Most of these climbs happen in the March to May window.

The weather is too extreme during other months.

Climbing the world’s tallest mountain is no easy task. It is a daring task. One that many want to be able to boast about.

Climbing works in an organised manner.

Aspiring climbers have to team up with local tour companies that specialize in this endeavour. Those companies have experienced mountaineers leading the expeditions.

These mountaineers team up with locals called Sherpas who are extremely adept at climbing the mountains.

On the way, there are 5 camps. The first is base camp. This has all support like food, shelter, medical aid, etc.

Then, there are camps 1, 2, 3, and 4.

Camp 4 is the last camp before climbers depart for the peak. The journey between these camps is roughly 4-12 hours long.

At each camp, climbers rest for a few days to acclimate to the height and lack of oxygen. At the top, there is only 1/3rd the oxygen there is at sea level.

The final camp is Camp 4.

After Camp 4, most climbers use oxygen cylinders to climb further, as the air is too thin. Some daring climbers do climb without cylinders, though.

From Camp 4, climbers start at night. The aim is to reach the peak by late morning. After touching the peak, they start to descend.

They maintain a cutoff time of 2 PM. They must turn around by 2 PM.

If they have not reached the peak, they must abandon the idea of reaching it and turn around.

The data are not crystal clear but 60-70% of climbers make it to the top. The rest return to Camp 4 without touching the summit.

All in, a little over 99% of the successful climbers return. The remaining small number is the percentage of people who die on the expedition — between 0.5% and 1%.

As far as expeditions go, the odds of survival seem pretty good.

May 1996

On the 10th of May 1996, a group set off from Camp 4.

This group was an eclectic mix.

Two of the most reputed mountaineers led the groups. Along with them were other experienced mountaineers, a journalist, a socialite, adventure junkies, and Sherpas.

There was another group that was on this expedition on the same day. It was a group of ITBP jawans.

In total, there were over 30 people headed for the summit.

Like every other group, they started at night.

The weather was stable. Many climbers were using oxygen cylinders.

By the morning around 6 AM, they had reached the first major milestone.

By 9 AM, they had reached the next milestone.

Beyond this, the trek leads and Sherpas noticed that the ropes that climbers held on to while climbing the steep climb were missing.

This was a setback, but not rare. In these regions, this happens.

The Sherpas set off, putting new ropes for the climbers to use.

It took 1-2 hours for the ropes to be set, which is when the climbers started climbing again.

The climbers were not all together. They were spread out with gaps of around 1-2 hours. So while the first few climbers touched the summit and turned around, many others were behind and still climbing.

Several climbers reach the summit by 2 PM and turn around.

Among the climbers were two expedition leads with their own respective clients.

A client named Doug had attempted and failed the year before. His lead, Rob, was eager to help him.

They had not reached the summit by 2 PM, but were quite close to it.

Probably backed by his experience of climbing Everest several times, Rob decided that going past 2 PM for a few minutes would not be a big deal.

A few other climbers also decided the same.

1% Chances

To make a long story short, they became a part of the 1% of climbers who do not make it back alive.

When they started descending, they had consumed more of their oxygen cylinders. There was not enough oxygen to last them too long.

Tired from the arduous climb, they struggled to move fast.

Sometime between 2 and 4 PM, the weather started to worsen unexpectedly. A severe snowstorm hit between 4 and 6 PM, leaving many climbers to run for cover.

Many climbers got lost in the chaos.

The low oxygen and fatigue made critical thinking that much more difficult.

They remain stuck and stranded for the night in extreme conditions.

By the time the storm cleared, various climbers remained stuck at different points in the path.

Some made a desperate attempt to reach Camp 4 and succeeded. Others tragically died.

A total of 8 lives were lost. It was one of the worst accidents in the history of the Everest expedition.

Low Probability of Ruin

This is one of the most classic cases of probabilities being misunderstood.

Let’s say you are flipping a coin. Heads vs tails.

If you start counting the heads and tails, eventually, the distribution will be 50:50.

In the start, when the number of flips is low, this number could be varied. But as you increase the number of flips, the distribution will be closer to 50:50.

But flipping a coin does not harm you.

If you keep betting on heads and keep getting tails in the start, there’s no harm. Eventually, you will be right about the 50:50 ratio.

So you can continue playing this game since you know the probability in the long run.

But what if heads means you will get Rs 1 lakh and tails means you will be shot dead? Will you then consider playing this game?

Will probabilities still apply when you are unable to play the game in the long run?

In the second case it seems like a dumb idea to play (no matter what the probability).

So a game like that must never be played.

What if you were allowed to play multiple rounds but would be shot dead if you had accumulated 5 tails but a lower number of heads?

Then maybe you could try your luck, and if you accumulated 4 tails and a lower number of heads, you could quit before risking your life.

This way, you are taking advantage of the risk but ensuring there’s enough safety margin to continue to live.

In short, you are taking a risk, but not ruining yourself.

Or, if there is a probability of ruin, you shouldn’t play the game.

On Everest, the 2 PM rule was a generally accepted cutoff time after which the probability of a disaster was too high.

It didn’t mean if you stayed past 2 PM, you would see a snowstorm. But you could.

Before 2 PM? That chance was much much lower.

The climbers who have turned around before 2 PM from the summit have mostly made it back just fine.

In the world of finance, what this means is that you never make an investment such that you could be ruined.

Once your investment value is Rs 0, it gets incredibly hard to climb back up.

In short, have a “2 PM” amount from which you can recover even if your high-risk investments don’t perform as planned.

This is why we don’t always invest all our money in the ‘highest returns’ option.

Some money must be kept in low-risk options (which often means low returns).

Quick Takes

+ India’s infrastructure output of core industries fell by 0.4% year-on-year in March. Coal, crude oil, fertilisers and electricity output fell while natural gas, steel, cement and petroleum refinery products output rose.

+ India and South Korea signed 15 agreements to boost cooperation in areas like trade, AI, and shipbuilding, and aim to double bilateral trade to $50 billion by 2030.

+ The Ministry of Defence signed contracts worth Rs 975 crore with Bharat Earth Movers Limited (BEML) and Electro Pneumatics and Hydraulics (India) Private Limited for the procurement of TRAWL Assembly for T-72 and T-90 tanks.

+ SEBI has reduced the minimum investment in social impact funds from Rs 2 lakh to Rs 1,000 to widen retail participation on the Social Stock Exchange.

+ The RBI has issued new rules for recurring digital payments (e-mandates) allowing auto-debits up to Rs 15,000 without extra authentication after one-time approval. It also included pre and post payment alerts, security checks, and better control over subscriptions and auto-debits.

+ A SEBI panel has recommended that the National Stock Exchange (NSE) pay about Rs 1,800 crore to settle its long-pending regulatory cases: as per media reports.

+ India’s manufacturing PMI rose to 55.9 in April vs (53.9 in March) as per preliminary estimates. Services PMI rose to 57.9 (vs 57.5 in March). Composite PMI (manufacturing + services) rose to 58.30 (vs 57.0 in March). This means economic activity rose more in April than in March.

+ India’s forex reserves rose by $2.36 billion to $703.31 billion in the week that ended on 17 April.

+ India’s net FDI turned positive to $4.6 billion in Feb after six months of outflows.

The information contained in this Groww Digest is purely for knowledge. This Groww Digest does not contain any recommendations or advice.

Team Groww Digest

Omelek Island.

It is covered in sandy beaches, coconut trees, and not much else.

The island itself is only about as big as 8 football fields. And nobody lives on it.

It is really remote.

It is part of the larger group called Marshall Islands.

Between 1946 and 1958, the US conducted 67 nuclear bomb tests in this island group. The islands are so far from any major civilisation that the US didn’t stop at nuclear tests.

Once they were done testing nuclear bombs, the US used them to test the accuracy of missiles fired from California.

When the tests were done, most islands returned to being the way they used to be — empty and deserted.

Omelek Island saw one key event though.

A rocket took off from the tiny island on 24th March 2006 and failed. Another one took off in March 2007 and failed. Yet another one failed in August 2008.

This was a bunch of engineers led by Elon Musk. They were almost out of money.

On 28th September, 2008, they got their first successful launch. And with that, was cemented SpaceX’s pitch. Space transportation.

The SpaceX Journey

SpaceX found it difficult to launch any rockets from sites in America. So they chose Omelek Island because of its remoteness.

SpaceX’s story from its early days is a wild mix.

The team had visited Russia to buy Intercontinental Ballistic Missiles (ICBM). They thought they could use the missiles to send rockets to space. (The plan did not work out).

The successful launch in 2008 was one of many. It was also one of many others that failed.

For SpaceX to be viable, it had to do much more than just launch a rocket. It had to lower the cost of transporting items to space.

When rockets are sent to space, they are spent. A rocket is used once and never again.

Billions of dollars worth of rockets were single-use vehicles.

If sending items to space had to be made cheaper, this cost would have to be brought down many times.

SpaceX had the grand idea of reusing rockets; of sending rockets up and then bringing them back to be reused again, like a car.

Many failed attempts took place.

Then, on Dec 21, 2015, SpaceX’s Falcon 9 rocket went up, came back, and landed vertically, on its own power.

A near impossible site.

This marked the beginning of the era of reusable rockets. They did more such tests over the next few months.

In March 2017, they reused a rocket that had landed on its own.

This completed the promise. Reusable rockets were real.

It was incredible and unbelievable. Elon Musk had promised this feat for years. And it had become real.

From then on, progress, no matter how incredible, became routine.

SpaceX started reusing rockets. More rockets were sent up. More were received back. More were sent up again.

More incredible feats came along. In 2024, the rockets were caught by robotic arms mid-air, instead of landing on the ground.

This can allow the rockets to be sent up again within hours. Like a modern day passenger plane.

When space flight first started, the cost of transporting 1 kg of items to space was more than $50,000.

In the 1990s and early 2000s, it was around $7,000 to $10,000.

Today, SpaceX’s reusable rockets have caused that price to fall to $1500. Estimates suggest a further reduction of this cost.

Business

So far, this sounds like a fantastic engineering project. It is. One of the world’s best projects, too.

SpaceX is a company. And companies need to make money.

SpaceX got its first paying customer way back in 2009, right after its first successful flight. It was to put a small satellite in space.

In 2012, they carried cargo to the International Space Station (ISS).

Over the years, they have served many clients, transporting cargo and satellites. Now it is also in the business of transporting astronauts to space.

The company made no revenue in its initial years. $0.

Then, the revenue jumped to $100 million in 2008-09 with its first order.

About 5 years later, the revenue was around $1 billion.

5 years after that, 2019, the revenue was about double that.

And another 5 years later, 2024, it was a massive $13 billion. In 2025, it crossed $15 billion.

That is an impressive rise.

Building rockets requires a lot of money. It is no surprise that SpaceX has been raising money all these years.

Well, it started with a fat amount. Elon Musk brought his personal $100 million to the table right at the start of the company.

It received funding over multiple rounds since then. The total is somewhere around $11 billion in investments.

To add to that, it received billions of dollars worth of government aid in the form of grants, tax breaks, and contracts. Some estimates put that between $20 and $40 billion worth of aid.

Building reusable rockets is not easy. Nobody had done it until SpaceX.

No surprise then that SpaceX has been a giant money sucking machine for many years. No surprise that it was running at a loss for all these years.

But that began to change in 2023. They made $800 million in profit that year. The year after that, $2.2 billion in profits.

So, rockets started making a profit?

Starlink

Not quite.

SpaceX is a telecommunications company, not a space transportation company (at least as of now). Why?

In 2019, they launched their Starlink product.

Starlink is a satellite internet service provider. You have to buy a Starlink device (similar to a Tata Sky dish, but for getting internet).

These satellites orbit lower over the surface of the earth.

In 2021, there were 1944 Starlink satellites orbiting the earth. That number nearly doubled in 2022. It kept growing that way.

Today, there are about 11,000 Starlink satellites orbiting around the earth.

As of today, there are over 10 million paying customers.

These Starlink customers are a major source of revenue for SpaceX. It helped the company finally become profitable.

Space Economy: Mining, Transport, More

Space is a frontier companies have been dreaming about for decades now.

Space mining has been the ultimate space fantasy for scientists for ages.

Except for a few hundred kgs of moon dust and some grams from comets and asteroids, we haven’t really gotten much down to the surface of the Earth.

But the promise of vast minerals and abundance holds.

This is what makes space so ever tempting for many scientists and entrepreneurs.

Besides, satellites much closer to earth also have incredible potential.

Elon Musk says he started SpaceX with the aim of making humans a multi-planetary species. He wants us to get to Mars.

SpaceX is the business he runs to be able to do that.

IPOs

SpaceX is reportedly heading for an IPO this year.

When companies head for an IPO, they price their shares based on the future potential of revenues and earnings.

So many times, the present valuation looks a bit stretched, but it makes sense when its future potential is looked at.

When Microsoft went for its IPO, it valued itself at $519 million. Its revenues were $197 million. So, it was asking for a valuation of ~2.5x its revenues.

That can be deemed extremely conservative.

When Google went for its IPO, the revenue multiple was around 7x. Which seems more “fair”.

Facebook’s IPO happened at around 28x.

Now, that might seem “too high”. Yes, but in hindsight, it worked fine.

Why? Because Facebook’s future potential was so high, that valuation worked fine in the long run. The company’s future revenues and profits caught up.

Alibaba at its IPO in 2014 was valued at 20x. It worked fine.

SpaceX has revenues of around $15 billion. And it wants to be valued between $1.75 and $2 trillion.

That makes it valued at more than 115x its revenues.

Why?

There are some justifications.

Starlink is one of the biggest moats the company has.

Since SpaceX owns the rockets, it costs them 70% less than their competitors to put up a satellite into orbit.

This gives them a massive advantage over their competitors.

To add to that, it costs very little for SpaceX to add new customers since the satellites are already in place.

This allows them to continue adding new customers without much cost. The global TAM or Total Addressable Market (potential customer base) is incredible.

That gives them an edge like no other.

That coupled with xAI (which SpaceX owns).

xAI is the company making Grok, a competitor to OpenAI (ChatGPT maker), Gemini, and Anthorpic (Claude maker).

xAI’s revenues are around $100 million in a quarter while suffering losses in billions as it trains its models.

SpaceX does not have many competitors.

There’s Blue Origin that’s owned by Amazon’s founder, Jeff Bezos. It has competing products and has shown very promising results.

But it is a private company still in its early stages and will take time to mature. So we cannot directly look at its numbers for reference.

There is one company that is a SpaceX competitor that also happens to be listed on the stock markets.

Rocket Lab.

Rocket Lab has annual revenues of around $600 million (looks tiny compared to SpaceX). On the stock markets, the company is valued at around $50 billion. That’s a revenue multiple of around 80x.

Looks like the stock markets are indeed willing to pay a high price for rocket companies.

At an IPO valuation like that, SpaceX will be the biggest IPO ever, in the history of the earth.

115-130x multiple? Is that too much? Or is it okay given the future potential?

Hard to say. We have never seen rocket companies go IPO. So we don’t quite know how they should be valued.

This is similar to the confusion that ensued internet-tech companies’ IPOs back in the 2000s.

Investors struggled to determine if the valuation they demanded was deserved.

Quick Takes

+ India’s inflation rate rose to 3.4% year-on-year in March (vs 3.21% in Feb).

+ India’s merchandise exports fell 7.4% year-on-year in March. Imports fell 6.5%. The trade trade deficit narrowed to $20.67 billion.

+ India’s unemployment rate rose to 5.1% in March (vs 4.9% in Feb).

+ India’s passenger vehicle sales in FY25-26 grew 7.9% year-on-year to 46.43 lakh units, the highest in a financial year. Sales in March rose 16% to 4.42 lakh units: SIAM

+ India’s wholesale inflation rose 3.88% year-on-year in March (vs 2.13% in Feb).

+ China has overtaken the USA to become India’s largest trading partner in FY25-26. The value of India’s total trade with China is around $151 billion, with a trade deficit of about $112 billion (vs total trade of about $140 billion with the US).

+ India’s forex reserves rose by $3.83 billion to $700.95 billion in the week that ended on 10 April.

The information contained in this Groww Digest is purely for knowledge. This Groww Digest does not contain any recommendations or advice.

Team Groww Digest

It lasted from 1861 to 1865.

One half of America fought the other half of the country.

It had only been a few decades since trains had come into existence. Their expansion had started in the UK and soon they arrived in the US.

Unlike the UK, the USA was a much more vast country.

Population density was lower, but so was the potential for growth.

Gradually, the railroads started getting built. They were mostly localized, built by companies operating them.

The Civil War brought their true role to the forefront. The trains proved their worth transporting troops and equipment.

Ultimately, the North won. Their railway network played a key role.

Railway Boom

During the war, the US government understood the value of having a superior rail network.

In 1862, they passed the Pacific Railway Act.

The act facilitated the first transcontinental railway line. The railway line that would start on the East Coast and run till the West Coast of the USA.

The US government had funded the Civil War using war bonds. The bonds were offered to investors by the government as an investment option. The bonds were backed by the US government.

It worked well.

Since a lot of money was being raised by the government for the war, lots of bonds were available. The Civil War bonds popularised the idea of investing in bonds among individual citizens much more.

In that backdrop, offering railroad bonds seemed like a great idea.

Building railroads required vast amounts of land, iron, and manpower. Lots of money was needed again.

Railroad bonds became mainstream — somewhat like Civil War bonds.

But there was one key difference. War bonds were offered by the government of the US. Railway bonds were offered by private railroad companies.

Bonds

Bonds are essentially loans.

The bond issuer = the loan taker
The bond buyer/investor = the loan giver

So, if you buy a bond, you are giving a loan to the person giving you a bond.

A bond is a certificate. On the certificate, the bond issuer says that they promise to pay you a certain amount of interest and will return the borrowed amount by a certain date.

Coupon rate = interest rate
Maturity date = when it will be paid back
Principal = amount they are borrowing
Schedule = schedule of payment of interest & principal

And of course, the bond mentions the issuer’s details. In the case of the government of the USA, the bond issuer is the government itself.

If the issuer is a private company, then its name is mentioned.

The coupon rate or the interest rate is a crucial factor in the case of bonds.

Bonds promise to pay back the money along with interest. Fixed interest, fixed returns.

But can you trust the bond issuer’s words? Will they not cheat?

Even if they are well-intentioned, can they still fail and shut down?

These questions always arise when buying bonds.

No doubt, some bond issuers are more likely to pay, while some are less likely.

This is why the interest rate offered is different.

Bond issuers who are less likely to pay back (for whatever reason) offer a higher interest rate to compensate for the risk.

More stable and secure bond issuers offer lower interest rates.

Companies can fail, or worse, cheat. Governments can fail too.

The US government bond rates are some of the lowest in the world (in present times). They are considered incredibly reliable and stable.

Other countries’ government bonds usually have higher rates but are still considered pretty stable. India’s government bonds are also considered very stable.

Very large and diversified companies are also considered very reliable (though still less reliable than governments).

So, in short, higher risk, higher return.

Which many take to mean, guaranteed higher returns. The “risk” part of this gets ignored.

Why?

Probably because the bond certificate clearly mentions the interest rate and payment schedule.

There’s one more detail. Bonds can also be sold.

Let’s say you own a bond certificate. You can sell the bond to your friend for a price you want. Once sold, the bond certificate is your friend’s. All pending interest and maturity amount belong to that friend.

Just like stocks can be bought and sold, bonds can also be bought and sold on the exchanges (till they mature).

Railway Bonds

So, private companies are being helped by the US government.

The government wants more railroads to be built in the country. So they offer grants, land, and other such schemes to railway companies to encourage them to build railroads.

Unfortunately, this attracts problems of its own.

Seeing railroad lines come up in various parts of the country, individual investors turn very bullish.

They noticed how once a railroad and stations are built, the economy of the region changes for the better.

Movement of people and goods becomes easier, faster, and more convenient.

When the initial few railroad bonds started maturing, early investors got the lucrative returns they were promised by the bonds.

Couple this observation with the recent success of government-issued war bonds, and bonds start seeming more and more irresistible.

Seeing success stories around them, more investors wanted to invest in railroad bonds.

And this is where more railroads started being built. Once companies ran out of routes to build on, they moved to less populated areas. The future traffic was assumed to be high.

Many of these assumptions were wrong.

But the funding was cyclical. Companies raised more money using bonds, to build more lines. But many of the lines were not profitable or lucrative.

The industry came to depend more on money raised via bonds, and less on its profits from operating railroads.

It became a vicious cycle.

The domino crashed when one of the biggest sellers of railroad bonds, Jay Cooke & Co, was unable to sell more railroad bonds in 1873.

Seeing this, panic set in. Investors rushed to sell off their railway bonds. This sell-off crashed the bond prices.

