The discussion went on for a few years.

This was in the 1970s.

The challenge was that Brazil had vast Cerrado grasslands. These grasslands were mostly flat and vast.

This made these grasslands potentially ideal for agriculture.

But the soil quality was inferior. It was too acidic, lacking in nutrients, and often had elements that killed agricultural plants.

The soil needed to be treated.

This is where the Japanese came in.

They started a program to jointly work together starting in 1979.

The Japanese provided expertise, infrastructure, and funding for the initiative. The soil was treated with multiple different methods. Crops were rotated to increase biomass availability.

It all started bearing fruit in the 1980s.

Brazil obviously wanted that for itself. They wanted food security. They had been independently working on it for decades.

The Japanese assistance catalysed the effort.

Sometime in the 1980s, Brazil went from being a net importer of food to a net exporter of food.

Today, Brazil is also the world’s biggest producer of soybeans.

Japan and Brazil are a world away from each other. Why did they involve themselves in this initiative half a world away in Brazil?

The answer is that a long chain of unexpected events pushed them to it.

Peruvian Anchoveta Crisis of 1972

Peru was one of the biggest suppliers of this fish called the Peruvian anchoveta.

This tiny fish is not a particular favourite among people. But this fish had become an extremely integral part of the world’s food supply chain system.

Peruvian anchoveta was used as fishmeal. It was the food fed to fish and chickens. And fish and chickens are what is critical in the global food supply chain system.

In 1972, Peru suddenly banned fishing for the Peruvian anchoveta.

Every year, fishermen would go out into the Pacific Ocean to catch them.

In 1972, the population of these fish was so low, Peru had no choice but to ban the fishing outright.

Why?

In April, the waters had suddenly turned warmer than usual, and the fish either didn’t reproduce enough or were driven away somewhere else.

Seeing the record low numbers, scientists warned the government about the risk of damaging the existing population from overfishing.

Thus, the ban was enforced.

The warm waters alone weren’t responsible for the fish population crash. Overfishing too was a factor. But the warm waters really pushed it over the edge.

Despite the warnings of the scientists, the government allowed fishing again with strict restrictions.

Still, the chain effect of damage had been done.

Peru was one of the biggest suppliers of these fish. In the absence of this fish, farmers turned to another crop to feed their fish and chickens. Soybeans.

The US was already a large producer of soybeans. But the Peruvian anchoveta shortage was so large, the US decided to restrict the export of soybeans in 1973.

And that was where the Japanese came in. They were heavy importers of soybeans.

Over-reliance on the US for these beans spooked them. They wanted to diversify their soybean supply, among other food items.

They looked across the world. One of the few countries they decided to rely on was Brazil.

Today, Brazil is the world’s largest producer of soybeans, and the US is the second largest.

Combined, today both these countries supply over 65% of the world’s soybeans.

Eventually the Peruvian anchoveta’s population recovered. But the farmers who relied on them to feed their fish and chickens had switched to soybeans.

Many never went back to the anchoveta.

Now, why exactly did the Pacific waters turn warm in 1972?

El Nino

El Nino. That’s the effect’s name.

The oceans are kilometers deep. The top layer of the ocean gets heated by the sun. The bottom layers do not get much sun. So it remains cooler.

Trade winds blow across the Earth’s equator. They blow from the east to the west.

The Pacific Ocean is the world’s biggest ocean. If you took a flight from South America to Australia, it would take you 12 hours to cross the Pacific Ocean.

Over this vast ocean, the winds blow from east to west, from near the Americas to Asia and Australia.

These winds push the topmost water layer towards the west.

So we get more warm water near Asia and Australia. To fill the empty space, colder water rises from beneath the ocean and rises to the surface near the east.

The cooler water from below is rich in nutrients. They support abundant life. Which is why the East Pacific Ocean makes for such great fishing waters.

Normal years:

Sometimes, these trade winds weaken.

This means that not enough warm surface water gets pushed west. So, it stays near the Americas. The less nutrient-rich warm water leads to fewer fish.

This is called El Nino.

El Nino years:

It does not occur at fixed intervals. It can happen anywhere from every 2 to 7 years. When it does occur, it lasts for about 9-12 months. Some have lasted longer than that though.

El Nino is why Peru experienced the 1972 Peruvian Anchoveta Crisis.

That, unfortunately, is a fairly localised event.

El Nino has a far greater impact. In fact, its impacts can be felt across the globe.

Effects

The global weather is linked.

One change in one part of the world can affect another.

Given just how massive the Pacific Ocean is, any change in surface temperatures can have a chain impact across the global weather system.

Its effects can be felt across the Americas, Africa, South Asia, Southeast Asia, and Australia.

The regular weather patterns get broken. Some parts experience more dryness than normal. Some experience more rainfall and storms than normal.

The dryness can result in forest fires that are hard to control. The excessive rains can cause flooding and infrastructure disruption.

In India, it often manifests as less-than-normal rainfall in the monsoons. It may also manifest in the form of higher than normal rainfall in winters in parts like Tamil Nadu and Kerala.

During El Nino years, the entire Earth becomes slightly warmer.

What sounds like a minor inconvenience is actually a disruption of giant proportions.

