital market theory, the trillions of dollars that run, Harry Markowitz, efficient frontiers, the idea that the only free lunch in investing is diversification. All of that.

Think about this: in 1974, a study found that US pension funds had a home bias. They didn't invest outside the US, even though the US was already about 36% of the global economy. They were told they should invest outside. In the last 50 years, that international allocation would have underperformed. They've gradually gone from 0-1% to maybe 18-20% in international assets, and that 20% has been the underperforming part of the portfolio. Since 1990, if you look at the S&P versus the rest of the world, the S&P has outperformed by maybe 3-4% per annum in dollar terms.

On Indian diversification, and I say this on many forums, there is a lot that India will teach the world. We just have to get there, and I think we will get there sooner than many expect.

Who taught diversification to the world? Indians have understood it since time immemorial. We were the ones who sold turmeric, black pepper, and all kinds of things, whatever we couldn't use beyond a certain amount, and in return we got gold, silver, pearls, rubies, and all kinds of things from the rest of the world for thousands of years. That was real currency diversification. We've been doing it, knowingly or unknowingly, for millennia.

Anyone living in South Bombay has some property in Alibaug, some land somewhere, a farm in Dahanu. And when we think about private credit, we considered launching a global private credit product. I think the time will come when public perception aligns with the opportunity. You go to Kalbadevi, CP Tank, Opera House, and that's what private credit looks like in India. We understand it very well by nature.

In India, the alternative has always been most of what people hold: gold, fixed income, private credit, real estate of all kinds. Equity has just started, and we have a long way to go.

On the global side, I was, and remain, bullish on AI, and I think it is simultaneously underhyped and overhyped. Overhyped in terms of how people are thinking about investing in it right now, classic behaviour we've seen in the 1990s and in 2007. People forget: who was the largest-market-cap company in 2000? It was Cisco. The theory was networking. JDS Uniphase, Nortel, Cisco, all the largest companies in the world, because "this is how the world will network." We could have projected in 2000 that in 25 years, 1.4 billion Indians would be doing video conferencing every day. But Cisco has only just recovered to the price it touched at its peak in 2000.

And in 2007, which company was the largest market cap in the world?

Govindraj Ethiraj: Walmart.

Navneet Munot: No. Very close, but no.

Govindraj Ethiraj: Chevron.

Navneet Munot: Very close. PetroChina. The theory was perfect: the per-capita consumption of oil would keep rising, and China was the next great growth story. China did extremely well. Yet, going back to the US point, the theory was that the US, being one-third of global GDP, would decline in relative terms over time. It has, from 36% to maybe just under 25% of global GDP today. But US markets are an even larger proportion of global equity markets today. The US is 65% of the global equity market. And if you add the memory trade, Samsung, TSMC, SK Hynix, they are effectively plays on the US AI trade. Then add 50% of global private markets, 40% of global bonds, one-quarter of global commercial real estate, and the US essentially is the market today.

Experience teaches me: trees don't grow to the sky. Something will give. And at this point, with the rupee having weakened significantly and India having underperformed, I present three structural challenges for India whenever I have a bullish presentation. One: climate change, which is structural and needs to be addressed as we grow. Two: we don't invest enough in innovation. We need to do far more as corporates, as government, as academia. Three: inequality. For rich people to get richer in a democratic society, we must take very good care of the poor. Whenever we miss that, we face challenges.

So today doesn't feel like the right moment to diversify simply because the rupee has weakened or other markets have done well. That said, as I said, diversification has its merits. Structurally, I believe emerging markets will do better than developed markets over time. That's my view.

Govindraj Ethiraj: Radhika, a quick word on that, on diversification? I know you've already addressed it, and I'll come to questions after.

Radhika Gupta: The US is 65% of world market cap. I do take Navneet's point about Cisco. And remember there was a time in 2021 when Zoom had a larger market cap than Goldman Sachs because we thought we would all be on Zoom for the rest of our lives.