Since the bonds were not wanted anymore, railroad companies struggled to raise more money. They did not have enough money to pay interest. They started defaulting, and going bankrupt.

The contagion spread.

Banks started experiencing bank runs. Railroad companies started collapsing. The economy started stuttering. The impact was on all parts of the economy.

The impact was so massive, the US economy entered a depression that lasted about 6 years. It came to be known as the Panic of 1873.

Eventually, the economy of the US picked up again. Some of the earlier built railroads started to make money.

More lines started being built. Investors gradually started trusting railroad companies again — and slowly, they started buying railroad bonds again.

The period between 1850 and 1900 is called the Gilded Age. Most of America’s railways were built in this era.

Boom & Bust

Once something of this scale happens, one would imagine it would not repeat.

Unfortunately, history is filled with examples of this exact cycle repeating again and again.

A crisis happens.
Investors become cautious.
Bonds start giving reliable returns.
More investors flock to invest in bonds.
More bond issuers flock to issue bonds.
Caution is relaxed.
Bad quality bonds start being offered.
This builds.
Eventually, the bubble bursts.
And, a crisis happens.

The Panic of 1873 was not the first. There were many before it. There were many after it.

Some of the biggest financial crises across the world exhibit this trait.

Argentine Bond Crisis AKA Baring Crisis (1890)
Great Depression (1929)
Asian Financial Crisis (1997)
Global Financial Crisis (2008)

These are some of the most talked about examples.

But these are not the only ones. There are many many more such examples on much smaller scales (thankfully).

It appears that investors tend to assume that all bond issuers are the same; that promised returns will always be paid.

It almost seems like investors don’t differentiate between bonds issued by the likes of the US government and those that are issued by companies with questionable track records.

The past cycles show us the same repeating pattern.

Whenever investors lowered their caution to chase after higher returns, things have not worked well for long.

Quick Takes

+ India’s composite PMI (manufacturing + services) fell to 57 in March (vs 58.9 in Feb). Services PMI fell to 57.5 (vs 58.1 in Feb). This means overall economic activity grew more in Feb than in March.

+ The government doubled the daily allocation of 5 kg Free Trade LPG cylinders for migrant labourers in each state beyond the earlier 20% limit, based on demand. Natural gas supply to industrial and commercial sector networks has been increased by 10% to meet rising demand.

+ Zepto received in-principle approval from SEBI for an IPO: as per media sources.

+ The US and Iran agreed to a 2-week ceasefire after more than a month of military conflict.

+ The RBI kept the repo rate unchanged at 5.25%.

+ The government approved Rs 26,069.50 crore for construction of Kamala hydro electric project in Kamle, Kra Daadi & Kurung Kumey districts of Arunachal Pradesh. It also approved Rs 14,105 crore for a 1200 MW Kalai-II hydro electric project in the state’s Anjaw district.

+ An Indian delegation will visit the US capital later in the month to discuss the trade deal which was put on hold due to the US-Iran conflict. India also announced the launch of the India-USA Trade Facilitation Portal to boost ties between the countries.

+ The government announced relief measures for domestic airlines, including a 25% cut in landing and parking charges for three months to reduce operational costs amid global disruptions.

+ India’s forex reserves rose by $9.06 billion to $697.12 billion in the week that ended on 3 April.

The information contained in this Groww Digest is purely for knowledge. This Groww Digest does not contain any recommendations or advice.

Team Groww Digest

It was once a bustling trading city — 2000 years ago.

Trade shifted, times changed, the city declined.

A horrible earthquake effectively wiped out the city. Most homes, administrative buildings, and such perished.

But nothing happened to the buildings carved in the red sandstone. Those structures still stand today, drawing tourists from all over the world.

Why?

Carved out of one rock.

A single piece of rock is stronger than anything built by joining together many rocks.

Similar examples of ultra strong buildings can be found across the world.

In India, the 1200-year old Kailasa Temple is one such. It still stands. Other structures around it came and crumbled.

Designers and engineers have been fascinated by this idea for a long time. Manufacturing techniques and costs have held them back.

Around 2008, Apple decided that its new laptop would have a unibody frame.

Until then, all laptops were a sandwich design. Multiple different parts were screwed together to make the frame.

Apple wanted their frame to be carved out of one block of aluminum alloy.

The challenge was that nobody had the capability to do this job at scale. This kind of a job requires specialised CNC machines.

And that was not it. It required skilled technicians who could operate them fast enough. Lots of such technicians.

Apple was working with many vendors. Apple did the design. The vendors did the actual manufacturing.

One relatively new vendor had grown to become a particular favourite of Apple’s. They had made a mark manufacturing the iPod.

Foxconn.

When the requirement arose, Apple and Foxconn went about acquiring CNC machines.

This effectively meant that the only companies that could make these CNC machines had their order books full for months. Apple’s competitors wouldn’t be able to get their hands on these CNC machines for some time.

Foxconn rapidly trained staff to work on these CNC machines and began churning out unibody Macbooks.

This made Macbooks incredibly light, yet strong, and better at heat management.

Seeing the unibody design work well, Apple introduced the unibody frame to the iPhone 5 and beyond.

Only Foxconn had the large-scale capability to manufacture unibody frames.

This was not the first time or last time Apple had relied on Foxconn to pump out pioneering technology by the hundreds of thousands.

Foxconn has been vital to Apple’s product strategy.

Foxconn was one of the biggest reasons why Steve Jobs had once said that making the iPhone in the US was not going to happen.

Foxconn Scale

Longhua Science and Technology Park is often called Foxconn city.

The Foxconn campus is so large, it has its own hospital, fire department, sports center, library, banks, etc.

At any given time, it can house 3-5 lakh workers.

Foxconn city is centered around manufacturing. Inside the campus are multiple factories dedicated to making different devices for different brands.

Yes, Apple is Foxconn’s biggest customer. But they are certainly not the only client Foxconn serves.

Sony Playstation and phones are made by Foxconn.

Microsoft Surface tablets, Pixel, Xiaomi, Huawei, Motorola, OnePlus are some of the other brands that get their devices made by Foxconn.

Foxconn is so vital to companies that many features become possible only after Foxconn is able to make and assemble them.

This campus can output lakhs of iPhones per day.

Not just entire devices, Foxconn also makes parts of devices that are sent to other factories to be assembled.

Foxconn isn’t just about manufacturing phones or tablets or laptops.

They are about manufacturing, period.

They make phones, tablets, laptops, gaming consoles, servers, networking devices, routers, etc.

Components like PCBs, display panels, battery cells and cases, cooling solutions, etc. are also done by them.

This ever-expanding list goes on — they’ve started manufacturing electric cars too.

In the early 2010s, it was said that 40% of all consumer electronics in the world were made by Foxconn — not just iPhones; not just phones.

Yet, most people have not heard of them. For the longest time, Foxconn was a manufacturer to other brands.

There was no ‘Foxconn’ branded consumer device.

In more recent years, Foxconn has bought other brands and has products that are effectively Foxconn products.

If you recently bought a TV by Sharp, you’re buying from a Foxconn-owned brand. If you bought a dongle or USB charger branded ‘Belkin’, you’re buying directly from Foxconn.

History and Beginnings

Foxconn has extremely basic origins.

Today it is categorized as an EMS or Electronics Manufacturing Services company. But that was not how it started.

Terry Gou founded Hon Hai Plastics Corporation in Taiwan in 1974. This later became Foxconn.

He had 10 elderly workers and they manufactured plastic knobs for black-and-white TVs. Not the entire TV, just the plastic knobs people turn to change the volume or channel.

A few years later, they landed a contract manufacturing joysticks for Atari.

Terry Gou spent year after year building capacity to manufacture rapidly and at scale.

Electronics companies back then were focussed on R&D of newer products. Manufacturing seemed like a blindspot in their planning.

Determined to keep scaling, Terry Gou spent months doing road trips around the US. He would simply turn up at companies’ offices asking for a meeting with the leadership.

He was often kicked out by security. Sometimes, he would land a meeting.

And some of those meetings would translate to manufacturing contracts.

From something as basic as plastic knobs in the 1970s. They moved into other plastic parts from that.

Then, they started making connectors in the 1980s and wire assemblies.

In the late 1980s, Foxconn started opening factories in China helping it scale rapidly by taking advantage of a large number of low-salaried skilled workers.

In the 1990s, they were making laptop frames. Towards the end of the 1990s, they started assembling components into the computer frames.

Their big break came when Apple asked them to manufacture the iMac G3 computer.

The partnership grew from there.

Speed, Scale, and Capability

Before the first iPhone was launched, Steve Jobs was testing the iPhone and noticed a major flaw.

The screen was easily getting scratched when kept with keys in the pocket.

He decided the screen could not be made of plastic. It had to be glass.

This was in May-June 2007. The launch was due in June 2007. They struck a deal with the glass-making company.

The glass arrived at Foxconn’s factory a few weeks before the phone’s launch.

Foxconn was able to retool the assembly lines in just 4 days. It started pushing out 10,000 iPhones per day — saving Apple the embarrassment of a delayed launch.

Foxconn is excellent at doing this.

They can make very sophisticated things, very fast, in high numbers.

The MegaCorp

At one point, nearly 90% of all of Foxconn’s earnings came from its plants located in China.

During the peak of pandemic lockdowns, Shenzhen was completely shut down. China was following a complete lockdown model.

Foxconn’s factory wasn’t able to ship out any products.

Terry Gou apparently wrote to the Chinese government to let the plants become active again. He claimed the company would lose market share irreversibly if the plants did not restart.

They were able to restart. This is probably a good demonstration of just how significant Foxconn is.

Foxconn has since started expanding in other parts of the world.

India is one of Foxconn’s biggest projects outside China.

As of writing this, about 25% of all iPhones in the world are made in India.

Besides India, Foxconn has also expanded into Vietnam, Malaysia, Thailand, Mexico, and on a smaller scale, even in Europe and the Americas.

The company today is worth about $72 billion.

Its revenue is greater than many countries’ GDP (over $200 billion), with earnings of around $6 billion.

Foxconn isn’t one of a kind. There are many like it — EMS companies.

Brands mostly rely on a handful of EMS companies to make their products.

Apple itself relies on Foxconn’s major competitors like Pegatron and Wistron.

Smaller competitors are also cropping up. We have a few such competitors right here in India — Dixon Tech and Keynes Technology are examples.

But when it comes to size and scale, the second biggest competitor, Pegatron, is a fraction of what Foxconn is.

Foxconn remains indispensable to the world’s electronics supply.

Quick Takes

+ India’s industrial production rose 5.2% year-on-year in Feb (vs 5.1% in Jan).

+ The Central Mine Planning and Design Institute Ltd IPO listed on the stock exchanges at a discount of 6.98% over the issue price and closed 10.43% down at the end of the day.

+ The Ministry of Defence signed a contract worth Rs 1,950 crore with Bharat Electronics to procure indigenous mountain radars for the Indian Air Force.

+ India’s net GST collections rose 8.2% year-on-year in March to Rs 1.78 lakh crore. Gross GST collections grew 8.8%, crossing 2 lakh crore rupees.

+ The government has introduced a temporary one-time relief allowing SEZ (Special Economic Zone) units to sell manufactured goods in the domestic market at concessional customs duty rates to ease global trade disruptions, with a minimum 20% value addition requirement and a cap of 30% of export value.

+ India’s manufacturing PMI fell to 53.9 in March (vs 56.9 in Feb). This means manufacturing activity grew less in March than in Feb.

+ State-run Oil Marketing Companies (OMCs) raised the prices of commercial cylinders in metro cities by around Rs 200 from 1 April as the Saudi Contract Price (the global benchmark for LPG) rose 44% due to the continued conflict in West Asia.

+ Powerica IPO listed on the stock exchanges at a discount of 7.34% to the issue price and closed 1.27% down at the end of the day.

+ India’s forex reserves fell by $10.29 billion to $688.06 billion in the week that ended on 27 March.

The information contained in this Groww Digest is purely for knowledge. This Groww Digest does not contain any recommendations or advice.

Team Groww Digest

Attempts to kill key nuclear scientists in Iran are not unheard of.

The West absolutely did not want Iran to develop nuclear weapons.

Their intelligence agencies were hard at work to prevent Iran from making nuclear bombs.

Iran is in a neighbourhood where lots of countries dislike each other. If one of them got nuclear weapons, others would also start their own nuclear programs.

The West did not want this at all.

In fact, nuclear armed nations do not want more countries to become nuclear armed.

Iran wanted nuclear arms. Why?

Because they heard Iraq was developing its own nuclear bomb. A war between Iran and Iraq in the 1980s convinced Iran of the desperate need for a nuclear bomb.

The West had been clamping down on Iran via economic sanctions. Any company found dealing with Iranian companies would have to suffer.

At first, it was mostly the West who were against the Iranians.

In 2002, when it came to light that Iran was working on nuclear bombs, the world got together and isolated Iran.

Economically cut off, Iran couldn’t do a lot of business with others. Its growth was greatly slowed.

The Situation

Now, we cannot go into the history of how, what, when, and if in this article. This isn’t about that at all.

What this is about is the situation the world had, and how it was dealt with.

How two different key figures saw this. And what they thought was the right way to deal with Iran.

The situation the world faced in the 2010s is this: Iran was developing nuclear weapons. Many countries knew it. And most countries were against it.

America’s president around this time was Barack Obama. He was under pressure to deal with the situation; to do something about it.

He did what he thought was right. He signed a historic deal with Iran in 2015.

Only 3 years later, the new US president, Donald Trump, came and threw that deal out of the window.

Uranium Enrichment

We have all heard that uranium is the raw material needed for nuclear power and bombs.

To proceed, we will have to understand uranium a bit more. So, here goes.

There are two types of uranium (isotopes). There’s U-238 and there’s U-235.

Naturally, 99.3% of uranium is made up of about U-238. The remaining 0.7% is U-235.

You can probably guess where we’re going with this — U-238 is not useful in this case.

For nuclear purposes, U-235 is what’s needed.

But 0.7% of U-235 is too low. So they have to increase the concentration of U-235. The process of increasing concentration is called enrichment. Uranium enrichment.

Once U-235 reaches ~4%, it can be used for nuclear power generation.

At 20%, it becomes useful in medical research and treatment.

For weapons, it needs to be above 90%.

Enrichment is not easy. Uranium is first turned into gas. Then it is put into spinning tubes (centrifuge). The spinning causes the U-235 to be concentrated in the centre. This can be extracted carefully.

But, one round of doing this only improves the concentration very slightly.

So they run multiple centrifuges, one after the other.

Hundreds or thousands of centrifuges are required to run constantly to enrich uranium. Even to enrich uranium to use in power plants can take a few years for countries who don’t have the infrastructure.

Back to The Situation

In the late 2010s, Iran was sitting on enough enriched uranium to run power plants (~4% enriched uranium).

It even supposedly had some medical grade uranium (~20% enriched uranium).

This scared the West. Panic set in.

Since Iran was sitting on so many tons of enriched uranium, they were close enough to enriching some of it further and getting enough weapons grade uranium (~90% enriched uranium).

The US president at that time, Barack Obama, felt the need to do something about the situation.

Obama’s Solution

Away from the public eye, the Obama administration started talks with the Iranian administration.

The talks lasted about 2 years. Through various ups and downs, they reached terms both sides agreed upon.

JCPOA or Joint Comprehensive Plan of Action had many details. But the summary of it was this:

+Iran would not enrich uranium to more than ~4% required for power generation
+Iran would not reduce the total enriched uranium it had at any time
+Iran would also reduce the total number of enrichment centrifuges it had

There were many more details. But these were the biggest takeaways.

Using these methods, Obama wanted to prevent Iran from reaching a stage where it could easily and quickly make a nuclear bomb.

The most critical part of this deal was that many of these restrictions had a sunset clause.

Which meant the restrictions were in place for a fixed period (15 years, 25 years, etc).

They signed the JCPOA deal on 14th July 2015.

Obama The Lawyer

Obama seemed to lean much more towards diplomacy and talks.

Much before Obama became president, he made a speech in 2002 that had made him famous across the USA. The line to take away was, “I am not opposed to all wars. I am just opposed to dumb wars”.

This was right in the thick of the US-Iraq conflict.

He spoke about the challenges of having wars running unnecessarily wasting money and resources.

He was deeply critical of the Washington style of dragging the US into long conflicts, especially in the Middle East.

Obama grew up outside the mainland US and got a chance to understand how the world viewed the US.

He became a lawyer who championed civil rights.

One of the deals he is most famous for (before he became president) happened when he was in his 20s.

A public housing project had an asbestos problem. The authority that was responsible was famous for being corrupt and unresponsive.

Obama carefully coordinated meetings between the officials and the residents where he forced the officials to answer questions from the residents.

These questions were specifically about the asbestos.

He was extremely logical and fact based in his approach.

Using evidence, and direct discussion between both parties, he was able to get the authorities to start work towards solving the asbestos problem.

Trump’s Counter

On May 8, 2018, US president Trump pulled back from the deal with Iran.

Trump had a few counter arguments. He called it a “disastrous one-sided” deal.

His biggest opposition was to the sunset clause. That is, what happens after 15 years or so when each clause no longer applies?

Many key restrictions had such sunset clauses, including the number of centrifuges they could have, the enriched uranium they could keep, etc.

In short, he argued that the deal only delayed Iran’s nuclear bomb plans, not prevented the development of the bomb entirely.

Trump was also critical of the fact that the deal did not address Iran’s missile programs (the delivery mechanism of the nuclear bombs).

He had more concerns beyond these.

Trump was sure he could get Iran to sign a better deal. That was his signature move: he championed himself as an excellent deal maker.

Obama actually countered what Trump said.

He was of the opinion that the sunset clauses bought America time to further negotiate and normalise ties with Iran.

He also fought back saying the most crucial part — that of not developing weapons — had no sunset clause.

Since Iran was suffering due to economic sanctions, they wanted to trade more with the world. And hence, Obama was of the opinion that they too wanted some sort of a deal.

Trump The Realtor

Donald Trump was the son of a realtor from New York state.

Already wealthy while growing up, Trump grew up with a deal-making philosophy very different from Obama’s.

While Obama was looking for the middle-ground in the deal, Trump believed in a more aggressive approach.

His style was to “win” a deal. He did not like a balanced deal where both sides walked away equally satisfied. That was not winning the deal.

One of Trump’s most famous deals was of that nature.

There was an abandoned hotel in central Manhattan that was an eyesore. The local government was desperate to have it up and running.

Trump did not have enough money to buy the hotel but he convinced the city that he had enough money to buy it.

On the other side, he convinced the owners of the property that he had “special right” that would enable him to turn the hotel around and operate it.

Then, he used that to negotiate with the city. He got a 40-year tax break from the city. This was unheard of in that period.

It established Donald Trump as a real estate mogul in the city.

Trump is well known for his pressure tactics and attempts to “win” at deals.

The Person

If there’s anything to learn from this, it is that no matter how much democracy we have, we will still be dependent on individual figures.

America is a democratic country that elects its president every 4 years.

And yet, we see that the person who gets elected has a disproportionate impact on the decisions being made.

Some of the biggest and most impactful decisions are made by individuals.

And those individuals have their own reasons and biases for acting in the ways we do.

Whenever we try to get a picture of what a person might do, it makes sense to look at what they have done earlier.

Quick Takes

+ The RBI has injected Rs 79,256 crore of liquidity into the banking system through an overnight variable rate repo auction to ease tightening cash conditions in the financial markets.

+ India’s composite PMI (manufacturing + services) fell to almost a 3 year low of 56.5 in March (vs 58.9 in Feb) as per preliminary estimates. Manufacturing PMI fell to 53.8 (vs 56.9 in Feb). Services PMI fell to 57.2 (vs 58.1 in Feb). This means economic activity grew significantly less in March than in Feb.

+ The government has approved a Rs 28,840 crore Modified UDAN scheme to improve regional air connectivity. The plan includes developing 100 airports and 200 helipads.

+ The government has approved Rs 1,800 crore to extend the immigration and visa system (IVFRT) for 5 years till March 2031 to make visa processing faster and more digital.

+ India has approved new climate targets aiming to cut emissions intensity by 47% and increase clean energy share to 60% by 2035.

+ The government has reduced excise duty on petrol and diesel by Rs 10/litre. The fuel prices won’t change, as the duty reduction is to accommodate underrecoveries by fuel companies.

+ The Defence Acquisition Council (DAC) has cleared equipment procurement proposals worth Rs 2.38 lakh crore for the Indian Armed Forces.

The information contained in this Groww Digest is purely for knowledge. This Groww Digest does not contain any recommendations or advice.

Team Groww Digest

Land yachts were cars that were stupendously sized.

A four-seater car would sometimes take up as much space as a small truck. Inside, the manufacturers gave these cars all they could.