Farming and food supplies get hampered. Loss of livelihood and migration becomes a common pattern in these regions.

Thousands of people die every El Nino event because of the effects of the disrupted weather.

El Nino History

El Ninos aren’t always the same.

Some are massive. Some are less intense.

One of the strongest El Nino years in recent times was only about 2 years ago, in the 2023-24 period.

It was rated as being one of the strongest in the last 2 decades.

Another one in 2015-16 was similarly strong.

Other noteworthy El Nino years have been 2009-10, 2002-03, 1997-98, and 1991-92.

The Peruvian anchoveta example is one example that might help us get a sense of how unexpected and far-reaching the effect of El Nino can be.

Some more examples might aid here.

1991-92

In the 1991-92 period, higher than normal rain led to a vegetation boom in the Southwestern part of the USA.

The denser vegetation resulted in an explosion of mice. A higher-than-normal mouse population led to greater human-mouse contact. And that led to more diseases.

This El Nino resulted in a hantavirus outbreak in 1993 in the region.

1997-98

This El Nino created excessively dry periods in the Southeast Asia region.

Forest fires became so common that they affected tourism, airports, shipping, and health systems. El Nino didn’t directly cause forest fires, but the lack of rains resulted in uncontrollable forest fires.

1876-78

This one’s about 150 years old but is infamous for being one of the deadliest.

It resulted in famines across India, China, parts of Africa, and Brazil. Indirectly, it killed 50 million people.

2026-27

Yes, this year is an El Nino year too.

Yes, there will be disruptions.

And yes, this one’s supposed to be a big one.

What could it mean?

Well, this isn’t the first time. We’ve seen these come and go. We’ve also seen some El Nino years in the recent past.

The challenge with these is that we cannot fully understand all that will happen.

The general expectation is that the country might face severe heat in some parts and extreme flooding in some parts.

That’s the first and most immediate effect. How that will play out for the rest of the system is hard to predict.

We can look at yesteryears to get some sense of this.

One of the most common patterns is less than normal monsoon rainfall.

That impacts the food and agriculture products grown in the country. Any shortages there lead to higher prices of food items.

But then, does it always manifest in that way? Not really. Many times, governments stockpile food in cold storages to prepare for El Nino’s drought years.

So we cannot even say for sure that food prices will climb. They may climb.

Beyond that, the more wacky chain of events cannot be predicted.

It’s not a normal year. But it’s also not a once-in-a-century event.

But we’ve been through these before.

Quick Takes

+ India’s wholesale inflation rose to 9.68% year-on-year in May (vs 8.26% in April). Fuel inflation rose 30.33% year-on-year (vs 24.89% in April).

+ India’s merchandise exports rose 18% year-on-year to $45.2 billion in May while imports rose 20.6% to $73.41 billion. The trade deficit increased to $28.21 billion (vs $22.56 billion in April)

+ India’s unemployment rate rose to 5.5% in May (vs 5.2% in April).

+ Razorpay has filed for an IPO with SEBI through the confidential route.

+ India’s passenger vehicle sales grew 27.3% year-on-year to 4.39 lakh units in May: SIAM

+ India’s Union Minister Nitin Gadkari has officially signed rules giving legal recognition to 100% ethanol fuel (E100) for vehicles in India.

+ The sales of India’s listed private non-financial companies grew 13.9% year-on-year in the Jan-March quarter.

+ The government has increased the export duty on diesel to Rs 14 per liter and aviation turbine fuel (ATF) to Rs 12.5 per liter, while leaving petrol levies unchanged.

+ The US Fed kept the interest rate unchanged in the 3.5% to 3.75% range.

+ The US and Iran have officially signed an interim peace agreement to end the West Asia war. Iran has agreed to dilute its enriched uranium in exchange for major economic relief. In return, the US will lift its naval blockade and waive oil sanctions, while Iran will reopen the Strait of Hormuz.

+ The India-UK Free Trade Agreement (CETA) will officially take effect on 15 July, 2026, significantly reducing tariffs for both sides.

+ NSE has filed draft papers with SEBI for a Rs 30,000 crore IPO.

+ India’s forex reserves fell by $9.98 billion to $671.63 billion in the week that ended on 12 June.

+ Jio Platforms has filed draft papers with SEBI for an IPO with a fresh issue of up to 27 crore equity shares.

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

Team Groww Digest

Yes, it’s famous for many others as well. But tequila is an easy recall.

And maybe that’s why we now talk about the Tequila Crisis of 1994 (it wasn’t about tequila at all).

In the 1990s, Latin American countries were starting to look tempting.

They were viewed as “emerging markets”. Among them, Mexico was a particular favourite among international investors.

It was right next to the USA. It had a large working age population.

Foreign money started entering the country.

It was really in 1988 when the newly elected president raised the level of optimism among foreign investors.

With the signing of NAFTA, Mexico was supposed to become the ‘factory of the USA’.

Mexico had a history of rebel factions fighting the government. They threatened to destabilize the “hot new emerging market” narrative.

NAFTA came into effect on Jan 1, 1994.

Confidence was high, backed by the then president’s promises.

And then a rebel uprising in the south of the country raised a few eyebrows.