But I don't think this is a binary call between emerging and developed markets. What I would say is that tech as an industry has always been disruptive, and what constitutes the "tech of the moment" will constantly change. We run a US tech fund, for instance. The nature of tech has always been that a new entrant will come and disrupt the incumbent. If you look at S&P 500 earnings, even in the US, most returns are effectively a bet on technology. So I would look at the US as the centre of innovation, an ecosystem that attracts the best innovation in the world, and technology, whether it's AI today, video conferencing in the 2000s, or the internet before that, will remain very relevant.

If I were to give people a simple construct, many people come to me and ask how to build a global portfolio, I use a core-satellite approach. If you have a hypothetical 15% allocation to global investments, think about the US being 65% of the world. That's your core. If the US has run up a lot, that 10% could become 8%, but it shouldn't be absent. The second-largest market is China, which at some point was pricing in significant difficulty but is a large economy, and we've seen China become a leader in segments where it was previously absent, like EVs. The third is satellite allocation to smaller emerging markets.

One criticism I have of some emerging markets is that if you look at Korea, or Taiwan, much of the market cap comes from a single company. There's a lesson in producing world-class, outsized companies with disproportionate outcomes, but these are ultimately markets dependent on one or two companies. So I do think the US and China remain the core, with smaller emerging markets as satellites. And I think India has a lot to learn from this.

Govindraj Ethiraj: We'll come back to that as we conclude. Questions and comments?

Speaker: Ray Dalio talks about the large debt cycle. Can you comment?

Speaker: As you probably know, the large debt cycle last peaked in the early part of the last century, when the US was overextended in terms of debt, there were small wars, and the robber barons were present. We're seeing something equivalent today. The theory is that at the end of a large debt cycle, you enter a period of deflation, interest rates shoot up and markets crash. So my question is: are we at the end of a large debt cycle, based on Ray Dalio's framework?

Govindraj Ethiraj: I'll collect a few more questions first. Anyone else?

Speaker 10: A related question. You spoke about market cycles and going through the GFC, what the peak looked like then, and how the fundamentals are the same but the nature of everything has changed. We're at a point, given everything happening with AI, where we saw Anthropic, for instance, reach a $90 billion valuation. There are a lot of similarities between what's happening today and what happened at the peak of other cycles, and yet there's always the argument that "this time it's different," which Howard Marks calls the most dangerous words in investing. How are you both positioning yourselves and your institutions to understand how much further these cycles can go, not just specific to today, but across the macro board, to ensure you're still capturing what's left in the market without being over-committed?

Govindraj Ethiraj: Got it. Gopal, and then I'll come to you.

Speaker: With the US 10-year at around 4.7% and the US 30-year at 5.1%, I have two questions. To Navneet: do you think there has been adequate transmission of US interest rates to other markets? And to Radhika: do you think there has been adequate transmission of interest rates to equity pricing, especially for stocks running on vanity metrics? The Indian market seems to have a unique obsession with stocks valued on vanity metrics, while the US market is more earnings-driven. Two different questions. Thank you.

Govindraj Ethiraj: Thank you.

Navneet Munot: Let me quickly address some of these. On public debt and Ray Dalio's point: honestly, I wrote last year that "the debtor can't be the chooser," but the US has been an exception to that. Every time the world has had this level of debt, we've had a reckoning. In 2012, we thought Europe was bankrupt, Portugal and those countries with 20% interest rates, but it got saved. Same thing in the 1990s and 2000s. We've been in this 40-year era of globalisation where you didn't need to worry about inflation, the size of central bank balance sheets, or government deficits. But everything can be stressed only so far. I think we've overstressed it.

The way they're trying to resolve it now is similar to how, in the 1990s, they created a massive bubble in the internet, which washed out a lot of pain. This time they're creating an even bigger one, a $1 trillion to $1.5 trillion IP created seemingly out of nowhere. Maybe they'll succeed, and then the debt and other problems will look small in comparison. But I think the challenge of public debt will arrive. 2008 was supposed to be the day of reckoning. But what happened? The genesis of 2008 was too much private debt. We shifted that debt from private balance sheets to public balance sheets. And we kept doing it again and again.