Practically all surfaces were covered in leather, wood, metal, carpets, and glass.

The 1950s, 1960s, and a part of the 1970s too were the peak years of the land yacht.

Three companies came to dominate the US automotive industry. Ford, General Motors, and Chrysler.

These land yachts had massive engines too — V8 engines that could be as big as 5 or even 7 liters (5000 to 7000 cc).

Despite having engines as gargantuan as these, the engines produced relatively lower power. Obviously, they consumed a lot of petrol.

But the American customers did not mind. Fuel costs were never thought about. Comfort, features, decadence, opulence, status, those mattered more.

The Japanese had come to the US some time ago to sell their cars.

In comparison, the Japanese made tiny cars. Small, simple, light, and cheap. They were called toy cars. As you might imagine, they did not sell that well.

1973

In 1973, the world was hit by the oil crisis.

All of a sudden, cheap petrol and other petroleum products were not cheap anymore.

Americans lined up at petrol pumps to get their fill. Some pumps employed armed bodyguards to ensure there were no threats to the attendants.

People waited hours to get petrol in their cars; that too rationed petrol. Only 5 or 10 gallons of petrol per car. No more.

The lines were so long, a couple even got married while in line. Petrol theft shot up.

The government enforced a mandatory reduced speed limit of 55 mph to force people to consume less petrol.

Absurd experiments were conducted by daring people. A rumour spread that people could fill in with used vegetable oil in their cars. That led to some ruined engines.

Citizens were encouraged to reduce their consumption of energy in all forms.

Government offices and buildings greatly reduced the number of Christmas lights to serve as a role model to the public.

Amid this backdrop, people realised the value of simple, light, and cheap cars — the kind the Japanese companies manufactured.

1973 was the turning point for Japanese car companies in the USA.

The era of cheap petrol was over. Once Americans tasted the reliability and low cost of Japanese cars, there was no going back.

About 20 years later, some of the highest-selling cars in the USA were Japanese. The American cars were still selling well, often topping the charts. But their monopoly was over.

Things haven’t changed much today.

The big American car companies never gained market share like they had. The Japanese companies, especially Toyota and Honda, top the charts even today.

What Happened in 1973?

Like present times, geopolitics had a role to play.

It started on 6th October, 1973.

Egypt and Syria launched an attack on Israel.

This war came to be known as the Yom Kippur War. The USA backed Israel back then (as is the case in the present too).

$2.2 billion worth of American aid was provided to Israel.

We shall not go into the history of the conflict here. That is a long and complicated history. The Arab nations have been in disagreement with Israel for long.

Many of these Arab countries were not happy about America giving military aid to Israel. So they decided to put pressure on the US.

How? Crude oil.

The Organisation of Petroleum Exporting Countries (OPEC) was a body composed of some of the biggest crude oil producers back then.

In protest, the Arab members of OPEC decided to shut off their crude oil supplies to the US and other Western nations. No oil exports.

In the 1970s, over 80% of the USA’s crude oil came from the Middle East. So shutting off the oil supply to the USA was going to hit them very hard.

Before the war started, crude oil prices were hovering around $3 per barrel. After the Arab countries stopped supplying oil to the US, the price of oil shot up 4 times to around $12 per barrel.

You would probably know that crude oil doesn’t just impact petrol prices; it impacts everything; the overall economy.

A 4 times increase in oil price? That was not going to be easy to stomach.

By the end of 1974, the US was in a severe recession.

But the Arab countries did not get what they wanted. Just 5 months after placing the embargo, they rolled it back.

Why?

While those countries weren’t selling oil to the US, they were selling that oil to other countries. The demand was so high, many middlemen in those countries sold the oil to the US for a high price.

So the US was paying a lot more in money for its oil, but it was not starved of oil. It was getting oil, just at a higher price.

This allowed the US to maintain its stance on the war.

Until this point in history, many countries did not realise the importance of having reserves of crude oil, or of not depending on a small number of countries too much.

1973 changed that.

The US targeted to produce more of their own oil themselves.

1973 vs Today?

In some ways, we are in a similar situation today.

The global supply of oil and gas is under threat because of conflicts in the Middle East. It’s easy to draw parallels.

But a few key details separate and distinguish the two events.

Maybe, the current situation is a lot less severe than the one the world experienced in 1973.

What are those factors?

Well, to start with, the world’s oil supply is extremely diversified now.

In 1973, a few countries produced a bulk of the oil of the world.

Today, this looks different. The biggest producer of oil in the world is the USA. Around 14% of daily supply. (In 1973, the US was the biggest importer of crude oil in the world).

Saudi Arabia supplies about 10%. Russia does about the same. Canada, Iran, Iraq, and China do roughly 4-5% each.

The short version is this — it’s very scattered. These aren’t blocs that are famous for co-operating with each other.

So the supply of global crude oil is very diversified.

Besides, the world’s dependence on crude oil has also reduced in comparison to 1973. Now, the world has also added gas and nuclear power as primary sources of energy.

As mentioned earlier, the price of crude oil had jumped 4 times in 1973 — from $3 to $12.

Over the last few years, the price of crude oil had been roughly in the $70 zone. Yes, it has gone up now, to a little above $100.

That’s high, but not disastrously high. In fact, we have seen crude oil prices at these levels before too.

Will it go up further?

We don’t know. And frankly, nobody does. We will have to wait and watch this rapidly evolving situation.

Given that the world has many more oil producers now, it is hard to imagine the price of crude oil going 4 times higher than the present. It’s a very competitive market.

Still, you never know.

Quick Takes

+ India’s unemployment rate fell marginally to 4.9% in Feb (vs 5% in Jan).

+ India’s merchandise exports fell by 0.8% year-on-year in Feb while imports rose 24.12%. The merchandise trade deficit widened to $27.1 billion.

+ India’s annual wholesale inflation rate rose to an 11-month high of 2.13% in Feb (vs 1.81% in Jan).

+ The signing of the India-US trade deal will be put on hold until a new tariff structure between the two countries is finalised.

+ India’s inter‑ministerial briefing on West Asia developments updated that fuel and LPG supplies in India remain adequate, with measures underway to curb hoarding and black‑marketing and to ensure continued availability.

+ The central government approved the Small Hydro Power Development Scheme (FY 2026-27 to FY 2030-31) with an outlay of Rs 2,584.6 crore to set up around 1,500 MW of small hydro projects in the country.

+ The central government approved the Bharat Audyogik Vikas Yojna (BHAVYA) with an allocation of Rs 33,660 crore to develop 100 plug‑and‑play (meaning pre-built, ready to use) industrial parks across the country.

+ The central government approved the construction of a 101.5 km, 4-lane access-controlled NH-927 from Barabanki to Bahraich in Uttar Pradesh at a cost of Rs 6,969.04 crore.

+ The US Fed kept its benchmark interest rate unchanged between the 3.5% to 3.75% band.

+ The central government approved the RELIEF scheme to support exporters hit by disruptions due to the West Asia conflict. The aim is to provide risk coverage and cost reimbursement to maintain exports and protect trade flows.

+ India’s infrastructure output of core industries grew 2.3% year-on-year in Feb (vs 4.7% in Jan). Cement, steel, fertilizers, coal and electricity grew in output while crude oil, natural gas and petroleum refinery products declined.

+ The Indian Rupee reached a record low, slipping past the Rs 93 per US$ mark for the first time.

+ India’s forex reserves fell by $7.05 billion to $709.76 billion in the week that ended on 13 March.

The information contained in this Groww Digest is purely for knowledge. This Groww Digest does not contain any recommendations or advice.

Team Groww Digest

At least to a significant extent.

This was used for heating, power generation, etc.

It was transported by pipelines.

When the Ukraine-Russia conflict started in 2022, Russia limited its supplying gas to Europe. Europe was left scrambling looking for gas.

They paid heavy premiums to have gas-carrying ships routed to Europe.

These ships from as far as Asian waters arrived in a few weeks. But they remained in the waters for days, waiting to offload their cargo.

The challenge?

Europe received most of its gas from pipelines. It had only a few ports with the necessary handling plants. The ports became a bottleneck.

The next worry was losses. They were losing gas every day.

It’s all to do with handling gas. The handling of gas adds another layer of complexity in the gas supply chain.

Unlike crude oil, natural gas cannot be easily offloaded from ships. Natural gas does not work that way.

Transport of Natural Gas

Crude oil has been transported on ships for a long time. They would place it in tanks, drums, vessels of any kind.

It does not evaporate fast. It does not decompose easily. It’s easy to transport.

Natural gas on the other hand is exactly the opposite of that.

Earlier, natural gas was transported via pipelines mostly. If you lived close enough, you’d get it. It was too expensive to transport gas across the oceans.

It was only in the 1950s and 1960s that the first successful ship carrying natural gas started operations.

The solution?

Compress and cool the gas till it becomes a liquid. Then transport that liquid while trying to maintain its temperature: -162 degrees celsius.

This is why it is called LNG — Liquefied Natural Gas.

To maintain the temperature at an extreme value like that, the ships essentially needed to be thermoses.

LNG carriers are large thermoses carried on ships that attempt to keep the temperature low enough. Of course it cannot be perfect.

Over time, it loses some cool and some LNG converts to gas. If this gas builds, it can cause an explosion.

So they have to release the gas or burn it off.

This is called Boil-Off Gas (BOG).

Smart brains decided it was more efficient to use this gas to power the ship itself! Neat idea. It made things a bit more efficient.

Modern LNG carriers are also able to re-liquefy some of these gases back to the LNG form.

Still, about 0.1% to 0.25% of LNG is gasified per day. Contrast this with a crude carrier. It can just stand at one location with crude oil in its belly for months.

Importing Natural Gas

LNG carriers start worrying the moment there is a delay: Boil-Off Gas (BOG).

This is also why the sellers of LNG try to find customers close by. The farther your customers are from you, the more gas both will lose per day.

It is widely known that about 85% of crude oil is imported in India. A quick search online will show that this number is about 50% in the case of natural gas.

The fact that the import of natural gas is lower than crude oil might comfort some of us. The less comfortable part is that it is not as diversified.

Our crude oil comes from various sources: Russia ~35%, Iraq ~20%, Saudi Arabia ~13%, UAE ~8%, etc.

Our natural gas comes from a much more concentrated list of sources: Qatar ~50%, USA ~8%, UAE ~8%, etc.

Crude oil and LNG ships are currently stuck in the Strait of Hormuz due to the ongoing Iran conflict.

Other Traits of Natural Gas

India has about 25 days’ worth of reserve crude oil stored. It’s easy to store crude oil. As things stand today, the reserves are much less in the case of natural gas. It is much more difficult to store.

Last week, we covered the various products we get out of crude oil.

The list of products is different in the case of natural gas. We get methane, propane, ethane, isobutane and a few others.

Methane is used in the form of CNG. So, it is used for transportation.

Natural gas (methane) is used for making ammonia (fertilizers), industrial hydrogen, and also burnt in power plants for generating electricity.

Industrial processes, like making steel, also depend on natural gas.

Other by-products are used for making synthetic rubber, plastics, polymers, etc.

Just as in the case of crude oil, we’re a bit surprised by just how widely we depend on natural gas.

Natural gas is not just about the CNG we fill in our trucks, buses, and cabs.

It can actually impact the very food we grow. Fertilizers. It can stall industrial output and growth and therefore affect our very economy.

Given how crucial a commodity this is, the government would take measures to combat the situation.

If the conflict de-escalates, we can expect immediate relief. If we sign a deal to let our gas carrying ships pass without hindrance, we can expect relief. If we can find other sources of natural gas, we can expect relief.

As investors, these are the key factors we must keep an eye on over the next few days.

What About LPG?

This is the fascinating part.

LPG or Liquefied Petroleum Gas is not only obtained from LNG or natural gas.

In fact, LPG is a by-product of crude oil! It depends on crude oil prices and availability too.

So why is it that we’re seeing LPG cylinders become unavailable?

The LPG we use to cook on our stoves comes mostly from Qatar. Almost 90% of it is from Qatar.

And Qatar being located in the Persian Gulf, is directly impacted by the Iran conflict. The Strait of Hormuz is not seeing much movement.

The situation is so critical, the Indian government has invoked the Essential Commodities Act.

So both LNG and LPG, along with crude oil from that region are unable to reach us in quantities we would like.

As of writing this, there are reports informing us that Iran has said they will let India-bound ships cross without a worry.

That’s obviously good news.

Still, in a situation where so many things are happening, we must keep an eye.

Quick Takes

+ The Indian Rupee fell to a record low, weakening beyond Rs 92.35 against the US Dollar, due to rising tensions due to the West Asia conflict and rising global crude oil prices.

+ The RBI has purchased government securities worth Rs 50,000 today to inject money into the economy and stabilize the financial system.

+ The government has invoked the Essential Commodities Act, 1955 to prioritise LPG production and supply amid shortages due to the war in West Asia. Refiners have been directed to maximise LPG output for household use and prevent diversion of key petroleum streams to other products.

+ The government has eased foreign direct investment (FDI) rules for countries sharing land borders with India, including China, so that certain investments may no longer require government approval: as per media reports

+ The RBI has introduced new dividend rules for banks from FY27, capping dividends at 75% of the profit after tax (PAT) to ensure banks maintain adequate capital buffers and financial stability before paying dividends.

+ Sedemac Mechatronics IPO listed on the stock exchanges at a premium of 13.54% over the issue price and closed 7.33% up at the end of the day.

+ India’s consumer inflation rate rose to 3.21% year-on-year in Feb (vs 2.74% in Jan).

+ The US has launched an unfair trade practices investigation into India and 15 other countries, which could lead to new tariffs if their trade practices are found to harm US industries.

+ The US will release 172 million barrels of oil from its Strategic Petroleum Reserve to help ease soaring oil prices from the ongoing war in West Asia as a part of a coordinated 400 million‑barrel release with other countries.

+ India’s forex reserves fell by $11.68 billion to $716.81 billion in the week that ended on 6 March.

+ India’s passenger vehicle sales grew 10.6% year-on-year to 4.18 lakh units in Feb: SIAM

The information contained in this Groww Digest is purely for knowledge. This Groww Digest does not contain any recommendations or advice.

Team Groww Digest

This was the March of 1967.

Off the coast of Cornwall, UK, a supertanker had hit the reefs.

The ship’s hull had been punctured, and crude oil leaked into the seas.

Desperate to solve the matter, the British government deployed fighter planes to bomb the ship, burn off the oil, and sink it. They thought sinking it would solve the problem.

Nearby tourist beaches were getting dirtied and covered in a black slurry of crude oil.

Afraid of the huge damages to the local tourism, the government decided to drop vast amounts of detergent in the ocean. The idea was that it would break up the oil.

Many years later, it was realised that not using the detergent would have been kinder on the environment and the cleanup.

Millions of animals died and years went by before recovery was noticed.

The crashed ship was called Torrey Canyon. It was headed for the UK, carrying oil from Kuwait.

The debate soon shifted from the damage to the tourism industry and ecology to the cost of the repair.

Public opinion on these supertankers carrying oil was obviously not nice. What usually follows that is regulation.

Fearful of action against them, some of the largest tanker owners got together and decided to actively insure each other against future crude oil accidents.

Soon, this insurance became the standard of the global crude oil shipping industry.

Without it, ships don’t move. They are so powerful, they can effectively abandon a ship in the middle of the ocean, or prevent it from entering any port.

In this week’s edition of Weekly Groww Digest, we’re exploring the biggest potential choke-points in the global supply of crude oil.

While most other topics get enough eyeballs, the powerful impact of insurers often misses the attention of the larger audience.

Strait of Hormuz

The Persian Gulf touches the shores of Kuwait, Bahrain, Qatar, the UAE, Oman, Saudi Arabia, Iraq, and Iran.

The narrow geographic location is responsible for supplying nearly 20% of the world’s crude oil supply. Oil from this region heads to China, India, Japan, and other Asian countries.

The Strait of Hormuz is a narrow passage of the sea that has Oman and the UAE on one side, and Iran on the other. At its narrowest, it is only 34 km wide.

If you’re aware of geopolitical relations, you’d know, Iran and the US do not get along well. It’s been that way for many decades.

But countries like Qatar, the UAE, and Saudi Arabia are on great terms with the USA.

This makes the region extremely tense and potentially susceptible to conflict.

Any conflict in the region can affect the supply of 20% of the world’s crude oil.

Adding to the criticality of the strait, there are no alternate paths. If this route is closed, there is very little most countries can do to ship the oil out to their customers.

If you’re following the news, you’d be aware that many oil tankers are currently said to be stuck in the Persian Gulf. They’re afraid to cross the Strait of Hormuz.

We can’t say the Strait of Hormuz is ‘shut’. But traffic is extremely slow for sure.

As geopolitical experts and crude oil analysts had been saying for years, any conflict in the region can rock global oil supplies.

That’s happening right now.

But the interesting point to note is that Iran has not closed the Strait of Hormuz even though many assume so.

In fact, Iran has said they have not shut the Strait yet, even though they claim to have the power to do so.

So why are tanker ships not crossing the Strait of Hormuz?

Insurance providers.

The insurance providers are too afraid of the conflict and are raising insurance premiums sky high.

This example perfectly demonstrates two choke points at once: the powerful insurance providers and the Strait of Hormuz’s extreme sensitive location.

Strait of Malacca

Another strait; another narrow piece of water wedged between two landmasses.

Malaysia on one side, Indonesia on the other, this strait is one of the world’s busiest trade routes.

Similar to the Strait of Hormuz, the Strait of Malacca sees about 20-22% of the world oil supply pass through it.

More crucially, about 80% of the crude oil consumed by China passes through this strait.

About 25% of all traded goods in the globe (not just crude oil but everything traded) passes through the strait.

Since China is also the world’s factory, a lot of its goods pass through these waters.

This is yet another global choke point in the crude oil world.

It might not be as critical as the Strait of Hormuz though, largely because it is crucial but not the only path.

If for some reason the Strait of Malacca is shut, oil and trade will still be able to reach. It’s just that they will have to take a much longer path.

Suez Canal/SUMED Pipeline

The narrow canal in Egypt joining the Mediterranean Sea and the Red Sea is known to anyone who reads about global trade.

The Suez Canal hosts $10 billion worth of trade every day. Ships carrying various goods from manufacturing hubs in China and other Asian countries cross it every day.

Oil also crosses the canal every day. About 7-8% of the global daily supply of crude oil passes through the canal every day.

The world actually got to experience what it looked like when the canal closed in 2021. Ships had to sail across the entire African continent to reach Europe.

What’s SUMED pipeline?

The Suez canal isn’t deep enough for very large tanker ships. So Egypt came up with an ingenious solution.

These tanker ships offload oil into the SUMED pipeline that runs along the canal.

On the other side, the oil is loaded in tankers and taken to their destination ports.

Obviously, any blockage of the Suez canal can massively impact the global supply of crude oil, and global trade.

There are a few other such geo-choke points in the global crude oil supply chain.

OPEC

The Organisation of Petroleum Exporting Countries (OPEC).

This is a group consisting of major oil-producing and exporting countries like Saudi Arabia, Iraq, Iran, Kuwait, Libya, UAE, Venezuela, and a few others.

It is a cartel. They decide and control the output of oil from their member nations. This way, they are able to greatly influence and control the price of crude oil in the world.

According to some reports, OPEC had increased the output of crude oil recently — probably in anticipation of the Iran-US conflict.

US Shale Oil

This is one of the world’s biggest reserves of oil.

The US sat on it for decades. Not because it wanted to not use it but because it was difficult to extract.

Technological improvements made this extraction possible, leading to the US having one of the world’s largest supplies of crude oil.

This supply of oil was a great counterbalance to the Middle-East’s oil and in general, to the powerful OPEC countries.

As US shale oil production increased in the 2010s, the price of oil fell and the US was able to have a meaningful say in global oil prices.

OPEC isn’t OPEC anymore. There’s OPEC+ which means a few other nations are also coordinating with this group of countries.

One of the biggest on this list is Russia (a significant producer).

Saudi Arabia’s Spare Oil

Another one of the world’s biggest counterweights in the world of crude oil is Saudi Arabia.

Most countries pump out as much crude oil as they can. But not Saudi Arabia.

Saudi Arabia has so much oil, it actually produces significantly less oil than its capacity.

This allows it to regulate the supply of crude oil in the global market.

When there is a shortage, they can increase their output. If a member of the OPEC tries to make extra profit by increasing their production beyond what members had agreed to, Saudi Arabia can increase their own production and flood that market with crude oil.

This would result in crude oil prices crashing, and therefore the errant country suffering losses.

As the Strait of Hormuz is seeing difficulties, wouldn’t this spare capacity of Saudi Arabia be useless?

No. Saudi Arabia had planned for a day like this.