“Is Mexico really as stable as we were assuming?”, thought investors.

And then, the presidential candidate was assassinated. Investors lost more confidence.

Eventually, they started selling their investments and exiting the country.

That was the gradual start of the crisis — The Tequila Crisis of 1994.

The Peso (Mexican currency) started spiralling down.

The formal name is the Mexican peso crisis.

International observers nicknamed it the “Tequila Crisis” or “Tequila Effect” because Mexico’s financial shock quickly “spilled over” into other emerging markets, especially in Latin America, much like a hangover spreading beyond the original party.

If you’re not familiar with how currency exchange rates work, the above few lines might confuse you. Let’s try to understand that in depth, and the Tequila Crisis will start making more sense.

Strengthening & Weakening

Currencies are often traded. Which means, you can buy them — like buying shares or bonds or milk.

When you visit Italy, you cannot use Indian Rupees. You have to use Euros. So you buy some euros to use in Italy (you pay for them using your Indian Rupees).

Once your trip is done, you return to India, where Euros are not accepted. So you need to convert the Euros you have back to Indian Rupees.

So you use your Euros to buy Indian Rupees (you pay in Euros to buy Rupees).

The moment buying and selling is involved, there’s supply and demand.

And we know all too well that supply and demand can increase or reduce the price of a commodity.

When too many people are trying to buy Euros (by selling their Indian Rupees):

+demand for Euros is up
+therefore supply of Rupees is also up

The obvious happens. The price of Euros goes up. The price of Rupees falls down.

If earlier you had to pay Rs 120 to get €1, now you might have to pay Rs 125 to get €1 (example).

So we will say ʼthe Euro strengthened and the Indian Rupees weakenedʼ.

This is called the exchange rate — the amount of one currency needed to buy another currency.

The above was an example of the Euro-Indian Rupee exchange rate.

At any point, millions and billions of currencies are being bought and sold. This keeps the net price at a similar level.

When trades lean one way more or the other, the exchange rates increase/decrease accordingly.

BoP

So what’s the problem? What happens if the exchange rate goes too high or too low?

A lot can happen. It can be good. It can also be bad. People worry mostly about the bad parts (of course).

If a country imports food products, a falling exchange rate can mean more expensive food. Very worrying — not good.

Similarly, if it imports critical items and relies on them heavily, it will hurt the country’s economy and people.

The opposite does not automatically mean good.

For exporting nations, a strong currency is not good.

Many countries have factories that are appealing to richer countries because factory-worker salaries are cheap. If the country’s currency strengthens, those salaries automatically go up.

It could mean that fewer orders come to those countries, resulting in loss of trade and jobs.

Countries that rely heavily on exporting actually intentionally weaken their currency too.

By now you would be able to guess the positives here.

A strengthening currency is good if you’re importing. A weakening currency is good if you’re exporting.

In fact, it isn’t just about imports and exports. Money enters and leaves a country due to several other factors.

Some of those factors are:

+Import & export of goods (already discussed)
+Import & export of services
+Remittances (people working in foreign countries sending money home)
+Foreign Direct Investment
+Portfolio investment (investing in stock markets, bonds, etc)
+Borrowing and repayment of loans (companies taking loans from foreign lenders)
+Sending back profits to home country (foreign companies do this)
+And a few others

Each of these causes money to flow in and out of a country. And therefore, each of these affects the exchange rate of a country.

This is called Balance of Payments (BoP).

The balance is between payments coming in and leaving from the country.

Mexico

Back to Mexico.

The Tequila Crisis was a Balance of Payment Crisis.

The Mexican peso exchange rate with the US dollar was kept stable thanks mostly due to incoming investments.

So when investors started pulling out, the exchange rate started crashing. That made it difficult for them to import essential items which only worsened the situation.

Actually, initially, the Mexican central bank was able to control the exchange rate fall. How?

Central banks can control the exchange rate to some extent. They do so by maintaining reserves of foreign currencies.

When demand for the peso fell, Mexico’s central bank sold dollars from its reserves and bought pesos. This created demand for pesos and helped slow the fall.

Since the supply of the foreign currency goes up because of this, it can offset the effect of the increased supply of the local currency.

But it can only work for some time. The reserves eventually run low and the central bank can’t do much after that.

The crisis left a deep scar in Mexico’s economy. But they did bounce back from it after reforms and some loans being extended.

There have been many famous big BoP crises.

+Asian Financial Crisis of 1997
+Black Wednesday (UK) of 1992
+BoP Crisis India in 1991
+Argentina in 2001-2002
+Russia in 1998

It’s an interesting list. Each of them makes for an interesting read.

Quick Takes

+ India has launched E85 fuel, an 80-85% ethanol blend designed specifically for flex-fuel vehicles, across 48 retail outlets. It is priced around Rs 20 less than normal petrol (per litre). A flex-fuel vehicle is a vehicle equipped with an engine that can run on petrol, ethanol, or any blend of the two.

+ India’s current account surplus narrowed to $7.1 billion (0.7% of GDP) in the Jan-March quarter (vs $13.7 billion or 1.4% of GDP in the same quarter last year).