On Gopal's point: why hasn't the world really felt 4.5% US rates? India's inflation is around 4% and the US is around 3%, so the differential is narrowing. The spread between 10-year US Treasuries and Indian bonds has come down to around 200 basis points from 600-800 basis points earlier, because the structural inflation differential is compressing. Anti-immigration, anti-trade policies, and the current investment cycle are all structurally inflationary in the near term. The world will have an oversupply of everything ten years from now. That's a different investing theme. But until such time, the world will consume a lot more of everything.

Radhika Gupta: To give a short answer to Gopal's question: in all the Trump and oil noise, we've forgotten there has been a fundamental shift. We are now in a world where interest rates are no longer zero. Japanese yields are now at 4 to 5%. Beyond Indian bond markets, this has very serious implications for equity markets, including unlisted equity markets. Many businesses that emerged from Covid were funded by the Japanese carry trade and cheap funding. Where does that leave Indian equity markets?

Gopal, to be fair: if you look at any five or ten-year period and examine the drivers of Indian public equity returns, earnings have been the dominant component. Multiple re-rating has not been such a large driver. The engine is earnings growth, and that's the good news.

In the unlisted-to-listed world, if you recall the IPOs of 2021-2022, you could price a loss-making company on what I call the "price-to-dream ratio." Some of that has corrected, and entrepreneurs have realised they need to demonstrate real financial progress before listing. There has been some maturing in that segment. That said, there are still pockets of froth. The area I would most caution against, and I've been saying this for some time, is the pre-IPO category. There is a widespread belief in India that if something is in pre-IPO, the IPO price will necessarily be higher. That's not how it works. An IPO is one point in a company's life cycle, and gravity exists in financial markets too.

Speaker: We've had 2008 and various crises, and you've talked about timelines collapsing. With all this uncertainty, high interest rates, potential bubble territory, the US at 65% of global market cap, is something going to give? Are we looking at a 2008-type event? And what markers should one track to see what's likely to happen?

Govindraj Ethiraj: Noted. Anyone else? I'll also ask my last question.

Speaker: A question for both Navneet and Radhika. You mentioned that the US still controls roughly 65-70% of global markets, largely through the Magnificent Seven and foundational tech. Over the next seven to ten years, this foundational tech will have implications for applied tech across other industries: tech-driven FMCG, for instance, or countries like India benefiting from applied tech and potentially producing globally significant companies. How do you see this applied tech affecting different economies and global markets?

Govindraj Ethiraj: Essentially: how can countries like India benefit from the AI boom? We haven't talked much about that. Anyone else?

Speaker: If I'm an 18-year-old starting my investing journey, what are some principles I should keep in mind over the next two or three decades, given everything you've been saying?

Govindraj Ethiraj: And why aren't you revealing your real age? Anyone else?

This is a question on dependencies. India seems to be woefully underprepared for the world you've laid out, where each country is on its own, where we have to maintain relations with China, with the Middle East, and still stay friends with the United States. Do you think we are missing a trick? And do you genuinely believe India is ready for the world that is to come?

Navneet Munot: One line on that: there are countries in the world that are determined to do well, the US, Singapore. And then there are countries that are destined to do well, which is India.

I think the coming shortage of people means that nurses, physiotherapists, and counsellors will be among the most valuable workers in the world. India will be a saviour in that regard. The jobs a decade from now will look very different. We talk about GCCs and software, but the real work done by hands and minds, India will lead the world there.

On tech investing: I wrote two years ago that there are striking parallels between today's big tech companies and the imperial powers of the 17th and 18th centuries. The Dutch, Portuguese, French, and British followed a similar playbook. Back then, what was most valuable on planet Earth was land and labour, for minerals, food, and production. That's why they spread across Latin America, Australia, Asia, and the Americas. Today, the value of land and labour is relatively small because everything is industrialised. What's truly valuable is your attention and your mind, and that is now almost completely controlled by these companies. We have become slaves without fully realising it. I would argue we are in a worse position than the subjects of the East India Company.