It has a pipeline running from the east part of the country (near the Strait of Hormuz) to the west of the country (near the Red Sea).

So effectively, they can continue selling their oil despite the Strait of Hormuz being shut. According to some reports, they can send up to 70% of their daily supplies via this pipeline.

Petrodollar

Back in the 1970s, Saudi Arabia had turned out to be one of the most oil-rich countries in the world.

Saudi Arabia had signed a deal with the American government. The pact was that the Americans would provide security and military protection to Saudi Arabia. Being an oil-rich nation, they were susceptible to attacks.

What did America get in return?

Saudi signed a deal with them that ensured that Saudi would only deal in US dollars with any buyer.

Nearly every country in the world needs oil. They buy it from oil-producing countries like Saudi Arabia. If Saudi Arabia accepts only US dollars, everybody would need US dollars.

Demand for the currency shot and soon, the US dollar became the reserve currency for the world.

That has not changed much even today. Though there are some changes emerging.

This made the American dollar extremely powerful.

SWIFT is an international financial messaging system that allows money to be sent internationally. It is the pipeline via which US dollars are sent and received when trading crude oil.

This system is greatly influenced by the Americans. Since they have a lot of influence on the system, they can bar countries from using it.

Which means, the US can limit the oil supply of certain countries.

For example, Venezuela and Iran were sanctioned. Nobody was allowed to buy their oil. Thanks to the Swift system, this ban was quite effective.

Others

Yes, there are many many other ways in which crude oil prices are influenced.

Despite the sanctions, some countries do buy oil from countries the Americans don’t want. Iranian and Venezuelan oil does find its buyers.

Something more complicated but similar happens with Russian oil.

Some countries do not follow the petrodollar system and trade using their own individual currencies. Calls to make such trades more common have also come to the surface in light of recent activities.

Even Saudi Arabia has started accepting other currencies in recent times.

New oil is constantly being discovered. Countries like Guyana have found more reserves than thought before.

The dynamics are constantly changing.

That said, over the last few years, the above mentioned factors have continued to have an outsized impact on crude oil prices.

Of course, the situation right now is very volatile with the conflict in the Middle East.

It’s hard to say which way the price of crude will go.

Definitely something to keep a watch on.

Quick Takes

+ The US and Israel jointly carried out military strikes against Iran hitting multiple strategic targets across the country. The attacks triggered Iranian retaliation aimed at Israel and US military bases in the region, escalating tensions in the Middle East.

+ India’s manufacturing PMI rose to 56.9 in Feb (vs 55.4 in Jan). This means manufacturing activity grew more in Feb than in Jan.

+ India’s industrial production grew 4.8% year-on-year in Jan as per preliminary data (vs 8% in Dec). Manufacturing grew 4.8% (vs 8.4% in Dec).

+ India’s gross GST collection rose 8.1% year-on-year in Feb (vs 6.2% in Jan).

+ The Employees’ Provident Fund Organisation (EPFO) has decided to retain the interest rate on EPF deposits at 8.25% for FY25-26 for the third year in a row.

+ India and Canada finalised the Terms of Reference (ToR) to begin talks on a Comprehensive Economic Partnership Agreement (CEPA).

+ Clean Max Enviro Energy IPO listed on the stock exchanges at a discount of 8.83% over the issue price and closed 17.62% down at the end of the day.

+ India’s composite PMI (manufacturing + services) rose to 58.9 in Feb (vs 58.4 in Jan). Services PMI fell to 58.1 (vs 58.5 in Jan). This means overall economic activity grew more in Feb than in Jan.

+ India and Finland signed MoUs on migration and mobility, environmental cooperation, and statistics. The two countries also agreed to expand collaboration in trade and technology.

+ Omnitech Engineering IPO listed on the stock exchanges at a discount of 11.01% over the issue price and closed 9.72% down at the end of the day.

+ The US has granted India a temporary 30-day waiver to buy Russian crude oil that is already in transit, to ease energy supply concerns during the conflict in West Asia. The waiver applies to oil cargoes already at sea, not new purchases.

+ The central government has asked refiners to increase LPG production and prioritise supply to domestic consumers amid global energy disruptions caused by the West Asia conflict: as per media reports

+ India’s forex reserves rose by $4.88 billion to $728.49 billion in the week that ended on 27 Feb.

The information contained in this Groww Digest is purely for knowledge. This Groww Digest does not contain any recommendations or advice.

Team Groww Digest

Friday evening, well past the closing time.

Long queues of people lined up outside the branches of the bank.

It was raining, and yet the people did not dispurse.

The chaos did not settle for a few days. This was in September 2007.

The people wanted their money back. All of it. They said it was their hard earned money and they didn’t wish to risk it. Many of these depositors were retired and relied only on their savings to sustain themselves.

The branches remained open trying to give cash to as many depositors as possible.

Only a few hours earlier, the bank’s website had crashed from the sheer traffic it faced.

A news article had been published. The article informed readers that Northern Rock, a British bank, had approached the Bank of England (their version of the RBI). Northern Rock was asking for ‘emergency support’.

Robert Peston, a journalist, had received this confidential news. And he published it.

How Banks Work

Everywhere in the world, banks’ business models are more or less the same.

They accept money from depositors. Almost everyone uses banks to store their money.

Banks promise to keep this money safe, and give you the money whenever you ask for it — all of it.

This money that they store is used by the bank. They primarily give out loans to borrowers using depositors’ money. The banks earn interest from these loans.

This is their business model.

Some of the interest earned is shared with the depositor. This is why your savings bank account gives you some interest (around 2-3% per annum).

The bank sets aside some money in case some depositors want all of their deposits.

Example: a bank charges 8% per annum interest for a home loan. They give savings account depositors a return of 3% per annum. So, (8% - 3% = 5%) goes to their pockets.

The difference between the interest the bank earns and the interest they share with depositors is called Net Interest Margin (NIM).

Since the bank has promised depositors that it will give them their money back whenever needed, they must be ready for it.

So, they keep a certain amount of the total deposits always ready. This is called the Reserve Requirement.

In modern times, many countries use more evolved methods to keep reserves like using Liquidity Coverage Ratio (LCR).

This number varies from country to country.

Some countries’ regulations require banks to keep 1% of the total deposits (combined total of all depositors). Most are between 1% and 10%.

In developing countries, the ratio can be as high as 20% too.

Here, the assumption is that not all depositors will ask for all their money back at the same time.

When more depositors ask for more money back than the bank has available, the bank has a few options.

It can sell some of its loans off and then use that money to return depositors’ money. Or, it can ask the central bank of the country to give it some cash as emergency cover.

When there is news of a bank being low on cash, depositors fear the worst. They feel the bank has only a limited amount of money left. Which means, the first few people who go to the bank will get their money while the rest will be left with nothing.

So everyone rushes to the bank.

Since everyone is now asking for their money back, the bank is unable to give all of them their money.

This is how banks can collapse.

This situation is called a bank run.

Who Caused It?

Robert Peston was really in a tricky situation when he discovered the news about Northern Rock.

As a journalist, what should he have done? Should he publish the news and inform the depositors that their bank is not as stable as they think it is?

The risk with that is that news like that is guaranteed to set off a bank run as depositors rush to withdraw their money.

Or, should he keep quiet and try to prevent any panic from erupting; and hope that the emergency cash requested from the central bank is enough to satisfy the immediate needs?

Robert obviously chose to publish the news. Depositors panicked and rushed to the bank branches.

Some accused Robert of having caused the bank run. The belief was that had he not published the report and waited a few days, the problem would have never arisen in the first place.

Banks do request emergency support of cash and survive. It is not unheard of.

Many also pointed out how the banks were too close to the edge; that they should have kept a greater buffer.

What Finally Happened?

When one bank fails, everyone becomes cautious. It might happen that in fear, people also start rushing to other banks asking for their money.

That would lead to a multi-bank collapse. Almost an entire annihilation of the financial system.

In situations like these, the government steps in.

In the case of Northern Rock too, the government stepped in.

At first, the Bank of England (the central bank of the UK) stepped in and assured depositors that it would supply the bank with enough money to resolve all depositors’ withdrawals.

They assured the depositors that their money was indeed safe.

In the meantime, the emergency support remained in place while they looked for a bank that would acquire Northern Rock.

Failing to find a buyer, the solution was finally found by nationalising the bank.

The bank run was contained. The spread of panic was prevented.

Why Did It Happen?

Many would have heard about the 2008 crisis and how it was caused because of lending money to poor quality borrowers.

The poor quality borrowers were less likely to pay back their loans. That triggered the collapse of the system.

That was not the case with Northern Rock. Its lending was actually of a good quality.

In Northern Rock’s case, it was not a lending crisis. It was a liquidity crisis.

The bank relied heavily on loans from other banks to keep itself well funded. It also relied on selling its own loans.

In 2007, the US subprime mortgage crisis had suddenly caused a lot of distrust in the financial system. Inter-bank lending had massively reduced.

This lower lending made it difficult for Northern Rock to borrow. It reduced the amount of money it had access to.

Wait, so why would a bank borrow money?

We discussed how banks use money from deposits to give out loans. They also take loans (at a lower interest rate) and use that money to give out loans (at a higher interest rate).

This is okay if done within a certain limit.

In the case of Northern Rock, the reliance on borrowed money was just too high.

Generally, banks rely mostly on the depositors’ money and borrow a smaller portion. In the case of Northern Rock, this was flipped. Most of their money came from borrowing and a smaller portion from depositors.

Since it had less cash on hand, it started talking to the Bank of England seeking emergency support.

And that news was published.

Bank runs are rare, but they happen.

An almost-bank-run is more common. Thankfully, central banks are often able to rescue such banks.

Quick Takes

+ The US Supreme Court declared the global tariffs imposed by President Trump to be illegal. After this, Trump announced 15% global tariffs under an alternative trade law. The India-US trade talks have been delayed due to this.

+ The central government approved 3 railway projects across Maharashtra, Madhya Pradesh, Bihar, and Jharkhand at a total cost of Rs 9,072 crore.

+ India and the Gulf Cooperation Council (GCC) signed a Joint Statement to formally launch negotiations for a Free Trade Agreement (FTA)

+ The US has imposed preliminary 126% tariffs on solar imports from India, citing unfair subsidies for domestic manufacturing.

+ The central government approved Rs 871 crore worth of railway infrastructure projects across Rajasthan, West Bengal and Kerala to modernize and expand capacity.

+ Private sector listed non-financial companies saw a net profit growth of 5.2% year-on-year in the Oct-Dec quarter (vs 1.5% in the previous quarter). Sales saw a growth of 10.1% (vs 8% in the previous quarter): RBI

+ India and Israel now have a Special Strategic Partnership, aiming to expand cooperation in defense, trade, innovation, energy, space, and digital payments.

+ India’s real GDP grew 7.8% year-on-year in the Oct-Dec quarter (vs 8.4% in the previous quarter). GDP estimate for FY26 has been revised to 7.6%.

+ India’s forex reserves fell by $2.1 billion to $723.6 billion in the week that ended on 20 Feb.

The information contained in this Groww Digest is purely for knowledge. This Groww Digest does not contain any recommendations or advice.

Team Groww Digest

In the seas, there are boats that are not even sea-worthy.

Clusters of these boats remain anchored to the same spot.

They belong to people who stay on the boats and commute to the mainland for work, shopping, leisure, etc.

The boats are a touchy topic.

For those living on land, they are an obstruction. Some call them a security risk.

To those living in the boats, this is the reality of living in California.

California real estate is prohibitively expensive.

So expensive that even people with decent wages have to live as though they’re unemployed.

Technically, this living-on-boats is not legal.

The rules require the boats to not stay anchored for more than 72 hours. Some have started taking action against these boats, and their number is reducing.

This is just one manifestation of California’s insane real estate market.

There are many others.

Every now and then, social media has mentions of a well-paid salaried employee of a big-tech company living in a parking lot in a van because of high rents.

Since rents are so astronomical, sleeping pods are available for a monthly rental.

Many absolutely dilapidated homes are selling for prices simply for the lot value. Buyers would tear the house down and rebuild all over again.

California is the home of some of the biggest tech companies in the world.

Does that explain why real estate is so expensive? How?

Working Class State

California was not always this expensive.

In fact, in the mid 1900s, it was a blue-collar worker’s paradise.

Right after World War 2 ended, soldiers were returning home and moving west to California.

Back then, it was relatively uninhabited. Cities like Los Angeles and San Francisco rapidly expanded. Trees were cut to make way for orchards.

People flocked to the state.

Homes in California were priced more or less the same as the rest of the country.

All good till here.

Then, a change was brought about.

The California governor signed a new act into force. California Environmental Quality Act (CEQA).

The aim was to protect the environment of California. It forced developers, factories, etc to study the impact of their project on the air, water, soil, and wildlife.

At the same time, CEQA became an excellent weapon in certain hands.

Residents realised that CEQA could be used to prevent development from happening. If a person didn’t like a new bigger apartment house coming up next to their bungalow, they could sue them using CEQA and drag the matter in court for years.

A few years later, Californian cities adopted rules to preserve their neighbourhoods’ ‘character’.

This essentially meant no high density homes. Only very large homes with a few people staying in them.

Duplexes and apartments could not be built in most parts of the cities.

The policy was to not allow density to build up. They said no to lots of people living in the same area.

As the economy of the state picked up, more people moved to California. But, thanks to building rules, the amount of land available for building homes remained fixed. And a lot of those land parcels already had homes built on top of them.

So there was scarcity.

Scarcity is how the price for anything goes up.

Prices Rise, Taxes Rise

Now, with lots of land locked out, and apartment-buildings effectively not allowed, California saw home prices shoot up.

But that’s fine if you already own a house, right?

Nope.

Since the home prices were rising, the property tax they had to pay was also rising.

And this pinched the retired the most.

The retirees would have originally bought the homes at a much lower price. In the meantime, the price had gone up, pushing their annual taxes up too.

The retirees are retired. Their income is not going to increase. Such senior citizens started to sweat seeing their tax bills.

The concern grew and became a public matter.

In 1978, California passed rules to remedy this problem.

The tax would not be applied based on the latest house prices. It would apply based on the last purchase price of the house.

So even if the real estate price grew, the senior citizens and retirees would not be burdened with higher taxes.

While on the surface this seems like a good solution, it created problems of its own.

People buy bigger homes when they have families. As they grow older and their children move out, they do not need to have large homes. So they sell and downsize homes.

This allowed older, larger homes to become available on the markets for younger families.

But doing this was prohibitive after the new property tax rule.

If a senior citizen sold their house and bought a new smaller house, they would need to pay higher taxes based on the latest house price.

So for them, it made sense to just stick to their old and big house. That way, they would continue to own their homes and pay very low taxes.

And thus, very big homes would barely ever come to the market.

That only made the scarcity even worse. Prices continued to climb up.

By the 1980s, California homes on average were about 80% more expensive than homes in the rest of the USA.

Tech Boom

As if those weren’t enough, California became the centre of global technology companies in the 1990s.

Some of the biggest companies in the world were headquartered in the state. They generated massive revenues and paid massive taxes.

They also attracted talented folks from across the world to work in their offices, in California.

These very talented employees were paid massive salaries. Of course these talented people wanted to continue to stay and work in California.

In order to do so, they needed homes. And thus, the prices kept getting pushed higher and higher. So high that even basic homes cost more than a million dollars today.

Since so many talented people were already living in California, it just became abundantly easy for new tech companies to hire in California.

So even more companies set up shop there. Those companies grew bigger. They hired more people (who were paid very well).

The cycle repeated and now you have examples of extremely well-paid tech employees living in vans in parking lots to save rent.

Investors

Regulations that practically prevent large-scale new homes, highly paid citizens, and a state everyone in the world wants to be in.

Sounds like an excellent recipe.

Many investors love the idea of owning homes in California.

So did many Private Equity (PE) firms.

During the post-2008 recession period, home prices actually fell about 40%. Not to the levels that they’d match the rest of the USA, but still low for California.

Not enough people had money lying in the bank to take advantage.

But many PE firms and other institutional investors bought homes in California in bulk.

These investors were attracted by the idea that the supply was limited. So the prices would always go up, or if they fell, they wouldn’t fall much.

And further, rents were always astronomically high in the state.

The investors wanted to earn rents from these homes. They did not really have intentions to sell the homes.

And thus, even more homes went away from the markets.

The scarcity grew even more.

The problem of California’s real estate market seems like a bubble to some.

The scarcity of land is artificial. It’s not like a small island that is forced to have more people. It is the regulations that are preventing land from being available.

The scarcity is artificial and man made. Not natural. Technically speaking, it can be easily solved.

So it feels like it’s only a matter of time before regulations allow more buildings to come up.

Right?

There are a few markets around the world that operate similarly. Their prices are held up artificially.

And yet, many of them have not popped. They regulators continue holding on to their argument. Homes continue being expensive.

In the 2020-22 period, interest rates were reduced to near 0% levels. Taking loans was very cheap.

Many home buyers used that opportunity to buy homes in California.

The story of California’s real estate boom is often confusing to investors.

Is it a bubble? Or is it a real price?

There are many opinions. But nobody can give a definitive answer.

We will know if it is a bubble only after it pops. Else, we might just continue debating the matter.

Sometimes, very high-return investments are like this.

It’s hard to say if it is a bubble or real.

Quick Takes

+ India’s wholesale inflation rose to 1.81% in Jan (vs 0.83% in Dec).

+ India’s unemployment rose to 5% in Jan (vs 4.8% in Dec).

+ India’s merchandise exports rose 0.6% year-on-year to $36.56 billion in Jan while imports rose 19.2% to $71.24 billion. The trade deficit widened to $34.68 billion.

+ The central government approved multiple road and rail infrastructure projects in Maharashtra, Gujarat and Telangana with a total cost of around Rs 11,000 crore. It also approved a Rs 18,662 crore underwater road and rail tunnel under the Brahmaputra in Assam.

+ Fractal Analytics IPO listed on the stock exchanges at a discount of 2.67% to its issue price and closed 5.87% down at the end of the day.

+ Aye Finance IPO listed flat on the stock exchanges and closed 0.07% down at the end of the day.

+ The National Green Tribunal gave the go ahead for India’s Great Nicobar Infrastructure Project worth around Rs 80,000 to 90,000 crore. The project has been delayed since 2023 due to several environmental concerns.

+ Tamil Nadu signed 2 MoUs totaling Rs 5,980 crore with Aequs Group and Japan’s MinebeaMitsumi for investments in the aerospace and semiconductor sectors.

+ India and Israel have signed an MoU to expand defence ties between the countries.

+ India’s forex reserves rose by $8.66 billion to $725.73 billion in the week that ended on 13 Feb.

+ India’s manufacturing PMI rose to 57.5 in Feb (vs 55.4 in Jan) as per preliminary estimates. Services PMI fell marginally to 58.4 (vs 58.5 in Jan). Composite PMI (manufacturing + services) rose to 59.3 (vs 58.4 in Jan). This means economic activity rose more in Feb than in Jan.

+ India’s infrastructure output of 8 core industries grew 4% year-on-year in Jan (vs 4.7% in Dec).

+ The India-US trade deal is expected to come into effect in April 2026: Commerce and Industry Minister

The information contained in this Groww Digest is purely for knowledge. This Groww Digest does not contain any recommendations or advice.

Team Groww Digest

December 2014, Christmas time.

It is one of the biggest festivals of the year in the west.

Much like Diwali, people spend a lot of money during festive seasons even in the West.

It is also the season of gifting.

While most folks are busy preparing to spend quality time with their families, those working in the retail space are usually tense and stressed.

There’s just too much in transit that must reach the right place at the right time.

Amazon (USA) is right at the epicenter of this storm every year. Their learnings from each year are directly used in the years that follow.

Since its founding in 1994, it has expanded its capacity and increased control over its delivery network.

They had their own warehouses. They started partnering with courier companies to get better control over the delivery network.

When that didn’t prove to be enough, they bought their own delivery vans and set up their own delivery network.

In 2014, Amazon was promoting their Kindle device. The Kindle is a versatile reading device, an excellent gift item for Christmas.

On 21st December 2014, Amazon’s Seattle warehouse ran out of Kindle devices.

“Out of stock” was not a message Amazon wanted to show to its customers. So, it decided to arrange for the devices to be shipped to Seattle from other cities where they were available.

Since Christmas was literally around the corner, they couldn’t afford to wait for the devices to arrive on trucks.

They needed the Kindles fast.

Hence, air parcels.

They turned to courier companies they regularly worked with. Companies like FedEx and UPS.

These companies owned a fleet of cargo planes that ferried all kinds of goods across the country.

Amazon requested them to divert their planes from other locations to the routes they needed them on.

Christmas is a busy week for everyone, and the courier companies had prior commitments. Their planes were already full and booked. They refused to divert planes for Amazon.