+ Zepto has filed an updated DRHP (Draft Red Herring Prospectus) for a Rs 8,010 crore IPO.

+ Fresh military strikes have taken place between the US and Iran, disrupting talks for a peace deal.

+ The government has approved Phase 2(A) of the Ahmedabad Metro Rail Project at a cost of Rs 2,169 crore.

+ CMR Green Technologies IPO listed on the stock exchanges at a premium of 39.58% over the issue price and closed 25.62% up at the end of the day.

+ The government has extended its zero-tax (no excise duty) exemption on petrol blended with higher levels of ethanol from E22 up to E30.

+ India’s annual inflation rate rose to 3.93% in May (vs 3.48% in April).

+ India’s forex reserves fell by $0.71 billion to $681.61 billion in the week that ended on 5 June.

+ The government has banned industrial and commercial users from buying bulk petrol and diesel at retail petrol pumps. Retail diesel purchases are now capped at 200 liters per vehicle daily for the next 90 days.

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

Team Groww Digest

There was Louisiana, which bordered the USA on the west.

People familiar with the map of the USA would know that today, Louisiana is actually a small state in the US.

But that’s not what we’re talking about here. We’re talking of a much larger region called Louisiana.

This Louisiana was controlled by the Spanish people.

In 1800, Spain and France signed a treaty that allowed France to take Louisiana from Spain.

Thomas Jefferson became the President of the USA in 1801.

Jefferson was famous for his strict adherence to the constitution. His philosophy was that the USA was a federal republic.

This means that the individual states created the central government or the federal government. He believed in the absolute power of the constitution.

Jefferson was known for having been extremely vocal in trying to prevent the federal government from taking action in cases that were not defined by the constitution.

Before he became president, Jefferson was famous for vehemently defending free speech by rallying against a bill being brought in by the federal government.

His argument was that the federal government’s jurisdiction did not involve controlling free speech in any manner whatsoever. So it could not ban it in any manner.

Louisiana

The east side was the US. Then there was Louisiana. And then, there was the rest of the wild west — where America wanted to expand to. This area was controlled by the British, Spanish, and other native folk.

But that was not the only complexity. The river Mississippi formed the eastern border of Louisiana. And the USA depended on it heavily for trade and transportation.

The USA had signed a treaty with Spain for using the river.

For the USA, the Spanish were predictable. The treaty they had signed was enough for them to feel relaxed.

But with the territory going back to France, tensions rose.

Napoleon’s ambitions of territorial expansion had the Americans worried.

If the French were present in Louisiana, they could limit or prohibit them from accessing the Mississippi river.

Not just access to the river, Jefferson was worried about military threats from Europe.

Jefferson’s Idea

Jefferson had a simple idea.

He sent his trusted envoys to France to talk to Napoleon. They were authorised to spend a sum of $10 million (a lot lot more in today’s value).

And they were given a task that seemed monumentally difficult: try to buy parts of Louisiana to ensure access to the river.

They arrived in France and pitched the idea to the French.

Napoleon, the then ruler of France, had imperialist ambitions. He wanted to expand French territory in Europe and the Americas.

But the plans weren’t going as per his wishes. A revolution in Haiti spoiled his plans, and there were risks of wars starting on multiple fronts even in Europe.

He was running short on money and would need more to continue fighting.

When the Americans approached the French with an offer to buy parts of Louisiana, the French had a counteroffer that was hard to believe.

The French were offering to sell the entire Louisiana territory. All of it.

The two countries negotiated for a period, eventually agreeing to $15 million.

The deal was on.

The news was made public on the 4th of July, 1803.

The Challenge

Upon its announcement, the idea was more or less well received.

But for Jefferson, there was a small problem. A problem that he was more likely to be targeted for than others.

The constitution had no provision for the President of the USA to buy land.

The opposition was ready to target him for being a hypocrite.

Jefferson, being the strict follower of rules that he was, called for an amendment of the constitution to allow the president to buy land and incorporate it into the territory of the USA..

They wanted to finish with it before Napoleon changed his mind.

They were running out of time and would need to convince the opposition to allow for expanding the federal government’s powers.

This was peculiar because it was Jefferson’s side that was most famous for wanting to limit the federal government’s powers.

On Oct 20, 1803, the Senate voted and ratified the treaty.

And thus, Louisiana became a part of the USA — all 830,000 square miles of it!

The USA’s size doubled (that’s how much territory it bought).

Jefferson

This episode is a great example of how many times we first decide what we want to do, and then justify doing so later.

Jefferson knew the deal was too good to miss. He realised that the opportunity was massive and would solve many problems for the USA.

He decided to find ways to justify going beyond his constitutional power later. First, he wanted to ensure he got the territory.

And it worked.

After the treaty was signed, some senators still believed the move was unconstitutional. But it was never challenged in court.

Investing

If there’s one lesson for investors in this tale, it’s this: do not be so rigid with criteria that you miss good opportunities.

Warren Buffett was a strict believer in value investing. That is, buying stocks that were trading below their intrinsic value.

But over time, he changed his methods as the best of his investments happened to be great companies — even if not undervalued.

Charlie Munger bent the rules for Costco. Despite being considered overvalued by many, he never sold the shares.