I think politicians will eventually understand this and act. I don't know in what form it will come, but there will be a reckoning. And as I said, cycles are shorter. It won't take 200 years this time.

Govindraj Ethiraj: Before we close, one of the questions was: how are you institutionally positioned right now, or how are you positioning yourself? How are you picking themes or stocks broadly, as you look ahead? That's one question. And to close with the analogy we started with: you're both co-pilots, alternating command. What would you be telling your passengers as you take off today in what is clearly a difficult flight?

Radhika Gupta: Commander, co-pilot, you keep alternating. The good advice is to fasten your seatbelt, put on some headphones, watch a nice movie or do Vipassana, and ignore the turbulence. Don't worry too much about the unruly fellow passengers around you. That's the best advice I can give, because ultimately you are in the hands of capable pilots. Your long-term prospects, as an Indian investor, are reasonably good. You know you will reach your destination. So put on your headphones, watch a good movie, and ignore the passengers saying the plane will crash, the pilot doesn't know his job, or that Singapore Airlines would have been better. That is the advice I would give.

Govindraj Ethiraj: And how are you institutionally positioned? That was the other question.

Radhika Gupta: We always get this question on sector positioning and I can give you an answer for today.

Govindraj Ethiraj: Or just in a broad macro sense.

Radhika Gupta: Sectoral positioning of mutual funds, and I'll take a moment here, is a bad question to ask us, because it changes very quickly. Today, as a house, we are excited about financial services because valuations are compelling. We are excited about power and about defence. If you came to me six months from now, I might be convinced that tech is at the bottom of its cycle and be excited about that instead. We run broadly diversified portfolios and remain agile within them.

Genuinely, I don't think India is about sector selection. It's about finding good, clean companies that are going to become market leaders. We are not an economy like Korea where a single stock dominates returns. Many sectors offer exciting opportunities. That's my honest answer.

Navneet Munot: You asked what an 18-year-old should do as an investor. You were 18 about 30 years ago. The answer is the same as it was then: invest in a diversified equity fund and let time do the work.

On a serious note: in the last 30 years, and I tell people I've effectively been watching markets since I was 10 or 11 years old, because Marwadis learn about money early, I've seen the death of Indira Gandhi and the despair that followed. I've seen 405 seats for Rajiv Gandhi and markets at new highs. I've lived through 1991, when the country was effectively bankrupt and we pledged our gold. And then I saw the biggest bull market of my life, in 1992. I've seen all the coalition governments, Pokhran, the sanctions, the 2000 tech bubble, 2008, and everything in between.

The world is genuinely uncertain. As an informed citizen, stay informed, watch the news, follow what's happening. But remain invested in a plain-vanilla, diversified, actively managed fund. You'll do very well 30 years from now. And this is not marketing. This is where my own money is.

Govindraj Ethiraj: Radhika, you deserve a response to that.

Radhika Gupta: Navneet does this to me on every panel, and he does it because Edelweiss is younger than HDFC. But Navneet, I'm younger than you, so age has its privileges.

You can also invest in the Edelweiss Midcap Fund, which has a 15-year track record, not 18 years, but 15.

On a serious note, my answer to an 18-year-old: you should feel tremendously fortunate to be 18 in India today. It's a great time to be a young Indian. And quite frankly, in your twenties, you shouldn't be worrying about whether you're in an HDFC, Edelweiss, or ICICI flexi-cap or midcap fund. When you are young, especially in a country like India, your greatest asset is not a financial one. It's your time and your talent. Make the most of those. You don't need to worry about passive income yet. That should be what people like us worry about. So invest in your energy, time, and talent when you're 18. I would give anything to be 18 again today.

Govindraj Ethiraj: A wonderful note to end on. We've run out of time. Thank you both for joining me and for piloting us through this. Thank you also to the Quorum for hosting us, as always, and to the Edge community for partnering with us. See you at our next Navigating Risk series. And we have a small gift for both of you. It looks larger than expected.

Radhika Gupta: My son will love this.

Govindraj Ethiraj: It's a breakfast spread, in keeping with our brand. Thank you.