In a desperate attempt to avert an apparent disaster, Amazon turned to chartered planes, paying handsome sums of money to ship Kindle devices to Seattle.

The gravity must be understood. Seattle was their home base. It was where Amazon was founded and headquartered.

They succeeded.

Enough Kindles reached on time to fulfil demands.

Long Term Solution

Of course, Amazon had pre-booked planes and routes with the courier companies well in advance.

But last-minute demand surges cannot be predicted well in advance. And the folks at Amazon would obviously not want to go through the stress of arranging expensive chartered flights in 2015.

They started working on a solution.

They did what they had done earlier.

They decided they needed to control this part of the delivery supply chain. How do you do that?

Project Aerosmith.

They signed deals with two leasing companies: ATSG and Atlas Air for 40 cargo planes.

These were leased planes. This meant that Amazon would get operational control of the planes, but the repair, maintenance, staffing, etc would be handled by the leasing company.

Two plane types were leased, the Boeing 737 (narrow-body planes commonly seen flying national level routes) and the Boeing 767 (wide-body planes flying international routes).

40 planes were painted in Amazon colors and had “Amazon Air” written on the side.

With these 40 planes, Amazon had intended to reduce their reliance on courier companies’ planes.

And thus, Amazon’s internal experiment with operating planes began.

Only 2 years later, Amazon Air felt the need to spend $1.5 billion to set up a worldwide hub in Cincinnati. It had space for 100 planes and over 200 takeoffs and landings every day.

Project Aerosmith was a success.

Expansion

Amazon Air kept starting operations out of newer hubs in different cities. More planes were leased.

Then, Covid hit in 2020.

Airlines the world over were facing massive passenger shortages. Running planes was becoming expensive.

Empty planes became a money pit for airlines, and many airlines decided to sell or shelf their planes.

Various planes were being parked for long storage.

On the other end, Amazon customers were stuck at home because of the lockdowns. They were ordering more items and spending more money.

While airlines suffered, Amazon’s business was booming.

It needed more planes. And there was a desert yard full of unwanted planes.

In January 2021, Amazon announced it was buying 11 Boeing 767 planes because they were available for so cheap.

And with that, Amazon Air became a plane owner and operator too.

Two months later, Amazon acquired a stake in ATSG, the same company Amazon used to lease planes from. This move reaffirmed Amazon’s cargo ambitions yet again.

Every year, it continued expanding its fleet with more leased planes.

In 2023, Amazon Air reached India. Since then, it has expanded more in India.

Internal Tools

More than a decade before Amazon Air was born, the senior management was wondering about a scale related issue that they were unable to solve.

Every time they built something new, a huge chunk of the team’s time was spent in assembling the servers and the infrastructure needed for that feature.

Back in those days, companies had to set up servers by themselves in their own offices.

They decided that a team would build a plug and play solution. One team would set up servers and scale them. The others would simply use the servers for their teams’ features.

Amazon used to handle massive volumes during holiday seasons and discount seasons. At other times, the volumes were much lower.

During these lower volume periods, the servers were sitting idle.

Internal reports suggested that Amazon should rent out its servers to those who need it outside Amazon. It was something they had planned to do early on.

That’s what they did. Thus was born Amazon Web Services (AWS).

Those who are aware about software engineering would know just how massive an impact AWS has had on the internet. It changes how software engineers build online websites and apps.

Very few companies have their own servers now. They all rent servers from companies like AWS, Google, and Microsoft.

These rented servers are called cloud services.

What’s interesting is that as a business, AWS became even more profitable than its main business, e-commerce.

It took a good 7 years before Google and Microsoft launched their competing cloud services.

By that time, AWS had cemented its market share. It is still the biggest player in the industry.

Amazon is famous for doing this — spinning off internal tools as full fledged businesses to be used outside Amazon.

In keeping with that spirit, Amazon Air started offering to transport goods for others as well.

Since 2024, it has become an official competitor to the likes of UPS and FedEx.

Quick Takes

+ India’s gross non‑performing assets (NPAs) of scheduled commercial banks have fallen to a historic low of 2.15% as of September 2025.

+ Gujarat signed a letter of intent with Elon Musk’s Starlink to bring high‑speed satellite internet to remote and underserved areas.

+ India and Seychelles signed a $175 million special economic package to support development projects in Seychelles in areas like housing, mobility, health, defence and maritime security.

+ India’s unemployment rate stood at 4.8% in the Oct-Dec quarter (vs 5.2% in the previous quarter).

+ Equity mutual fund inflows stood at Rs 24,029 crore in Jan (vs Rs 28,054 crore in Dec). Debt funds saw an inflow of Rs 74,827 crore, reversing the outflow trend of the previous 2 months: AMFI

+ The US and Bangladesh have signed a Reciprocal Trade Agreement, cutting US tariffs on Bangladeshi goods to 19% and granting 0% duty on certain textiles made from US raw materials.

+ The US revised the trade factsheet of the India-US deal by removing the mention of pulses from the tariff discussions and changed a $500 billion purchase ‘commitment’ by India to an ‘intent’.

+ China’s annual inflation stood at 0.2% in Jan (vs 0.8% in Dec).

+ India’s forex reserves fell by $6.71 billion to $717.06 billion in the week that ended on 6 Feb.

+ India’s passenger vehicle sales grew 12.6% year-on-year in Jan to 4.50 lakh units: SIAM

+ The US annual inflation fell to 2.4% in Jan (vs 2.7% in Dec).

The information contained in this Groww Digest is purely for knowledge. This Groww Digest does not contain any recommendations or advice.

Team Groww Digest

Someone had to drive it through different cloth pieces.

Even long after the textile mill was invented, stitching was done by hand.

Until the mid 1800s that is.

Inventors were eager to invent something that could stitch.

As you expect, solutions started becoming available.

But unlike some inventions, stitching did not have a single dominant invention. It was a bunch of scattered inventions.

Elias Howe had invented the needle with the eye in the front instead of the back of the needle.

Allen Wilson had invented the four motion feed. Before this invention, the cloth pieces being stitched together had to be pulled by hand.

Isaac Singer’s contribution to stitching was that he invented the foot-operated machine along with the vertical orientation of the needle.

Grover & Baker came up with the idea of a two-thread sewing machine that made stitches much more durable.

Each of these inventions on their own made a day-and-night difference to the experience of stitching. If you know a little about stitching, you’d recognise that these technologies are still very much in use today.

But together, all of these inventions when placed in one machine, made a world-class sewing machine.

Patent Owners

Together they were so good, that if you were going to make a sewing machine, you had to be using all of these inventions.

Individually, they didn’t make that much of a difference. Together, game changing experience.

You can probably sense a problem here.

What was happening was that each of these inventors and their companies were already making full sewing machines complete with all different inventions.

But the patents belonged to each of the individual inventors. And nobody had taken anybody else’s permission before using the inventions on their own machine.

The result?

They were all suing each other for infringement.

Instead of working on improving their machines and lowering costs, they were busy paying their lawyers and running to the courts.

In 1856, one of the company’s lawyers came up with a novel idea.

He was concerned about the money the company was spending on legal fees and he proposed the companies sign a treaty.

They would merge their patents. So no more suing each other.

The idea was liked, and signatures were made.

As a result, the companies could each manufacture the sewing machines without worrying about being sued. They focussed their energy on lowering costs, distribution, and marketing.

Mind you, only these companies had a free run.

Any other company who was not a part of this treaty that tried to make a full sewing machine had to pay heavy royalties or face legal charges from the treaty signers.

Result

This worked.

Free from fighting each other, the companies focussed on their business. The Sewing machine cost came down from roughly $125 to about $100.

But the quality and reliability of the machines advanced by leaps and bounds.

Sewing machine sales went up roughly 50 times.

Sewing machines became common in households. The sewing machine became an industry by itself. Different kinds of workers manufactured, serviced, and sold sewing machines across the world.

Patents exist for a reason.

They are meant to reward the inventors for their effort. The government allows the inventor a limited amount of monopoly.

Without this controlled and limited monopoly, inventors and innovators would not feel incentivized to develop solutions for years.

But it is also not meant to reward the inventor too much. Once an invention is made, the inventor cannot sit on it forever and earn from the monopoly.

Most patents have an expiration date. Once the patent expires, the invention becomes royalty free and may be copied by anyone.

The case of the sewing machines shows us this trait of patents very well.

The patents protected different inventors and their interests.

It also shows the demerits of patents. Its ability to stifle innovation.

The treaty signed by these 4 parties enabled them to make sewing machines freely while carefully keeping competitors at bay.

This is proven by the fact that when the patents to each of the sewing machine parts expired, the cost fell sharply and sales rose just as fast.

The price of one machine fell from about $100 to the $30-$40 range. Sales increased a further six times.

Intellectual Property: Patents

Things have not changed much in the world of patents.

Companies apply for patents, and fight each other over them. Sometimes, companies form groups and share patents while keeping others out.

Some companies are in the business of owning patents while not being in the business of actually inventing anything.

Earlier, patent owners owned the right to entire machines.

These days, patents are often over smaller parts that make up a larger machine. And so, just like in the case of the sewing machine, modern machine makers use a barrage of parts and pay several different royalties to patent owners.

And of course, many times, they don’t pay royalties and dispute the matters in courts.

Companies operating in the pharmaceutical sector, battery & energy sector, semiconductor sector, and telecommunications industry tend to be extremely heavy on patents.

Examples

Look at any pharmaceutical company. They are almost all involved in long legal fights with their rivals.

Disputes can be about alleged copying of formulations, using a smaller ingredient in a larger formulation, formulations being suspiciously similar to the patent owners’ formulations, etc.

You would have heard about Indian pharmaceutical companies involved in making generics.

Indian pharmaceutical companies specialise in manufacturing cheap medicines, the patents of which have expired.

Another sector that locks horns a lot is the telecommunications industry.

Nearly every company involved in that space has multiple legal cases running. Players like the chip makers, component makers, antenna manufacturers, battery makers, screen makers, etc are all locking horns.

And then, there are also companies that specialise in buying patent rights and then asking royalties.

These companies buy patents in bulk from companies and entities that have shut down.

Then, they view the patents and try to find existing products that have the same or similar technology.

Now, even if the royalty demand is invalid, the matter would go to court. The legal fees involved are often high. So most tech companies choose to just settle.

Patents as a Moat

Clearly, patents can serve as a massive moat for a company.

But just having lots of patents to its name does not prove a company’s patents have potential.

Investors investing in stocks of sectors where patents matter can check a few things.

In the company’s financial statements, look at the ‘intangible assets’ sections.

Under this heading, you may find the companies’ list of patents. See how these are growing, and how essential these are to the companies’ operations.

Looking at the speed with which new patents are being filed is an excellent way to judge if a company’s moat will continue to last.

Often, important patents are registered in multiple countries. The more foundational the patent, the more vital it would be to the company.

The more global a patent is in its nature, the more important it becomes.

The world of patents is quite interesting.

In the right hands, patents can enable companies’ continued innovation.

But of course, in the wrong environment, it can become a giant money sink in the form of legal fees.

Quick Takes

+ India’s manufacturing PMI rose to 55.4 in Jan (vs 55 in Dec). This means manufacturing activity rose more in Jan than in Dec.

+ SEBI announced a one‑year special window from 5 Feb for investors to transfer and dematerialise physical shares bought or sold before 1 April 2019, including pending or rejected requests.

+ US President Trump announced that tariffs on India will be cut from 50% to 18%. India has welcomed the reduction. Trump also mentioned that India has agreed to stop buying Russian oil, though India has not confirmed this. A joint statement is expected to be issued shortly.

+ India’s composite PMI (manufacturing + services) rose to 58.4 in Jan (vs 57.8 in Dec). Services PMI rose to 58.5 (vs 58 in Dec). This means economic activity grew more in Jan than in Dec.

+ The Bank of England kept their benchmark rate unchanged at 3.75%.

+ India and the US are expected to sign a joint statement on their trade deal within 4 to 5 days and a formal legal agreement is likely by mid-March 2026: Commerce and Industry Minister

+ The RBI has kept the benchmark interest rate unchanged at 5.25%.

+ India forex reserves rose by $14.36 billion to $723.77 billion in the week that ended on 30 Jan.

The information contained in this Groww Digest is purely for knowledge. This Groww Digest does not contain any recommendations or advice.

Team Groww Digest

Many would imagine something like a coconut.

You drill a hole and the liquid can be sucked out. That’s true for many oil wells.

The US was sitting on a different kind of oil. Shale oil.

The oil was in between rocks. Pulling this oil out was a massive hassle. Still, wherever there’s oil, there are oil diggers.

The challenge was that it was expensive.

For decades, pumping out the oil did not make economic sense.

Techniques and technologies improved, and the shale oil output improved. The US kept using this oil along with importing more oil.

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Note:

The markets are open tomorrow (1st Feb).

That’s becase the Finance Minister will be presenting the Annual Budget tomorrow (happens on 1st Feb, every year).

So tomorrow evening, expect us to send you an edition of Daily Groww Digest too.

Which is why, this edition of Weekly Groww Digest is reaching you a day early — on a Saturday evening, instead of a Sunday morning.

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Around the 2008-2010 period, the US was producing about 5 million barrels of oil per day.

OPEC & US Oil

And then there was a sharp jump. In mid 2013, it was producing roughly 7.5 million barrels of oil per day.

The production kept rising.

This rise meant the price of petroleum products in the US fell. Consumption picked up.

The US was consuming more of its own oil. Or in other words, it was relying less on imported oil.

That will obviously not be received well by those selling oil to the US.

OPEC (organization made up of many major oil producing countries) was worried. They decided that it was okay to make less profit per barrel of oil. It was not okay to lose market share.

They decided to ramp up oil production.

This would mean lower crude oil prices.

Commodities Markets

Why would lower crude oil prices be bad?

They were bad news for shale oil producers.

The cost of producing one barrel of oil varies. In some places, the cost is quite low. Something like $5 to $10.

In the case of the US shale oil, the cost could have been as high as $50 to $70.

During that period, the price of crude oil was hovering around $90-100. If the price dipped only a bit more, US shale oil producers would be forced to shut their oil wells. They would close and probably go out of business.

But they didn’t.

They used insurance or rather, hedging. Namely, they used financial products smartly to survive long enough for things to change in their favour.

Yes, OPEC producing more oil had started to bring the price of oil down further. But they had already sold futures for the oil they were going to produce.

Which means, even though the price of oil had dipped, they would still be getting a higher price.

This allowed them to remain active and oil-producing for much longer.

The thing about the commodities markets is that there are two kinds of players in it.

One, the speculator.

This party is trying to make a profit by betting on the future price movements of an asset.

Two, the hedger.

This party cares a lot less about making profits. This party wants insurance; a guarantee of future prices.

The US shale oil producers had managed to insure themselves well.

Commodities

A quick refresher.

In a commodities market, the most common financial products are futures and options.

Futures contracts are signed by two parties. It looks something like this:

“Party A promises to sell Party B 200 barrels for $90 per barrel on 8th June 2026”.

It is signed for a future date.

Neither party can back out of this contract, no matter what the price of the crude is on 8th June 2026.

This way, Party A is sure it will get a price of $90 per barrel. Party B is also sure it will get a price of $90 per barrel.

Of course they are both expecting different things to happen.

Party A is worried the price will rise higher than $90 so wants to lock down the price.

Party B is worried the price will fall lower than $90 so wants to lock down the price.

Only one of these two parties will turn out to be right.

Options are slightly different. It’s pretty much the same thing but one party has the option to use the contract. If that party doesn’t want to use the option (buy/sell), they can decline.

Of course there’s a premium to be paid here to buy an option.

The futures and options can be bought and sold before the contract’s settlement date.

Speculators are simply buying and selling these contracts. They do not intend to actually get delivery of the commodity, nor do they intend to supply it.

The reason speculators are welcome to this mix is because they bring in liquidity.

With many speculators, buying and selling contracts becomes much easier making it far easier for hedgers to insure themselves.

While many of us continue to obsess over the world of stocks and the businesses behind those names, the world economy simultaneously runs in commodities exchanges.

Main Commodities: Oil & Energy

This is by far one of the biggest segments in the commodities world.

This is mainly made up of crude oil, natural gas, and coal.

The price of crude oil is dominated by factors like: OPEC countries, US shale production, and geopolitical tensions.

Transportation is one of the consumers use-cases for crude oil.

Crude oil always has many buyers and sellers in the commodity markets. It is extremely easy to buy or sell oil contracts.

Natural gas is another that’s becoming more important with time. It is much harder to transport and requires pipelines or specialised tanks to be transported.

Heating and power generation are some of the biggest consumers of natural gas.

Because of its constraints, its prices are extremely volatile. It keeps commodity traders on edge.

Coal has been an important source for long and continues to be so.

Power generation and industrial use cases dominate, espeically steel production.

Cheap and seasonal, coal is another commodity that is extremely sensitive to policy decisions like import and export bans.

Main Commodities: Metals

Metals, as you would imagine, is a long list of various metals.

Aluminum, steel, copper, zinc, nickel, and tin are some of the primary ones on this list.

China is a dominating force in many metals’ cases — it produces about 50-60% of the global supply of some of these metals.

The demand of various metals is quite different and varies with time. Some of these metals’ demand is also sensitive to the price.

Many of these metals; demands are cyclical which means it increases and reduces over certain periods.

Copper is often used as an indicator to judge a country’s industrial health since a lot of copper is consumed in setting up industries.

Main Commodities: Precious Metals

Gold and silver are the easy names to come forward here.

Demand for them is actually very consistent. Gold has no other use other than as a store of value (mainly). Jewellery and industrial applications also exist to some extent.

Silver in that regard is similar but slightly different — it has industrial applications also. The increased industrial demand is one reason why we are seeing such an astronomical rise in silver prices.

Central banks’ behaviour is a big factor behind their price changes.

Main Commodities: Agricultural

Similarly, there exist vital agricultural products. One of the most important of them being wheat. Rice and corn are other examples.

Wheat is extremely weather dependent. It is also a commodity that is extremely prone to export bans by countries.

Corn is an extremely liquid commodity with lots of buyers and sellers in the commodity markets.

Corn used to be a food source only but now, in addition to being a food source, it is also a source of fuel (ethanol), and other industrial applications.

There are many many more commodities.

And in each commodity’s case, there are producers and consumers who are trying to hedge or insure their future. They use commodity markets to get price certainty.

And in each of these commodities’ cases, there are speculators. Commodity traders who simply juggle buying and selling contracts before they expire.

Each of these players is vital in ensuring the world of commodities functions smoothly.

The US shale oil diggers managed to use these contracts to get price predictability for some time.

This allowed them to survive. Over that duration, constant innovation and improvement allowed them to further reduce their costs.

And that eventually let them continue being viable despite falling crude oil prices.

Today, US oil production is the highest it has ever been.

Quick Takes

+ India and the European Union concluded negotiations for the India-EU Free Trade Agreement with significant tariff cuts on both sides.

+ India’s industrial production grew 7.8% year-on-year in Dec (vs 7.2% in Nov). Manufacturing production grew 8.1% (vs 8.5 in Nov ), mining grew 6.8% (vs 5.8 in Nov) and electricity grew 6.3% (vs a fall of 1.5% in Nov).

+ The RBI and the European Securities and Markets Authority (ESMA) signed a new MoU to boost cooperation on central counterparties. This MoU will allow Indian clearing houses to regain EU recognition.

+ Shadowfax IPO listed on the stock exchanges at a discount of 9.19% over the issue price and closed 11.31% down at the end of the day.

+ India’s economic growth for FY26 is estimated to be 7.4%: Economic Survey 2025-26

+ The Indian markets will remain open on Sunday, 1 Feb, the day of the Union Budget announcement.

+ India’s forex reserves rose by $8.05 billion to $709.4 billion in the week that ended on 23 Jan.

+ SEBI has given a no-objection certificate for NSE’s IPO: as per media reports

The information contained in this Groww Digest is purely for knowledge. This Groww Digest does not contain any recommendations or advice.

Team Groww Digest

He insisted what he had was his to keep.

It was not the government’s.

The government argued back. It was not his.

The fight lasted 9 years, and took 111 hearings.

Mel Fisher kept relentlessly fighting the case while also keeping alive his mission: find Atocha.

History of Atocha

In the 1500s, European ships were wandering across the world in search of spices, metals, and just about any exotic item they didn’t have in Europe.

For example, India was one of the biggest hubs for spices.

Around that time, the Europeans had discovered North and South America.

This worked well as these ships often returned to their European homes loaded with items.

These trips would take a couple of months at the least. They carried enough supplies to last them long enough.

In 1622, a Spanish ship called Atocha set sail from the port of Havana (Cuba). This was one of many exploration ships from Spain that had been sent on an exploratory voyage.