Had he sold, the shares would have been sold at a much lower valuation.

Quick Takes

+ India’s manufacturing PMI rose to 55 in May (vs 54.3 in April). This means manufacturing activity grew more in May than in April.

+ India’s industrial output rose 4.9% year-on-year in April (vs 4.1% in March).

+ The government reduced export duties on petroleum products, effective 1 June to ensure domestic availability. The Special Additional Excise Duty is revised to Rs 1.5 per litre on petrol, Rs 13.5 per litre on diesel, and Rs 9.5 per litre on aviation turbine fuel (ATF). Domestic duties will remain the same.

+ India’s fiscal deficit for FY25-26 stood at 4.4% of the GDP, in line with government estimates.

+ Commercial LPG prices have been raised by around Rs 42 to Rs 53.50 per cylinder. This is the 4th hike in a month.

+ SEBI passed an interim order against Rajesh Exports, a gold refining and jewelry export company, over alleged misrepresentation of Rs 15.15 lakh crore in the revenue. This accounts for nearly 99.8% of the company’s consolidated revenue over 5 years. The company’s chairman has denied the findings.

+ India’s composite PMI rose to 59.3 in May (vs 58.2 in April). Services PMI rose to 59.8 (vs 58.8 in April). This means economic activity grew more in May than in April.

+ The government approved a one time Rs 10,000 crore Price Stabilization Fund to provide interest-free loans to Oil Marketing Companies. The aim is to stabilize jet fuel (ATF) prices to shield Indian airlines from West Asia crisis shocks and prevent extreme fare hikes.

+ The RBI dismissed rumors that it sold gold worth $12 billion to defend the Rupee, clarifying that its physical gold reserves remain entirely steady at 880.52 tonnes.

+ The US proposed tariffs up to 12.5% on goods from India and around 60 other countries, claiming these countries failed to block products made with forced labor from entering their markets. The India-US bilateral trade talks are currently underway.

+ Oyo’s parent company Prism received SEBI’s approval for a Rs 6,650 crore IPO.

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 is no longer a functional mine.

Opened in 1971, it used to be the world’s biggest olivine mine.

Lefdal was an underground mine in which olivine was extracted by making tunnels. Over the decades, the mine had become massive.

Each tunnel was sufficiently tall and wide.

In case you’re wondering, olivine is a green mineral. It looks fit for use as jewellery but its primary use is in the steel industry.

Only 10 km from Lefdal, they found another olivine site. Here, the olivine was on the surface, not underground.

Once this was discovered, it made no sense to take the effort to dig and bring out olivine from underground.

The Lefdal Olivine Mine shut down in 2009.

The entire mine was about 13 lakh square feet in size. That’s about 1,000 times the size of a regular 3BHK urban apartment.

The space was not being used for anything. Until some folks had an idea for it.

Re-opening

In 2017, it opened again. It was back, not as an olivine mine, but as a data centre.

The massive mine had many traits that made it perfect for use as a data centre.

1: It already existed

When a new data centre is commissioned, the first step is to acquire land, and build the building that will house the data centre.

The land needs to be levelled. Fences need to be erected. Then the building’s foundation, walls, roofs, etc follow.

In Lefdal, all of this was already done. It was a giant underground system of wide tunnels.

Yes, a lot more work was needed to make it a data centre. But still easier.

2: Secure

One of the biggest headaches with data centres is security. Data centres are the backbone of the global tech industry.

So for bad actors, data centres are a good target. It could be to steal data, harm the operations of a company, disrupt communications, interrupt supply chains, and the list is endless.

Data centre owning companies spend a big portion of their expenses on securing them.

Deep underground, surrounded by rocks on all sides, this risk reduces by a massive degree.

Lefdal had that massive advantage as well.

3. Cooling

If you have been following the data centre boom of late, you would have realised that they get hot. They need cooling.

Lefdal sits right next to a 565 m deep and cold fjord. The fjord is able to supply a constant and steady stream of cold water.

4. Power supply

Norway happens to be a country with a massive hydroelectric power supply — renewable green energy.

Hydroelectric energy is non-polluting, renewable, and consistent. Another vital feather in Lefdal’s cap.

5. Norway

Norway is a developed, rich, stable, and influential European country. This further sweetened Lefdal’s appeal to international companies.

Less surprises like geopolitical tensions, surprise red tape, interruptions, etc.

Today, the Lefdal Olivine Mine is an expansive network of tunnels that operates as one of the world’s most efficient, green, and secure data centres.

You’d be amused to know, some of Mercedes’ servers are housed in this data centre, maintained by Infosys!

Data Centre Boom

Now, of course you have heard about all the hype around data centres in recent times.

If you have not, just know this: whatever hype around AI and LLMs you have heard, it sits on these data centres.

What is a data centre?

It’s just a computer. Or many computers. It looks more like a desktop computer without a screen. Everything you see on the internet is stored, processed, and passed through one or more servers across the world.

Your WhatsApp message passes through a server before reaching your friend. Your online pictures are passed through servers and stored on them too.

“Cloud” anything is literally a server something.

Cloud compute means instead of processing something on your computer, the processing will happen on a computer server somewhere in a data centre. Cloud storage — you get the idea.

So, what’s happening is, with AI, the need for computation power has shot through the roof.

The demand for AI products is only multiplying and so, the need to build data centres is also multiplying.

The challenge with data centres is that most of them are not as ideal as Lefdal Olivine Mine in Norway.

Most bring a set of challenges with them.

Power

Because of the massive demand for power thanks to AI, shuttered nuclear plants are being brought back to life.

In fact, many regions across the developed world had reached some sort of an equilibrium. Power demand had flattened and enough power was being produced.

Now, the demand has risen sharply. Some estimate that power demand from data centres will rise by 160% by 2030.

So sharply, in fact, that some developed areas with a history of consistent power supply are experiencing power cuts.

Data centres cannot do without power 24x7. So to deal with shortages, they often stock diesel generators. These can cause noise and air pollution.

Water

We have all heard about data centres requiring water. Data centres get very hot and require cooling.

This is true.

Since data centres are evolving rapidly, they are becoming more efficient with time. Many data centres require a constant stream of water.

Many are able to work with seawater also. Some are coming up with a closed-loop system where water is filled once and not needed again (similar to a car engine’s water & coolant system).

But these are still evolving, not fully ready.

As of now, anyone building a new data centre needs to worry about sourcing water.

Like electricity, there are places in the world that are facing water shortages because of new data centres opening up near them.

Land

Like factories and warehouses, data centres also need land.

And similar to those other industrial buildings, data centres also have a laundry list of location-based requirements.

They want to be in a location where land is relatively cheap, but it must be well connected via roads and highways.

It shouldn’t be too remote such that finding employees for the data centre becomes difficult.

The location should be safe and secure from a crime perspective as well as from natural factors like flooding, storms, extreme heat, etc.

Further, data centres need to be connected to the internet — so they cannot be too far from existing fibre optic cable highways.

To reduce latency, data centres can’t be too far from their customers (enterprise or individual).

Equipment

All the above are factors that can be supplied and solved by different competing parties.

There are many different power sources, water sources, and locations.

A real bottleneck unique to the data centre industry — equipment.

Data centres or servers are just computers. And computer parts are supplied by a small number of companies.

Because of excessive demand, those companies’ order books are filled for years.

Supply of memory, CPUs, and GPUs is one of the biggest bottlenecks of the industry today.

Growth of Data Centres

Countries across the world have deeply internalised the importance of data centres, compute capacity, and data storage.

In a world where everything runs via computers, data centres are as important as any other national infrastructure like highways, telecommunications lines, etc.

Many countries now want more data centres within their own borders.

India has rules requiring finance and fintech companies to store customers’ data on Indian servers. The AI boom means that the ones who own the data and compute decide the next big breakthrough in AI.

As of 2025, the US is the biggest in this regard. They have over 5,000 data centres. The second is Germany with about 500 (that’s not a typing mistake).

Measuring data centres in numbers is a wrong way to go about it. Because data centres can be tiny or massive. So saying ‘3 data centres’ does not automatically mean it is bigger than ‘1 data centre’.

One way to measure data centre is by the amount of electricity they consume.

Measured like that, we see an interesting pattern.

We see that the data centre capacity has been rising consistently for many years, not just after the LLM boom.

The table below is data from a Goldman Sachs report where they highlight how power consumption from the Americas, the EU, and the Asia-Pacific region has consistently risen over the last decade.

Now, CPUs and GPUs are getting more powerful and efficient. This means that these metrics don’t represent processing power accurately.

A modern data centre might use less power than an older one and yet be more capable.

Most data centres are never “finished”. They are always being upgraded with the latest equipment.

This is why neither power usage nor number is a good measure.

Some simply prefer to measure in square footage. The assumption here is that everyone will be able to upgrade to the latest CPUs and GPUs soon.

So the one with the largest physical space is the one who will have the most compute power.

But wait — what if two data centres are 100,000 sqft each but one of them has a 3 m roof and other has a 6 m roof?

Obviously the second one will be able to house more servers?

Yet another way to measure capacity is number of servers. How many servers can a data centre house? That is another measure.

There are many more. It’s a bit messy. The unit you would use would depend on what you’re trying to talk about.

Real estate folks would use area (square feet or meters). Environmental analysts would care about water usage and heat generation. Power industry folk would care about the power needed. Data centre engineers would talk in terms of storage capacity, compute capacity, server count, rack count, etc.

And so on.

The Biggest Players

This industry has two types of companies.

Data centre companies and tech companies.

Data centre companies offer their services to other companies. They simply own and maintain the servers while others pay rent to use them.

Tech companies tend to develop, maintain, and use their own data centres. Theirs is not available on rent for others.

The 3 biggest data centre owners in the world today are cloud companies. They offer cloud services (storage and compute) to others and themselves.

Amazon Web Services, Microsoft Azure, and Google Cloud — these are the cloud companies owned by Amazon, Microsoft, and Google, respectively.

India

Yes, India is turning up the heat too.

Many new data centres are planned, and being built. Some are active.

India has a strong policy push in this space as well. The government wants more data centres. Data localisation is a dominant theme.