They carried just about every item that was frequently traded on that route. Coffee, spices, cocoa seeds, dyes, and other such supplies.

However, the value of these items was minuscule in front of the metals the ship carried: about 40 tons of gold, silver, copper, and gems.

Only a few kilometers into the journey, a terrible storm hit and 8 of these exploratory ships sank to the bottom of the ocean.

20 ships survived and they fled back to Havana.

The surviving crew sent the message across to Spain.

The Spanish sent for salvage ships tasked with recovering the items lying at the bottom of the ocean.

They used trawlers, hooks, and even slave-divers. The stakes were so high, they offered to free slaves who found something at the bottom.

The desperate attempts paid off, somewhat. The team managed to recover some precious silver. About 350 silver bars and a few others were salvaged. These had been in another ship that was a part of the same group of ships.

The items aboard Atocha remained buried under the sea.

And that was that — for ~350 years.

Mel Fisher

Mel Fisher was a chicken farmer and carpenter in the USA. During World War 2, he was posted in Europe.

While he was in Europe, Mel fell in love with diving.

When the war ended, he returned to the USA. To pursue his new hobby, he decided to buy scuba diving gear for himself.

Scuba diving gear was a novelty and rarity back then.

The oxygen tank emptied after a dive and he realised he had nowhere to recharge the tank. He decided to build a setup for himself.

This started an entirely new business for Mel Fisher.

He was in the business of scuba diving. That included taking tourists on their first dive, certifying other divers, aiding in underwater movie shoots, etc.

And then, someone reached out to him.

The Hunt

In 1963, a man named Kip Wagner approached Mel.

Kip, a treasure hunter, had been finding gold coins on the beach in Florida. He knew the story about the sunk ships and believed there was a lot more gold to be found at the ships’ sinking site.

Mel being a diving expert was a perfect candidate for the job. They signed a contract.

For a little less than a year (360 days), they searched the seas and found only abandoned fishing gear and military ware.

Then, they switched strategies.

Mel was using a boat with a strong water pump attached. The idea was to push clear water from the surface to the bottom of the seas so they could see better.

These pumps were strong and they often ended up pushing the sand on the bottom too.

On the 361st day, the boat pushed aside some sand and over 1,000 gold coins became visible.

Back in 1964, the find was valued at $3.5 million.

This treasure had completely enamored Mel Fisher. The idea of treasure hunting seemed too lucrative to give up on.

Some more research led him to completely change his life.

In 1969, he moved home to Florida to start work on this new project.

He had heard of Atocha but knew very little about it. He reached out to a historian to try and determine a rough location of where Atocha had sunk.

After some lengthy research, Mel determined that everyone had been looking at the wrong location.

He felt it was further west of where everyone else was looking.

Within 3 months of searching, he found a 15-feet anchor that looked like it could belong to Atocha.

Mel Fisher was convinced that he was on the right track.

But that was his belief. The rest of the world was not that convinced yet. In 1973, they found 3 silver bars. Mel brought these back and asked for the writings on the bars to be verified.

They matched.

Mel was certain he was looking for the shipwreck in the right location.

Every now and then, he would find a small hint — a coin, one bar, a gem — that would reaffirm his belief. He used those treasures to continue to fund his expedition.

In 1975, his son found cannons at the bottom of the sea. He tried to pull them out of the water.

Unfortunately, the boat capsized.

One of Mel’s sons and his son’s wife along with a crew member lost their lives.

Mel suffered a huge setback from this accident. But he decided to continue the search with determination.

Discovery & Aftermath

Mel’s discovery was an ongoing process. He would search, find some traces, collect the treasures he found, and continue searching.

About this time, Mel faced a mammoth challenge. The US government and various other state bodies.

According to them, the treasures that Mel had found up until this point were found in US waters. Hence, the treasures belonged to the government, not to Mel.

Mel did not want to stop the treasure hunt. But he also did not want to lose all that he had already found.

He went to court contesting the decision.

The legal fight lasted a total of 9 years.

In 1982, the lines for what was international waters and what was within US boundaries were redrawn.

According to that new line, the location where Mel found the silver bars were in international waters, not in the US.

This made his case stronger.

He went right up to the US Supreme Court.

After 111 hearings over 9 years, the courts ruled that Mel had 100% rights to his discovered treasures. The government’s claim was dropped.

The search meanwhile continued.

In 1985, around 10 years after his son’s death, Mel’s team hit treasure.

That’s 16 years after he first started the hunt.

40 tons of silver, 125 bars of gold, over 1 lakh precious stones, silver cutlery — back then it all totalled about $450 million.

Present

The Atocha treasure was the richest ship recovery ever made.

The tale has some interesting lessons for people fighting against the odds.

Some endeavours start giving results sooner and more frequently. Those may be deemed less risky.

While others are far more risky. They require patience and dedication. They require tenacity and the ability to stay afloat when everything is sinking.

Usually, such endeavours are worth pursuing only if the end-goal has a reward big enough.

And of course we must understand that high-risk also means that despite all the efforts and costs, the reward might be a big zero.

Mel Fisher had struck big money early on, his first treasure find. He used these funds to support his quest for decades. Had it not been for that, he probably wouldn’t have been able to continue his search for years on end without any big find.

Going all in requires immense sacrifice while facing uncertainty. Often, going all in is a horrible strategy.

Mel kept finding smaller treasures. That helped fund his expeditions. Without that, maybe he wouldn’t have continued.

Also, it is an excellent lesson in survivorship bias.

We talk about Mel Fisher because he sacrificed so much and struck success.

We barely ever hear about those who spent decades pursuing something big and never succeeded.

By the way, Mel Fisher’s family believes that the treasure that they found at the Atocha’s site was only a part of the total haul.

According to them, there’s a lot more silver left to be found. It’s just that the centuries old shipwreck has been scattered across different parts of the sea floor.

They’re still searching for more — long after Mel passed away.

Quick Takes

+ China’s GDP grew 5% year-on-year in 2025. In the Oct-Dec quarter, growth slowed down to 4.5% (vs 4.8% in the previous quarter).

+ SEBI’s revised mutual fund regulations introducing a Base Expense Ratio (BER), lowering expense ratio caps, etc which were approved in Dec 2025, will come into effect on 1 April 2026.

+ The RBI has pointed out priority sector lending (PSL) compliance issues at HDFC Bank and ICICI Bank, and has asked them to keep aside extra provisions to align with the norms.

+ Bharat Coking Coal IPO listed on the stock exchanges at a premium of 95.65% over the issue price and closed 76.43% up at the end of the day.

+ US President Trump threatened to impose tariffs on 8 European countries from 1 Feb unless they agree to support the ‘complete and total purchase’ of Greenland by the US. If a deal is not reached, Trump plans to raise the tariffs.

+ India’s infrastructure output of core sectors grew 3.7% year-on-year in Dec (vs 2.1% in Nov). Coal, fertilisers, steel, cement and electricity sectors saw a growth. Crude oil, natural gas and petroleum refinery products saw a decline in output.

+ India and the UAE signed a $3 billion, 10 year LNG supply deal and agreed to boost trade and defence ties.

+ PhonePe received SEBI’s approval for its IPO: as per media reports.

+ The UK’s inflation rate rose to 3.4% year-on-year in Dec (vs 3.2% in Nov).

+ The central government approved the Rs 5000 crore equity support to the Small Industries Development Bank of India (SIDBI) to boost its ability to extend credit to MSMEs.

+ US President Trump expressed optimism in the India-US trade deal, calling it a ‘good deal’.

+ India’s manufacturing PMI rose to 56.8 in Jan (vs 55 in Dec) as per preliminary estimates. Services PMI rose to 59.3 (vs 58 in Dec). Composite PMI (manufacturing + services) rose to 59.5 (vs 57.8 in Dec). This means economic activity grew more in Jan than in Dec.

+ India’s forex reserves rose by $14.17 billion to $701.36 billion in the week that ended on 16 Jan.

The information contained in this Groww Digest is purely for knowledge. This Groww Digest does not contain any recommendations or advice.

Team Groww Digest

Many famous folks have used a myriad of words to describe it.

“72 suburbs in search of a city”, “beauty parlour at the end of the world”, “constellation of plastic”.

LA is where Hollywood is. In some ways, it is the centre of English cinema and TV shows.

Just off the shore of Long Beach in LA, there exists a tiny island. The island looks like a tropical paradise. Hundreds of palm trees, some tower-like buildings, waterfalls, and flashy lighting.

Another building of note is called the Beverly Center. It is a super-high end shopping mall. Brands like Gucci, Prada, Versace, etc all have their shop fronts.

The island and the shopping center sound absolutely normal.

But this is LA we’re talking about. There’s nothing normal about these.

The island is actually an active oil well. So is the shopping center. They produce crude oil even today.

LA was not always a huge city.

It was mostly cattle ranches and fruit orchards. And then a farmer dug the ground and happened to strike crude oil.

By the 1920s, 20% of the world’s oil was produced in LA.

Since oil was discovered, a lot of people migrated to the area. People would buy land and start digging oil wells.

The population of the area ballooned.

With the people and stable income from oil, the region started to become a city. And the city became a solid breeding ground for many industries.

Aviation and show-business are some of the biggest there.

The city residents started demanding better infrastructure. They got that.

But the oil wells were not dry. They were still pushing out oil.

There was just so much money to be made, the city allowed oil well inside the city without any zoning rules.

The city simply made rules that seem like a middle path between residents and oil well owners.

In the case of Beverly Center, it is both a functional shopping center and an oil well site.

Crude oil is just that vital a commodity. And there’s a lot of money to be made selling oil that the world never seems to have enough of.

Los Angeles can teach us a lot about crude oil, and the power it commands.

Refining

In 1892, a dam in Pennsylvania broke. Rains had caused excessive floods and the dam couldn’t hold back the water.

The raging water hit waste oil reserve tanks along the river.

A spark somewhere caused the entire river flooded with waste oil to burn. Over 130 people died.

In the mid-1800s, the world relied on whale oil for lighting lamps.

Hunting whales were pushing their numbers lower. And then, someone discovered crude oil deep in a salt mine.

It could burn, they realised.

It didn’t take long for someone to distill the rock oil, and extract kerosene from it. That kerosene was used in lamps.

The rest of the by-products were useless tar and lighter oil.

The useless lighter oil was what was burning in the river in Pennsylvania.

We now know that ‘useless oil’ by another name — petrol.

Refining techniques improved. They discovered that crude oil has many different sub-products to offer. And some waste material.

With time, distillation changed to refining — an advanced chemical process to get different products from crude oil.

And with time, they stopped wasting by-products.

In the modern era, almost all of the products extracted from refining crude oil get used.

The crude oil gets processed: heated, boiled, chemically processed, vacuum treated. Then you get various products from it.

Broadly speaking, the products are LPG and other gases, petrol, naphtha, kerosene, diesel, bunker fuel, lubricating oil, asphalt, and a few more.

Types of Crude, Sources

When crude oil was first discovered, there weren’t many testing equipment available.

So they would literally taste the oil by touching their tongue to the oil.

It tasted like petrol. This was a quality they appreciated.

Some were more sour or had a rotten egg smell (higher sulphur content).

Later, when a much bigger deposit of oil was found in Texas, quality testers were aghast. The crude oil tasted very sour there.

They deemed it to be bad quality.

With time, the world has discovered crude oil can be very different depending on where it is found.

This also means that different kinds of crude oil give off different percentages of by-products.

Sweeter crude oil gives more petrol and less asphalt.

Sourer crude oil gives less petrol and more heavier oils and asphalt.

Different oil customers demand different traits from their oil.

Sulphur content is of primary importance — lower is often desired. Density is another important metric. There are a few others.

West Texas Intermediate (WTI) is one of the best sources of crude oil. It is incredibly low in suplhur and is easy to refine into petrol.

The price of WTI crude is a benchmark used in America.

Brent crude is another crude oil benchmark that is used for nearly 60-70% of all crude oil produced in the world. It is less ‘sweet’ than WTI crude.

Dubai/Oman crude is a benchmark often used in Asian countries. It is even more sour.

Price of crude, OPEC

Of course, we all know that oil is found at several locations across the world.

In fact, even within a country, there can be many different oil well locations.

Surely not all produced across the world would be similar to either WTI, Brent, or Dubai/Oman?

True.

Crude oil from different oil wells varies a lot.

In fact, there are over 150 different types of crude oil. Each region produces a different kind of crude oil.

Examples:

-White Rose (medium-sweet) is found in Canada
-Merey 16 (heavy-sour) is found in Venezuela
-Oman Export Blend (medium-sour) is found in Oman
-Brent Blend (light-sweet) is found in the UK

And, Bombay High (light-sweet) is found in India

With over 150 types of crude oil, how are they priced?

Their price is compared to the 3 main benchmarks (WTI, Brent, Dubai/Oman).

Price for each oil is set based on how similar or different it is from the benchmark oil.

The 3 crude oil benchmarks are floating. This means that their price is determined by supply and demand.

The factors that influence supply and demand are of course many.

On the supply side of things — the one thing to know is that oil-producing countries restrict it. They try to produce a pre-decided quantity of oil so as to keep the price of oil above a certain limit.

One of the biggest bodies that does this is called the OPEC+ group of countries.

Countries like Saudi Arabia, the UAE, Venezuela, Iraq, Kuwait, and a few others are members of it. They meet regularly to decide how much oil they want to produce.

Other major producers that are not part of OPEC+ are the USA, Russia, and Brazil.

So in some sense, there is competition among the producers.

Of course, demand also greatly affects the prices.

Transport costs are a big component of crude oil prices. WTI crude is supposed to be better than Brent crude. But the price of Brent is often higher than WTI.

This is because WTI is produced inland from where, transporting it to the coast for shipping can cost money. Brent crude is extracted in oil wells located out in the sea.

There are hundreds of other factors.

Demand can be seasonally affected. Refineries can be down. Geopolitical conflicts can hamper crude shipping routes. So much more.

Geopolitics of Crude

The modern economy essentially runs on crude oil. Or rather, products of refining crude oil.

So much so that wars are fought over crude oil.

In 1991, Kuwait and Iraq fought a war because Iraq was sure the other side was drilling slanted to extract Iraq’s oil.

Iran and Iraq have fought wars over oil.

Sudan and Nigeria have experienced civil war over oil.

Many of the battles in World War 2 were actually over oil.

There are enough examples.

Crude oil is transported because most countries in the world do not produce their own oil. Which means, they are dependent on imported oil.

The routes via which this oil arrives is extremely crucial to such countries. This is one reason why naval ships of many countries patrol the seas.

Crude pipelines are heavily guarded and monitored using sonar and drone equipment.

Countries try to source their oils from a variety of sources so as to not depend on one source only. They also maintain oil reserves that may last a couple of weeks to months.

Indian Companies Dealing With Crude & Direct Impact on Life

Most of the oil we consume in India comes from refineries owned by 3 companies — Indian Oil, Bharat Petroleum, and Hindustan Petroleum.

Another big name you might have heard is ONGC. They drill and extract oil. And that oil is sold to a refining company like Indian Oil.

Reliance, the name that is the biggest in the private space, is famous for having the world’s biggest single-largest oil refinery.

Their refinery is extremely sophisticated and is capable of handling very high-sulphur content crude oil with ease.

A bulk of their oil is for export only.

The US is the biggest producer of crude oil in the world.

China is the biggest importer of crude oil in the world.

India is the 3rd biggest importer.

Many countries realise how big a risk it is to depend on crude oil too much. China is aggressively shifting to electric vehicles. It has ramped up electricity production in the form of nuclear, hydroelectric, and solar power.

India, too, is trying to reduce dependence on imported crude oil.

A push towards EVs and CNG vehicles is a part of this push.

Countries will not stop tussling over oil. That is going to continue happening.

The latest is the USA-Venezuela situation.

Quick Takes

+ India’s retail inflation rose 1.33% year-on-year in Dec (vs 0.25% in Nov).

+ India’s passenger vehicle sales grew 26.8% year-on-year to 3.99 units lakh in Dec. For calendar year 2025, sales grew 5% year-on-year to 44.9 lakh units.

+ The US President Trump announced 25% tariffs on countries that do business with Iran.

+ India’s wholesale inflation rose to 0.83% year-on-year in Dec (vs a fall of 0.32% in Nov).

+ The US’ annual retail inflation stood at 2.7% in Dec (same as Nov).

+ China’s exports grew 6.6% year-on-year in Dec (vs 5.9% in Nov). Imports rose 5.7% year-on-year (vs 1.9% in Nov). China’s annual trade surplus reached a record high of $1.2 trillion in 2025.

+ Executive Centre India received SEBI’s approval for a Rs 2,600 crore IPO.

+ India’s unemployment rate rose marginally to 4.8% in Dec (vs 4.7% in Nov).

+ India’s merchandise exports grew 1.87% year-on-year in Dec while imports grew 8.76%. The trade deficit widened to $25.04 billion.

+ India’s forex reserves rose by $0.39 billion to $687.2 billion in the week that ended on 9 Jan.

+ SEBI has given in-principle approval to NSE’s settlement application in its unfair market access case.

The information contained in this Groww Digest is purely for knowledge. This Groww Digest does not contain any recommendations or advice.

Team Groww Digest

The comment that revealed a cold war at Ferrari.

It had become hot — the secret was out in public.

This was the Fiat-Chrysler (FCA) group’s CEO speaking. And he was commenting on the chairman of Ferrari.

“The fact that we haven’t won anything since 2008? It’s unacceptable”, said the FCA group’s CEO. Expressing disappointment about Team Ferrari’s performance.

But this was not about the races.

We later see the real reasons why this fight was brewing between the two bosses.

And we see one of them winning over the other changing Ferrari, meaningfully.

But change — every company goes through that.

Why was Ferrari’s case unique?

Ferrari’s business is about exclusivity.

Some of the most expensive cars in the world are Ferraris (auction prices, not brand new). One particular model, the Ferrari 250 GTO, sold for $51 million in 2018. That’s over Rs 450 crores today!

It isn’t about the features the car has. It isn’t about the top speed. It’s the overall car and the craftsmanship.

And about how you have it, while others do not.

If you have the money, you could walk into a Porsche or Lamborghini showroom and walk out with a sports car with relative ease.

Not Ferrari.

For Ferrari, you need to build a relationship with them. You have to convince them you deserve to own a Ferrari.

You start with the lower models or used models. And gradually move up the ladder.

But that’s all about the cars. Here, we’re talking about the company Ferrari.

What was happening inside?

Why were the bosses fighting? And who won?

Company Structure

Before that, let’s understand the structure.

Fiat-Chrysler (FCA) was a group of car companies.

“Was”? Long story.

FCA as a group doesn’t exist anymore.

In 2021, FCA had a major re-structuring and its name changed, it merged — a lot happened. That’s another story altogether.

Some of the car brands that the FCA group owned included Fiat, Chrysler, Jeep, Maserati, Alfa Romeo, Abarth, and a few more.

And one more brand — Ferrari.

The largest shareholder of the FCA group was Exor (it is an investment company that is fully owned by the Agnelli family from Italy). This made them the largest shareholder of Ferrari indirectly.

Did FCA fully own Ferrari?

Yes — sort of.

FCA owned 90% of Ferrari.

The remaining 10% was owned by Piero Ferrari (son of the founder, Enzo Ferrari).

Ferrari ownership as of early 2014:

90%: owned by FCA
10%: owned by Piero Ferrari

Key Figures

Luca Montezemolo:

Luca was no regular executive running a regular company.

He was aristocratic. He was driven by emotions and taste. He was always dressed sharply.

Emotions, company-culture, heritage, and exclusivity were all important to him. Luca insisted on a family-like atmosphere at the Ferrari factory.

When Ferrari narrowly lost an F1 race in 2008, he smashed the TV in anger. Luca was often seen hugging race drivers. And celebrating with joy when the team won races.

Luca wasn’t ‘working’ at Ferrari. The company was a part of his identity.

He had started off his career as assistant to the company’s founder, Enzo Ferrari.

And Luca had been the chairman since 1991.

Sergio Marchionne:

He was the CEO of the FCA group.

Sergio was on the absolute other end of the spectrum. An accountant and lawyer. Efficiency-driven.

Sergio was not someone who would care much about emotions, brand heritage, and culture.

Exor:

Exor was a company that acted as the holding company of the Agnelli family. They were the largest shareholder of the FCA group.

They owned about 29% of FCA. But they had a much higher voting power — closer to 44%.

FCA Group & Sergio

In the early 2010s, the FCA was struggling.

Business was not good. Sales were low. They needed money. And they already had unpaid loans.

Sergio Marchionne, the CEO of FCA, planned a turnaround. He looked within the FCA group and noticed Ferrari.

Ferrari was doing well — it enjoyed a profit margin of around 35-40%.