India’s active tech and IT sector also means that data centres have a natural pull.

Most of these serve local India based clients.

There are some existing tech companies who own data centres. Some legacy companies are also choosing to enter this new industry.

The thinking many investors have is that in an AI gold race, data centres are the shovels. This line makes a lot of sense if you have heard about the gold rush in Western USA in the 1800s.

But as usual, valuations and potential upside matter more than many investors give importance.

Besides, ability to execute on plans and quality of leadership also matter.

And of course, we can never rule out the possible negative and positive effects of luck in the mix.

Quick Takes

+ India’s petrol and diesel prices were hiked by around Rs 2.50 per liter, for the 4th time in the last 11 days.

+ Gas distributors in India have raised CNG prices across different cities by Rs 2 to Rs 5 per kg, the 4th hike in 11 days.

+ India and the US signed a bilateral Critical Minerals Framework to deepen cooperation across the critical minerals and rare earths supply chain for advanced technology and energy.

+ The government approved Rs 1,427.61 crore for a 4-lane Thiruvarur Bypass on NH-83 in Tamil Nadu.

+ The government has launched a 2 day offer-for-sale (OFS) for Coal India to divest up to a 2% stake in the company.

+ India’s forex reserves fell by $7.5 billion to $681.38 billion in the week that ended on 22 May.

+ India and Canada launched the Canada-India Trade and Investment Forum for new commercial partnerships and increased business engagement.

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 Bahamas is a group of islands out in the Caribbean Sea.

Back in the 1980s, the network was poor practically everywhere. The Bahamas being a more remote location, had a much poorer network.

When Karen returned, she complained about it to her husband.

Her husband, Bary Bertiger, was a senior executive at Motorola. After listening to his wife’s complaint, he had an idea.

What if there was a cell network in every part of the world? No dead zones.

He pitched it to his company. Motorola’s then chairman was a daring person who loved the idea and pushed for it to be pursued.

The project kicked off in 1987.

It was called Iridium.

They had calculated that Iridium would need 77 low-Earth satellites across the earth to achieve its target. 77 is the atomic number of the element Iridium. So they chose Iridium as its name.

Oddly, technological improvements later enabled them to achieve the same results using only 66 satellites. But the name stayed.

It was not easy by any measure. It was one of the hardest technological challenges of that time.

So hard in fact, that Motorola decided to spin it off into a separate entity.

Iridium

In 1991, Iridium was created as a separate entity in which Motorola was a backer.

Motorola was a healthy publicly listed company. It could not be seen to be investing so much money into a new venture that was not ready yet.

This separate entity allowed Motorola to shield itself from Iridium. It also allowed Iridium to raise more money from other lenders and investors.

Motorola had signed on Iridium as the primary contractor. Motorola would make and maintain satellites for Iridium. This was a $3.37 billion contract along with a maintenance contract.

This was Motorola’s masterstroke.

The technology was incredibly complicated. It took many years of research and development.

But the promise of being able to talk on the phone from anywhere in the world was too tempting.

Their target audience was high-net-worth clients like CEOs, military personnel, oil barons, etc.

It was an 11-year effort. An extremely complicated and intricate technology was developed and rolled out.

Through the years, investors were enamored by the promise of the satellite-enabled communication. To many investors, it seemed like an obvious and easy bet to take.

It seemed like Iridium would have a monopoly over the global satellite communications network.

But to operate in various parts of the world, it would need local partners for permits and regulations.

Iridium decided to offer many other companies working across different countries a chance to invest in the company.

This would allow Iridium to operate in those countries. On the other hand, the companies would get a chance to invest in what was to be a monopoly company.

Companies from the USA, Europe, Japan, S Korea, Taiwan, and a few others lined up and bought stakes in Iridium.

The largest controlling shareholder was still Motorola. It owned around 20% of the company.

About $1.75 billion came from Motorola and a consortium of various companies. About $1.55 billion was from a consortium of banks in the form of loans. About $1.45 billion came from issuing bonds. The company also went for an IPO in 1997 and raised $240 million. There were a few other sources.

All in all, Iridium received around $5 billion.

The Moat

What made Iridium so irresistible?

The moat? There seemingly were many.

Motorola had practically invented the cellular industry. Their engineering was seen as the top of the chain. To bet against a company as good as Motorola was considered blasphemous.

And this tech sat on an investment that was unparalleled. Motorola and Iridium had been able to gather money to an astronomical level. Gathering this much investment interest was beyond most competitors.

There were some competitors, but none came close to Iridium’s satellite communications technology built on $5 billion cash.

The fact that the product was targeted towards wealthy clients who were usually willing to pay fat amounts for convenience made the project that much more tempting.

The absolute masterstroke was the use of strategic investments. Getting other companies to invest in Iridium would ensure all those companies (across different countries and continents) had an incentive to get all necessary legal and regulatory approvals.

To further sweeten the deals, Motorola and Iridium’s management had gathered investors who would also be suppliers (parts suppliers, maintenance companies, etc).

So if Iridium did well, their own businesses would get more orders from Iridium.

It was an extremely difficult to beat offer.

Launch & Post Launch

The product was launched on Nov 1, 1998.