Many of FCA’s other car brands were regular carmakers — Fiat, Chrysler, Jeep, etc.

Ferrari was a luxury brand.

But somehow, it seemed like the investors failed to notice that FCA owned Ferrari. It got lost in the pile of regular car brands.

FCA’s share price and market-cap were quite poor.

Ferrari & Luca

Luca, the Ferrari boss, was adamant. He did things his way.

One of the points he was firm about was that Ferrari would make only about 7,000 cars per year. No more than that.

He believed that since Ferraris were prized for their exclusivity, selling too many Ferraris would dilute the brand.

“A Ferrari is like a beautiful woman. She must be worth waiting for and desired”.

Sergio had problems with this.

The idea that they had a brand with 35-40% margins was tempting. But the limit of about 7,000 cars-per-year seemed like forcefully reducing profits.

He wanted to increase this number. The two bosses (Sergio & Luca) clashed.

Another bone of contention between the two was that of SUVs.

The idea of making SUVs is something all high-end car brands have struggled with. Nobody wanted to build SUVs — because of the fact that they don’t align with the sports car image.

But they sell in high numbers.

When Porsche brought out its first SUV in 2002, fans cried about how the brand was getting diluted. In hindsight, it saved the brand.

Many sports car and luxury car makers have resisted building an SUV. But it is so profitable to build one, most have folded and built SUVs.

Lamborghini, Aston Martin, Jaguar, Bentley, Rolls Royce,… all have SUVs on sale now (after refusing initially).

Sergio’s Idea

Sergio was sure investors weren’t noticing Ferrari.

He had an idea.

Ferrari was profitable, enjoyed great profit margins, and was a luxury brand — so it deserved a valuation like a luxury brand, not a regular car brand.

His theory was that Ferrari was ‘trapped’ inside FCA and that it needed to be liberated.

He decided to test this theory.

In October 2015, Sergio did a small IPO where he listed 10% of Ferrari’s shares.

Before this IPO, the FCA group’s market-cap was hovering around $12 billion to $18 billion.

Immediately after Ferrari was listed, Ferrari’s market-cap shot to nearly $10 billion.

By Dec 2015, FCA’s m-cap was $19 billion. Ferrari’s was $11 billion.

Which means, $11 billion worth of a company was ‘hidden’ inside FCA and investors didn’t even notice!

After treating Ferrari as a separate company and getting it listed on the stock exchange, investors saw its true potential in the open market — and paid an appropriate price for its shares.

This gave Sergio his green signal. He got his answer. He knew he was right.

Then, Sergio went ahead with his plans.

He decided to use Ferrari as a tool — to solve FCA’s problem.

His solution was this: spin-off Ferrari as a separate company with no ties to the FCA group. The money FCA receives from this sale can be used to pay FCA’s pending debt and restructuring costs.

Many shareholders might be angry at losing control of Ferrari. He had a solution for that too.

Only FCA would get out.

Every other shareholder would get 1 Ferrari share for every 10 FCA shares they owned.

This meant that FCA’s biggest shareholder (Exor) would continue to be the largest shareholder of FCA and of Ferrari separately.

Piero Ferrari would continue holding his 10% in Ferrari unchanged.

The share price of Ferrari was worth a lot more. And existing shareholders would continue to hold their Ferrari shares.

Perfect idea. Who would not like this idea?

Ferrari Chairman Opposes

Luca did not like the idea.

He was the head of a company which was entirely controlled by Exor — the largest shareholder of the FCA group.

If Ferrari became a public company, Luca would be answerable to many shareholders and a board of directors.

Like a typical company, he would be forced to optimize everything to suit investors’ wishes. And what do investors know about building classy sports cars?

As you might have guessed from examples given earlier, Luca and Sergio didn’t get along well.

Sergio knew his plans would never work if Luca was around. He planned for Luca to leave Ferrari.

The 2014-2016 period has many examples of Luca and Sergio clashing publicly. Luca stepped down from Ferrari in 2016.

And Sergio went ahead with his plans with approvals from the biggest shareholders including Exor and Piero Ferrari.

Result

In 2016, Ferrari was a fully separate entity from the FCA group.

The FCA group reduced its debt, and raised money for its future restructuring.

By the end of 2020, the FCA group was worth about $36 billion. And Ferrari alone was worth about $57 billion!

Imagine this: the once-a-subsidiary company was now worth more than the parent company.

The FCA group merged with the PSA group after that, so comparing market caps after 2020 is not fair.

Ferrari is worth $65 billion today.

Sergio became the new CEO and Chairman of Ferrari in 2016 while also continuing as CEO of the FCA group.

He did a lot of things that Luca would have raged against.

Ferrari developed and launched an SUV. They increased the number-of-cars-per-year limit. Some key people were removed from the organisation. Turbo-charged engines became more common.

Conglomerate Discount

What we saw here is often called the conglomerate discount in the investment world.

Conglomerates are large, complex companies that do multiple things, not just one thing.

Example: Tata is a conglomerate — salt to software to trucks to airlines.

Which means this company is involved in different kinds of businesses.

Some of these companies have high profit margins. Some have low profit margins. Some are loss-making. Some barely break even.

When combined together, it becomes hard for investors to assess what the correct value of a company should be (and therefore the fair share price for it).

There’s a common saying that conglomerates get discounted by about 10-15% at least.

Mixing good and bad businesses confuses investors.

Clear and distinct businesses are easier to evaluate, and therefore easier to price.

Tata might be a conglomerate, but it does not list its holding company on the stock exchange. The company actually lists many of its individual businesses separately on the stock exchange.

Tata Consultancy Services (software), Tata Motors Passenger (cars), Tata Consumer (FMCG), etc are all listed separately.

This is why each of these companies’ valuations is different.

In fact, separating a fast or efficient business from slow and inefficient companies often “unlocks” new value that was not being factored in.

This is what happened in the FCA-Ferrari case.

There are many other examples of this.

Take Naspers.

The South African newspaper and TV company had invested early in a Chinese start-up called Tencent.

By 2017, Naspers’ stake in Tencent was about $130 billion. But all of Naspers’ market cap was about $100 billion.

They solved this problem by creating Prosus, which became a separate holding company for the Tencent investment, resulting in “unlocking” $30 billion in value.

There are many such cases of conglomerate discount and unlocking of value.

As for Luca, many would argue that he has been proven wrong.

That’s not really a fair thing to say.

Luca led Ferrari successfully for decades. The company sits on the magic formula that Luca perfected over that period.

We don’t know how things would have turned out if he had been kept as the chairman of Ferrari even after the spin-off from FCA.

To be fair to him, even Sergio didn’t rake up the production numbers as everyone feared.

Even today Ferrari produces only about 13,500 cars per year. To give some reference, Porsche sells about 4 lakh cars per year.

It’s hard to say if things would be better or worse had Luca stayed.

Luca still feels attached to the brand and voices his opinion publicly when he notices something he disagrees with at Ferrari.

If you want to research a more recent example of this ‘unlocking’, look up the case of Tata Motors and Tata Motors Passenger Vehicles.

Quick Takes

+ The US President Trump threatened to raise tariffs on Indian goods again if India continues to buy Russian oil.

+ India’s composite PMI (manufacturing + services) fell to 57.8 in Dec (vs 59.7 in Nov). Services PMI fell to a 11-month low of 58 (vs 59.8 in Nov). This means economic activity grew less in Dec than in Nov.

+ MoSPI has estimated 7.4% GDP growth for India in FY26, against 6.5% in FY25.

+ The Supreme Court has asked the central government to decide within four months on raising the current wage ceiling (Rs 15,000) for the employee provident fund.

+ The Indian Navy has deployed its First Training Squadron on a long-range training deployment to Singapore, Indonesia and Thailand to strengthen maritime ties.

+ Govt has announced that the first phase of population census will begin from 1 April 2026, and will continue till Sept end.

+ SEBI has accused Bank of America of breaching insider trading rules and internal controls during a 2024 share sale deal: as per media reports.

+ The Dept of Telecommunications has signed an MoU with IIT Kanpur to jointly develop India-specific telecom standards and advance research in future technologies like 6G, AI, satellite networks, etc.

+ Monthly mutual fund SIP inflows were at a record high of Rs 31,002 crore in Dec: AMFI

+ The US Commerce Secretary has said that the India-US trade deal stalled because PM Modi didn’t call Trump to finalise it. India has refuted these claims.

+ India’s forex reserves fell by $9.81 billion to $686.8 billion in the week that ended on 3 Jan.

+ China’s retail inflation rose by 0.8% year-on-year in Dec (vs 0.75 in Nov), the highest level in nearly 3 years.

The information contained in this Groww Digest is purely for knowledge. This Groww Digest does not contain any recommendations or advice.

Team Groww Digest

The event is called Shunto.

It happens every year in March.

International traders realised that this event could have a direct impact on them.

Rengo, a confederation of unions in Japan, is on one side. Big corporations like Toyota, Mitsubishi, Sony, Hitachi, and others are on the other side of the table.

It’s not literally one big meeting. These meetings happen among individual sectors and companies.

Rengo puts forward a number. This is the hike they expect that year. Then, the corporations get back at them with a counteroffer.

Some back-and-forth happens. And they settle on a number.

This number is the annual hike workers should get working at the negotiating companies.

What makes the Shunto a big deal is that it sets the tone of the hikes for each year. So even small businesses tend to try and match a similar hike.

So, the hike negotiated between Rengo and the corporations sets the tone for the hike salaried workers across Japan would get.

For over 30 years, Rengo had been asking for modest hikes of around 1%.

This was mostly a seniority based hike. It was not meant to fight inflation.

The Japanese economy has been largely stagnant for nearly 3 decades. Salary growth in this period has been negligible. Interest rates in the country have also been near 0%.

If these companies went bankrupt, Japanese workers would lose their jobs.

So, they agreed to rock-bottom salary hikes.

A low-increment job was better than no job altogether.

In 2024-25, they successfully negotiated a 5+% hike. The highest hike in 34 years.

Traders and BoJ

Across the oceans in some hedge fund offices in the USA, the UK, and a few other countries, traders watched the news.

Along with them, other big institutional investors were also eyeing this first-in-decades news.

So was Japan’s central bank — Bank of Japan.

The Bank of Japan had kept its interest rates near 0% or even negative in the hopes of triggering economic growth.

They suffered an economic slow down back in the 1990s from which they were still trying to recover.

This allowed for an interesting investment opportunity.

Since their interest rates were near 0%, borrowers could essentially have free money. They could borrow at 0% per annum, and invest the same in a safe but higher interest rate investment like US treasury bonds which are considered extremely low risk.

This is called a carry trade.

Take a loan at cheaper interest rates. Invest the money in higher interest rate bonds. The difference is your profit.

Since the interest rates in Japan have been near 0% (or lower) for over 30 years, many kinds of strategies have been able to emerge.

The easiest was to invest in government bonds of higher interest countries. Low risk and safe. Borrow from Japan, invest in government bonds in America, the UK, Australia, etc.

Many years pass. Investors warm up to the idea of near 0% interest rates in Japan. They get used to it.

They expect it to stay that way. They get bolder.

Borrow from Japan, but invest in corporate bonds.

Some time goes and things turn out fine, mostly.

Boldness is upped a bit more.

Money starts going into equities — shares of companies. Tech and AI stocks become favourites.

Time goes by, Japanese interest rates remain low despite interest rates in the rest of the world going up and down.

Boldness increases further.

Money borrowed from Japan goes into emerging markets, venture capital, and even ultra-high risk assets like crypto.

And to make matters worse, some trades started using leverage on top of this.

BoJ Reads the Signs

No central bank prefers to keep interest rates at 0%. It takes away their ability to control inflation and also the ability to control economic activity.

When inflation rises too much, central banks increase interest rates. This reduces economic activity. But lowers inflation.

On the other hand, if economic activity reduces and inflation is also low, they decrease interest rates. This causes higher economic activity.

BoJ had kept their interest rates at 0% and still, economic activity had not picked up enough. And inflation was very low.

This left no room for them to act.

When Rengo negotiated a hike rate of ~5% in 2025, BoJ noticed.

They realised that finally inflation was high enough that workers were demanding bigger raises.

Workers in Japan did not demand raises because they were afraid of a loss of jobs from companies not being able to make money (spoke about earlier in this write up).

The fact that workers demanded higher wages, and companies agreed, meant that the Japanese people were willing to demand higher wages and companies were confident of being able to earn more money to cover the higher costs.

They started raising interest rates in Japan.

You can imagine how this move is a concern for carry traders.

They borrow at a certain rate. They then earn a certain return on it. The difference is their profit. If this difference reduces, their profit reduces.

At present the rate is up at 0.75% (yes, this is a high rate for them).

The Bank of Japan has indicated that they intend to increase further.

Panic struck among traders. They feared they would have to pay a higher interest rate. Further, they feared everyone would think the same — and start selling their assets.

That would cause prices of those assets to fall. So to avoid that, they started panic selling.

This caused a pretty significant price dip in some tech companies’ stock prices (down 3-5%) and crypto prices.

Still Wide

The gap between Japanese interest rates and the returns that can be earned from investing in US treasuries still remains.

This means that carry trade is not dead yet.

It is still profitable.

It took some time for the traders to realise this. And when the realisation set in, the panic sell off stopped.

The gap exists. It might reduce, as some hints seem to suggest.

Some hints suggest that BoJ may increase the rates from the current 0.75% to about 1.5%.

At that level, carry trades would still work, theoretically speaking.

But those trades would be susceptible to small changes. It would make the trade risky. When the interest rates were close to 0%, it was technically free money.

That has reduced now.

And it may reduce further.

Double Edged

If it was just about the gap in interest rates, things would be easier. But they are not (of course).

When someone borrows money from Japan, it is in Yen. When they bring it to the US (example), they convert it to US dollars.

This means exchange rates matter.

When money was moving out of Japan, demand for Japanese Yen was lower and US dollar was higher. Borrowers were borrowing in Yen, and trying to convert it to US dollars.

This caused the Yen exchange rate to fall.

This meant that by the time the borrower had to pay back their loans in Japan, the Yen exchange rate would be even lower.

Which means they would have to need even fewer dollars to pay back their loan.

Double benefit.

But if many investors are doing the opposite — selling assets elsewhere and trying to buy Japanese Yen to pay back their loans — the exchange rate of Japanese Yen goes up.

So they will need even more US dollars to clear their loans.

Double disadvantage.

As you would know, exchange rates change a bit all the time.

When they were borrowing at 0% from Japan, and earning 5% in the US, the difference was large enough. They could take some risk since they were making so much returns.

But if the BoJ’s interests reach 1.5%, and the US lowers theirs to 3.5%, the difference is only 2%.

That makes investors susceptible to currency swings.

Fewer carry trade will happen.

The magnitude of borrowed Japanese money in the global economic system means whatever happens — we have to keep an eye on it.

All markets are deeply linked.

Quick Takes

+ India’s industrial output grew 6.7% year-on-year in Nov (vs 0.5% in Oct), the highest in 2 years. Manufacturing output grew 8% year-on-year (vs 2% in Oct).

+ The Defence Acquisition Council (DAC) approved proposals worth about Rs 79,000 crore to procure advanced systems for the Indian Army, Navy and Air Force.

+ Australia will remove tariffs on 100% of Indian exports from 1 Jan 2026 under the India-Australia Economic Cooperation and Trade Agreement: Minister of Commerce and Industry Piyush Goyal

+ The Ministry of Defence signed contracts worth Rs 4,666 crore for the procurement of Close Quarter Battle Carbines and Heavy Weight Torpedoes.

+ The central government approved the widening and strengthening of a stretch of NH-326 in Odisha at a cost of Rs 1,526.2 crore.

+ The central government approved a 6-lane Nashik-Solapur-Akkalkot highway corridor in Maharashtra at a cost of Rs 19,142 crore.

+ India’s 1st bullet train is expected to begin operations from 15 Aug 2027: Railways Minister Ashwini Vaishnav.

+ The government notified that from 1 Feb 2026, an additional excise duty will be applied on tobacco and tobacco related items over and above the GST rates.

+ India’s gross GST collections rose 6.1% year-on-year to Rs 1.75 lakh crore in Dec (vs Rs 1.70 lakh crore in Nov). Net GST collections rose 2.2% year-on-year to Rs 1.45 lakh crore.

+ India’s manufacturing PMI fell to 55 in Dec, a 2 year low (vs 56.6 in Nov). This means manufacturing activity grew less in Dec than in Nov.

+ India’s forex reserves rose by $4.37 billion to $693.32 billion in the week that ended on 26 Dec 2025.

The information contained in this Groww Digest is purely for knowledge. This Groww Digest does not contain any recommendations or advice.

Team Groww Digest

On the last Sunday of every year, we send a snapshot.

At first, it was just a timeline with significant dates marked.

Over time, it evolved to include more qualitative information.

This year will be similar — but more in-depth.

A lot happened, but that is literally every year. Let’s dive.

Timeline

Nifty 50: 1 Jan, 2025 — 23,743
January-March Period

- Union Budget: zero-tax limit increased to Rs 12 lakh
- RBI cut interest rates by 0.25% (first cut since 2020)

Nifty 50: April 1, 2025 — 23,166
April-June Period

- US announced broad tariffs that affected India also
- RBI cuts rates by 0.25% again
- RBI cuts rates yet again in June. This time, 0.50% (most aggressive rate-cut cycle since 2019)
- CPI (consumer inflation) fell to 1.55%, the lowest level since 2017

Nifty 50: July 1, 2025 — 25,542
July-September Period

- 25% US tariff on India effective in Aug
- Followed by another 25% later in Aug, total tariffs = 50%
- GDP grew 7.8% in the April-June quarter
- Manufacturing and services activity touched 17-year highs
- S&P upgraded India’s credit rating to BBB (1st upgrade in ~18 years)

Nifty 50: October 1, 2025 — 24,836
October-December Period

- India approved a major GST reform
- SIPs crossed Rs 29,000 cr for the first time
- Inflation fell to 0.25% (record low)
- Trade deficit hit an all-time high due to heavy gold imports
- Biggest IPO of the year — Tata Capital’s Rs 15,512 crore IPO
- Markets all time highs: Nifty: ~26,325; Sensex: ~86,159
- USD-INR exchange rate fell below Rs 90 per USD
- RBI’s cuts rates again by 0.25%
- India’s biggest IPO-year ever. 100+ IPOs. Raise Rs ~1.75 lakh crore
- Gold & silver prices at all-time high

Nifty 50: Dec 26, 2025 — 26,042

So, Nifty 50 rose ~9.68% this year.

Geopolitics

For Indians, “geopolitics” reminds us of the conflict with a neighbour-country in May 2025.

The next major theme: changing relations with the USA and China.

We were surprised by US tariffs. Our ties with China improved.

India has had to play a balancing act with major powers in 2025. A multi-polar world seems to be emerging.

The USA, Russia, and China — all being carefully balanced.

Our ties with Russia remain crucial to us.

We continued buying Russian oil, upsetting the West. Despite that, we’re trying to have good relations with the West.

In the immediate neighbourhood, we saw tensions in Bangladesh and Nepal. It is something we will have to keep an eye on in 2026.

On a more global level, 2025 was dominated by the USA’s new president.

Existing conflicts like the Israel-Gaza conflict and the Ukraine-Russia conflict got tinted by Trump’s policies.

His policies were more hostile towards many countries this year.

They tried to restrict export of GPUs (for AI training) to China. In response, China ramped up GPU R&D efforts.

The Ukraine-Russia conflict is straining US-Russia ties currently.

Iran is another challenging country for the US. Trump doubled down on that. More sanctions, pressure tactics, and a few military flare ups.

The US is also getting involved in the Israel-Gaza conflict.

The situation in the Middle East has always caused scares across the world, especially to countries that import crude oil.

Crude oil prices this year remained stable.

Of course, the big talking point of the year remains — US tariffs.

It deserves a section of its own.

Tariffs

In April, the newly elected US President Trump announced a 10% tariff on all US imports and proposed a total of 26% duty on Indian goods.

The India-US negotiation talks that took place after this were not fruitful.

On 1 Aug, a flat 25% tariff was imposed on most Indian exports to the US. Not even a month later, an additional 25% penalty was imposed over India’s purchase of Russian oil, taking the total tariffs to 50% — the highest imposed by the US.

Labour-intensive sectors like textiles, leather, gems and jewellery, and seafood, especially shrimp, were hit the hardest.

Pharma and semiconductors were largely spared due to US dependence on Indian supply chains.

The sudden shift disrupted exports and forced Indian firms to diversify.

While exports fell sharply in September, India responded with measures like the Export Promotion Mission and trade talks with countries, including negotiations with the US.

The talks are still going on at the time of writing this.

IT Sector

The Indian IT sector faced pressure from multiple external factors. Mainly in the US and Europe.

First, the US moved to make the “new H-1B visas” far more expensive ($100,000 fee), which directly affects the model Indian IT companies use for US clients.

Second, there was also talk of policies like a 25% US outsourcing tax.

Third, the overall demand stayed soft.

Clients in North America delayed deals and reduced discretionary tech spending, which slowed down the overall IT sector.

This stress showed up in the stock market as well.

Foreign investors sold about Rs 67,800 crore worth of Indian IT stocks as of September 2025, the highest among all sectors.

The Nifty IT index fell much more than the broader market.

Interest Rates

In the past 2-3 years, interest rates have increased.

The US Fed, India’s RBI, and the central banks of the UK, EU, Canada, Australia, and more, had all jacked up the interest rates.

Why?

That’s one way central banks use to reduce inflation.

If you recall, inflation was shooting through the roof in many countries, especially western countries. So they raised interest rates.

All kinds of loans became more expensive — business loans, home loans, education loans, etc.

It appears that that method worked. Inflation rates world over were healthier in 2025. With that problem tackled, central banks could focus on economic growth.

How does that happen?

Lower interest rates. Which is what we saw in 2025.

The US Fed reduced interest rates starting in Sept and continued to reduce till Dec.

The European Union did something similar. So did the UK, Canada, Australia, China, and India.

India’s RBI lowered interest rates by a total of 1.25% in 2025.

One exception: Japan.

Japan has had extremely low interest rates for 3 decades now. They had kept it around 0% or even negative.

Their population is low. They had been trying to desperately increase economic activity.

They increased rates for the first time in 25-30 years. This caused some shocks in the global financial system.

Many investors/traders used to take advantage of cheap Japanese loans to trade. That became difficult.

GDP & Inflation

India’s GDP saw strong growth in 2025.

In the first quarter of 2025, it came in at 7.4% and reached 8.2% in the July-Sept quarter.

This was marked by strong domestic consumption, investment in infrastructure, and a services sector that stayed strong despite geopolitical uncertainties.

At the same time, retail inflation fell steadily, staying below the RBI’s target of 4% (± 2%) by September.

It reached a record low of 0.25% in October, before rising slightly to 0.71% in November.

In response, the RBI gradually reduced rates throughout the year to support growth and maintain economic momentum.

Gold & Silver

Gold — up ~75% in 2025
Silver — up ~150% in 2025

The main reasons for the rise in prices of gold and silver are different.

For gold, it started with the weakening of the Indian Rupee, which led to higher opportunity cost of not holding gold.

The US tariffs on Indian goods were another reason for the gold price surge.

A newfound demand from the Gold ETFs also had a massive contribution.

This reflects a rise in retail investment and mutual funds interest in gold in 2025.

For Silver, the story is different.

Silver prices surged due to factors completely different from gold — including strong industrial demand and a constant supply shortage.

The solar energy sector, AI and electronics, and electric vehicle adoption significantly increased silver demand, while supply from mined silver remained unchanged.

Additionally, investment flows into silver ETFs, geopolitical instability, and favourable monetary policies further increased demand for silver.

Tax Reforms

The year saw falling inflation and rising GDP rates. This required a push by government policies.

A major push came in the form of new GST reforms effective from 22 Sept.

It simplified the GST structure by replacing the 4 tax rates (5%, 12%, 18%, 28%) with 2 tax rates (5% and 18%). Plus, a 40% flat tax rate on luxury and sin goods (like tobacco, designer bags, etc).

These reforms also increased the demand for automobiles which reflected in the rising auto sales for the months of Sept to Dec.

The new GST structure made taxation easier for businesses, SMEs, and startups by removing several ambiguities.

In addition, a revamped Income Tax structure introduced earlier this year during the Union Budget in Feb also contributed.

Income tax liability was removed for income till about Rs 12.75 lakh.

Beyond that, a gradual 5% increase till Rs 24 lakh was included. And, a flat 30% tax on income above Rs 24 lakh was aimed at improving spending and investment activity.

IPOs

Mainboard IPOs exhibited a broadly positive but unstable market for new listings, with more gains than losses — with some underperforming significantly.

Out of over 100 IPOs this year, around 67% of them listed with positive gains. The year had an upbeat start, with January observing 7 IPO listings with gains ranging from 10% to 33%.

October was the busiest month with 18 IPO listings, with August observing the highest gain in 2025 for Highway Infrastructure Ltd.

IPOs in 2025 also showed very high volatility. The gains were as high as over 60%. The losses were as low as below -30%.

The average return on these IPOs was relatively modest (at just around 9%).

2026

With that, we have broadly covered the year 2025.

Of course a lot happened — and a lot is not written above.

But these are the broad themes.

As for 2026, many of these themes will probably continue.

Some of these themes will vanish. Some will evolve. And some new themes will be born — as happens every year.

Nobody can tell you precisely which those themes will be.

We hope next year will be a good one.

Quick Takes

+ India’s core infrastructure output grew 1.8% year-on-year in November (vs -0.1% in Oct). Coal, cement, steel, and fertilizer sectors saw a growth while crude oil, natural gas, petroleum refinery products, and electricity fell.

+ India and New Zealand concluded the negotiations for a Free Trade Agreement (FTA) with reduction in tariffs on Indian goods and new opportunities for various sectors.

+ India’s gross FDI fell marginally to $6.5 billion in Oct (vs $6.6 billion in Sept). Net FDI was negative, with an outflow of $1.5 billion (vs an outflow of $2.3 billion in Sept).

+ China launched an online visa application system in India to speed up the visa process in a step to ease travel between the two countries.

+ China has initiated a trade dispute with India with the WTO over tariffs and policies on solar cells, solar modules and IT goods, saying the measures discriminate against Chinese imports.

+ The US annual GDP grew 4.3% in the July-Sept quarter (vs 3.8% in the previous quarter).

+ The central government approved the Delhi Metro Phase 5(A) expansion project with 13 new stations for a cost of Rs 12,015 crore.

+ India’s Civil Aviation Ministry has granted No Objection Certificates (NOCs) to Al Hind Air and FlyExpress to enter the aviation industry. Another airline, Shankh Air, is expected to begin operations in 2026.

+ The National Highway Authority of India (NHAI) sponsored Raajmarg Infra Investment Trust (RIIT) has received SEBI’s approval as an Infrastructure Investment Trust (InvIT).

+ India’s forex reserves rose by $4.37 billion to $693.32 billion in the week that ended on 19 Dec.

The information contained in this Groww Digest is purely for knowledge. This Groww Digest does not contain any recommendations or advice.

Team Groww Digest

It almost seems avoidable.

And yet, bubbles repeat.

The Tulip Mania was not the last bubble. There have been many bubbles over the ~400 years since.

For those who are not familiar: people in the Netherlands started buying tulip flowers.

It became a hot commodity.

That caused the price to rise to astronomical levels. People started buying the flowers to be able to sell at a higher price. The price kept rising until one day the bubble popped: the prices crashed.

Many people lost large amounts of money.

South Sea Bubble
Silver Bubble
Japanese Real Estate Bubble
Dot-com Bubble

These are only some examples of bubbles since then.

So why do they keep happening?

To answer this question, we need to look at high-returns elsewhere.

Twitch

In July 2012, Bessemer, a venture capital firm, announced that it was investing about $13 million in a start up called Twitch. This investment would give them about 18% stake in the company.

At this point in time, the company revenues were meagre. And profit was not a priority.

What was Twitch?

A gaming streaming platform.

People who played computer games could record themselves playing and post the videos online. Or stream the game live.

In 2012, if you wanted to watch a video online, you went to YouTube. They dominated the space without any meaningful competitor.

YouTube was starting to gain from a snowball effect that most market-places have.

People came to YouTube because it had so many videos. Video-makers of all kinds came to YouTube because that’s where all the video-watchers were.

Education-related videos? YouTube? Entertainment? YouTube. Sports? Wildlife? Cooking? Same. News. Also YouTube. It had everything.

This producer-consumer advantage made YouTube the default place for any video on the internet. In some ways, that’s true even today, nearly 13 years later.

Despite YouTube’s absolute dominance and rising growth, Bessemer decided to invest in Twitch — a video platform only for gamers.

Their justification was that over 1.5 lakh gamers used Twitch every month.

About 2 years later in 2014, Amazon acquired Twitch for a little under $1 billion.

Bessemer’s investment had grown over 10 times in that period. It turns out to be around 216% per annum.

Amazon bought it because it felt Twitch would help it expand in a new direction (and grab revenues there).

Some investors really do make astronomical returns. And everyone else thinks they can repeat the same success.

This is why bubbles – despite seeming impossibly good – still persist. Investors think they can hit it big despite the odds.

What an Informed Investor Does?

But clearly, Bessemer wasn’t just investing blindly hoping for things to work out.

What do these investors think?

Well — the thought process is pretty much the same as any other investor.

They are willing to pay a higher price for something today. The hope is that the future price will be so high, the purchase price wouldn’t matter.

Think of it like this.

In an area, a new airport has just been announced. 1 acre land costs Rs 50 lakh here.

You are trying to buy it and the seller wants Rs 60 lakh. What do you do?

Many investors would be okay to pay this higher price because in the future, the price might be Rs 1 crore per acre.

So buying at a slightly higher price is better than not buying at all.

Now obviously, things can go wrong. What if the airport gets delayed or cancelled. That risk does exist.

That also has to be factored in the decision being made when buying.

So all things factored in, how much are you willing to buy the 1 acre land for?

Even if you buy it at Rs 90 lakh and in a short period it goes to Rs 1 crore, you have made a gain over a short period.

This is essentially what every investment is.

Investors want to pay a low price for shares, real estate, etc.

But are willing to pay a higher price so as to not miss the deal. That reduces the investor’s returns a bit. But that is still better than no profit.

The problem occurs when you pay Rs 10 crore for land that will be Rs 1 crore in the future.

Then, no matter what an investor does, a loss is guaranteed.

Investing is about:

Trying to estimate the future value of an asset
Making sure you pay as low a price for it as possible compared to that future price

The Challenge

Then, the primary challenge in investing is determining the future value of an asset.

This is unknown. Nobody has a clear-cut answer to this question.

In some assets, this might be easier to estimate. Bonds, real estate to some extent.

In others, it is difficult. Large companies’ shares.

And in some, it almost seems impossible. Like early-stage investing in companies.

Investing is making informed estimates about the future value of an asset.

One easy way to avoid overpaying is to compare the price of an asset today to the maximum it could be tomorrow.

If the price is higher than that, the answer is simple — do not invest.

Many bubbles can be avoided by doing that. The price reaches stupidly high. Nothing can justify the price.

At that point, whoever is buying is merely buying hoping to sell to someone else who would be willing to spend even more (without a solid reason). It becomes a house of cards.

Often, the reason investments underperform is not because people are unaware. It’s because they estimate the wrong future value.

This can happen to anyone. It can happen to even the best of investors.

Successful investors are those who estimate more right and less wrong.

Quick Takes

+ India’s wholesale inflation fell to -0.32% year-on-year in Nov (vs -1.21% in Oct).

+ India’s unemployment rate fell to 4.7% in Nov (vs 5.2% in Oct).

+ India’s merchandise exports rose 19.38% to $38.13 billion in Nov and imports fell 1.89% to $62.66 billion. The trade deficit narrowed to a 5 month low of $24.53 billion.

+ India’s manufacturing PMI fell to 55.7 in Dec (vs 56.6 in Nov) as per preliminary estimates. Services PMI fell to 59.1 (vs 59.8 in Nov). Composite PMI (manufacturing + services) fell to 58.9 (vs 59.7 in Nov).

+ India’s passenger vehicle sales rose 18.7% year-on-year to 4.12 lakh units in Nov.

+ India’s textiles and apparel exports grew 9.4% year on year in Nov to $2,855.8 million.

+ SEBI approved new regulatory changes including easier mutual fund investment norms, simplified IPO rules, and updates to brokerage regulations, etc.

+ India and Oman signed a Comprehensive Economic Partnership Agreement (CEPA) offering a significant tariff reduction on most goods and expanded cooperation in services and investment.

+ The Bank of England cut its key interest rate from 4% to 3.75%.

+ Japan raised its key interest rate to 0.75% from a previous rate of 0.5%. It is the highest rate of interest in the last 30 years.

+ India’s forex reserves rose by $1.69 billion to $688.95 billion in the week that ended on 12 Dec.

+ China has filed a formal WTO complaint against India challenging India’s tariffs on information and communications technology (ICT) products and subsidies for the solar sector, claiming they give Indian industries an unfair advantage and violate WTO rules.

+ The central government approved a Rs 887 crore project to develop a world‑class marina in Mumbai Harbour.

The information contained in this Groww Digest is purely for knowledge. This Groww Digest does not contain any recommendations or advice.

Team Groww Digest

In 2009, Michael O’Leary made a calculated announcement.

The CEO of the low-cost carrier airline, Ryanair, revealed plans for a toilet-use charge for its planes.

Passengers were flabbergasted.

A huge uproar followed. The airline never implemented that plan.

About a year later, the CEO was heard introducing the idea of standing seats. The seats would be narrow and spaced closer.

Passengers would practically be leaning on the backrest of the “standing seat”, held in place by a seat belt.

People found the idea just as ridiculous. Social media was abuzz with people throwing nasty words at Ryanair.

There’s more. A lot more.

Paid drinking water, ticket prices based on passengers’ weight, and more.

Ryanair’s Failure

The airline started back in the 1980s in Ireland.

Back then, they had one small plane.

Tony Ryan, the founder of the airline, hired a young personal tax advisor. His name was Michael O’Leary (yes, the same Michael O’Leary).

Back then, full service airlines like British Airways and several other airlines across Europe were struggling to make profits.

Tony’s idea was to launch a low-cost full-service airline.

The tax advisor, Michael, saw the business plan and immediately advised Tony to shut the business down.

To him, it made no sense at all.

Tony Ryan was convinced there was a way to make this work. He asked Michael to visit the USA with him and study the low-cost airline Southwest Airlines.

And so they did just that.

Learnings Southwest

In the USA, Tony and Michael got a taste of the Southwest way of doing things.

One of the first things they noticed at the airport was the turnaround time.

A plane arrived, deboarded its passengers, boarded new passengers, and flew off again — all within 25 minutes.

This absolutely stumped them. European airlines back then used to take over 1 hr to do that.

Another peculiarity they observed about Southwest was that they used only one airplane model.

It helped Southwest buy planes in bulk. Further, they were able to buy parts for the plane’s maintenance in bulk, at discounted prices.

Southwest was also in the habit of using secondary airports. These were airports close to the city but not in the city.

This helped them avoid crowded airports with high charges.

Such secondary airports are not common in India, but they can often be seen in western countries.

In an age of full-service airlines, food and drinks on airlines was the norm. Not serving meals was outright revolutionary.

Southwest served only water and peanuts.

Tony and Michael also met with the legendary founder of Southwest, Herb Kelleher, and discussed all things airlines.

Tony Ryan and Michael O’Leary came back impressed.

They were confident that European airlines were just wasting money and charging sky-high ticket prices. All they had to do was replicate the Southwest model in Europe, and they would win.

They particularly noted that cutting out food and drinks did not result in passengers avoiding Southwest Airlines.

It made their conviction even stronger that the passengers cared a lot more about prices than services.

Ryanair Reborn

When they came back, their airline was bleeding. Turning things around takes time.

They started.

All that they loved about Southwest was on the table.

They started with reducing the turnaround time. Planes that are in the air are the planes that earn money.

Food was no longer available.

New routes were introduced. They placed orders for Boeing 737 planes — with the intention of owning only Boeing 737s in the future.

The focus was on busy routes and cities that had a secondary airport.

In 1994, their first Boeing 737 arrived. By 1997, many other 737s arrived and newer routes were added accordingly.

In 1994, Ryanair got its new CEO — Michael O’Leary (Tony Ryan’s tax advisor). He is still the CEO of Ryanair today.

They started cutting costs aggressively.

In the 1990s, they transitioned to a fully low-cost airline model. Even when they were not a low-cost airline, their ticket prices were much cheaper than their competitors.

When they became a low-cost airline, their ticket prices were unmatched.

In 1997, a regulation change allowed airlines to rapidly expand to all over Europe. Ryanair exploded all over Europe.

By 2002-2003, the airline crossed 1 million passengers.

The growth did not plateau.

By 2012-23, they crossed 75 million passengers.

By 2024-25, they had touched 180 million passengers.

Ryanair Today

Today, Ryanair remains true to its low-cost identity.

The internet is filled with memes about its low-cost nature.

A video shows a plane arriving at a runway from the skies, and making a gentle and smooth landing. The caption below it reads “And then Ryanair fired this pilot”.

The joke is that Ryanair is so cheap, they don’t let their customers have the luxury of a smooth landing.

It might be funny, but it is also true (for a different reason).

A smooth landing requires a long distance of the runway. Ryanair operates in all sorts of airports including small ones. So their pilots are trained to land planes at shorter runways.

The hard landings are not actually unsafe. They ensure the plane lands firmly without the risk of running out of the runway.

By the way, Ryanair has a stellar flight safety record with no deaths in decades of operations.

There’s another one: for Ryanair, “Paris” is an empty field with cows grazing.

The meme is a nod to the fact that Ryanair uses secondary airports. This airport is actually 80 km from the actual city.

Another meme talks about how they don’t let you sleep on overnight flights because they sell lottery tickets loudly.

Again, true.

A significant part of their revenue comes from sales of items on board. Even the crew’s salary is structured to incentivise onboard sales.

The interiors of the plane are a bright and loud yellow colour. It is designed to keep the passengers alert so they de-board the plane fast after landing.

Upon landing, they play a loud jingle about their on-time performance. The idea is to drill into passengers heads that they are cheap and on-time, despite offering no frills.

Those are two traits most passengers care most about.

Efficiency is the name of the game.

For all of them — Southwest and its copycat airlines like Ryanair, Indigo, AirAsia, JetBlue, easyJet, and a few more.

They try to keep everything operating extremely efficiently.

They strive to save time, weight, fuel, employee salaries, maintenance cost, plane purchase cost, money — everything.

This might explain why they are so particular about everything including the extra services they charge customers for.

They’re playing the low-margin-high-volume game.

It works for them.

In their respective markets, these low-cost airlines are some of the most consistently profitable airlines.

For those who are not aware, the airline industry is notoriously difficult to make profits in.

Low Cost Marketing

Ryanair’s social media pages are quite active. They really own their image.

They readily mock customers for choosing the cheapest possible flight tickets (Ryanair), take a dig at their competitors, make jokes about how they will charge customers for ridiculous “services”, etc.

Being an ultra-low-cost airline, they try to save money on marketing too.

Their social media page is one easy way to go viral.

Their CEO is no slouch in this regard either.

The toilet fee we spoke about earlier seems like a calculated PR stunt to garner attention without actually charging customers for using the toilet.

If you go on YouTube, you can watch the CEO clearly talk about introducing standing seats.

But regulations do not allow for that. Surely the CEO of an airline would be aware of such regulations?

So even that seems like a calculated publicity stunt.

Even this — the CEO saying ludicrous things to gain publicity — is something that the Southwest founder was famous for.

It appears that Ryanair really loved the Southwest model.

And Michael O’Leary copied it to the greatest extent possible.

Quick Takes

+ India and the European Union will resume talks on the proposed Free Trade Agreement (FTA).

+ US President Trump accused India of ‘dumping’ rice in the US and hinted at the possibility of new tariffs on Indian rice imports to protect US farmers. Meanwhile, the India-US trade talks are set to resume this week.

+ China’s inflation rate rose to 0.7% in Nov (vs 0.2% in Oct). It is the highest level since Feb 2024.

+ Meesho IPO listed on the stock exchanges at a premium of 46.40% over the issue price and closed 53.23% up at the end of the day.

+ Aequs IPO listed on the stock exchanges at a premium of 12.90% over the issue price and closed 22.01% up at the end of the day.

+ The US Fed lowered the key lending rate for the 3rd time this year, to a range of 3.50% to 3.75%.

+ Mexico approved higher tariffs of up to 50% on imports from India, China, and other Asian countries on a variety of goods to protect its domestic industries.

+ India’s retail inflation rose to 0.71% year-on-year in Nov (vs 0.25% in Oct).

+ India’s forex reserves rose by $1.03 billion to $687.26 billion in the week that ended on 5 Dec.

+ The central government approved a rail line between Bhanupalli-Bilaspur-Beri in Himachal Pradesh at a cost of Rs 6,753 crore.

+ The central government approved the proposal of conducting the population census in 2027 at a cost of Rs 11,718.24 crore.

The information contained in this Groww Digest is purely for knowledge. This Groww Digest does not contain any recommendations or advice.

Team Groww Digest