It was a big handheld device that was roughly the size of a mineral water bottle. The Vice President of the USA, Al Gore, made the first call. It worked flawlessly.

Iridium kicked off its global advertising campaign. Orders started coming in. But not fast enough.

Further, they were not able to serve the orders. Motorola and other suppliers were not able to manufacture enough devices on time. They were busy fighting hardware and software glitches.

The device cost $3,000.

The big flaw in it started becoming loudly highlighted as more customers received their handsets. For the satellite phone to work, it needed to make direct contact with the sky.

So, the phone wouldn’t work inside buildings, inside moving cars, even under a tree.

In the meantime, telecom companies had invested billions in expanding their network. They set up towers and laid wires. The regular cellular network by now had started to offer very good network coverage.

It worked indoors and was much cheaper than Iridium’s satellite phone.

For the business model to work, Iridium needed 52,000 paying customers. They had only about 10,000. Some sources say they needed 5,00,000 subscribers and had only 20,000 or so.

Either way, the point still holds — they didn’t have enough paying customers to break even.

The only customers who needed the satellite phone were oil rig workers, military personnel, and sailors.

The market size of such customers was too tiny to pay back for their $5 billion investment.

Lenders soon realised that their hypothesis was wrong. The company was bleeding money to keep their satellites in orbit.

Less than a year after its launch, the company filed for bankruptcy.

It became one of the 20 biggest bankruptcies in the US.

The company’s assets eventually sold for $25 million (0.5% of what it received as investments and loans).

Today, it’s still alive. It was acquired and its technology was put to use. The company is doing quite well now.

But it is still nowhere near where investors thought it would be.

The case of Iridium is a pertinent example of how even the biggest and most prestigious investors and lenders can be very, very wrong.

Often, many such cases have an element of fraud and cheating in them.

Iridium was not that.

Nobody had bad intentions.

It was a case of very smart and ambitious people. They had the pedigree and required background. Their reputation was excellent.

They just got it wrong.

Quick Takes

+ India and Netherlands have elevated their bilateral ties to a Strategic Partnership and signed 17 MoUs in areas like semiconductors, renewable energy, critical minerals, defence, etc.

+ India and Norway signed 5 agreements to expand co-operation in science and innovation, clean energy, offshore wind, sustainability, geosciences, and academic collaboration.

+ The Indian Railways approved multiple infrastructure projects including the Rs 993 crore Arakkonam-Chengalpattu doubling project in Chennai, the Rs 962 crore Kiul-Jhajha 3rd line project on the Howrah-Delhi corridor, and safety and rehabilitation work on the Jammu-Shri Mata Vaishno Devi Katra section worth Rs 238 crore.

+ India’s petrol and diesel prices were raised by approximately Rs 0.90 per litre, to offset the losses due to the West Asia crisis. This is the second hike in five days, following a Rs 3 per litre increase.

+ The Indian Rupee hit a fresh all-time low, closing at Rs 96.84 per USD.

+ India’s infrastructure output of 8 core industries rose 1.7% year-on-year in April (vs 1.2% in March).

+ SEBI has clarified that clients of non-discretionary PMS (ND-PMS) can pledge their portfolio securities as collateral for loans as long as the client makes the choice themselves and for their own benefit.

+ India’s manufacturing PMI fell marginally to 54.3 in May (vs 54.7 in April) according to preliminary estimates. Services PMI rose marginally to 58.9 (vs 58.8 in April). Composite PMI (manufacturing + services) rose to 58.9 (vs 58.8 in April). This means overall economic activity grew marginally less in May than in April.

+ The RBI will conduct a $5 billion dollar-rupee swap auction on 26 May to inject liquidity into the financial system, stabilize the Rupee and boost forex reserves.

+ The National Commodity and Derivatives Exchange (NCDEX) announced the launch of India’s first exchange-traded weather derivatives contract based on Mumbai’s monsoon rains, starting 1 June.

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 had to pay back a $134 million loan that day.

Filing for bankruptcy was formally saying they wouldn’t be able to pay or needed more time.

Sears was a department store in the USA that touched its peak some time in the 1980s.

In the 2010s, it was a struggling company with a large debt on its head.

Investors were aware of the company’s condition. It didn’t happen all of a sudden. It was a slow march downwards.

Its shares had been trading at a peak of around $115 in 2007. Since then, it had been on a downward path with some upward pulls in between.

When the company announced bankruptcy, it was not a shock to the investors. They saw it coming.

Long before Oct 2018, the share price had fallen below $1.

After the announcement, the share price more or less stayed in the same range. Somewhere moving above and below the $0.50 mark.

Why?

Why did it not fall to $0?

Well, it had fallen to a very low value because most investors thought it was not going to recover. So they sold and sold and sold.

Then, it reached a price that was incredibly low. At these levels, the only investors who were still holding the stock (or buying it) were those that believed that the company would turn around.

Many didn’t necessarily believe the turnaround would happen. But they bought anyway just in case (because the price was so low, they didn’t mind losing it).

Some were buying and selling every day (they didn’t care about the company). All they cared about was how the price was behaving. They were playing more on the human psychology of fear and greed.

The final nail in the coffin came a year later in 2019.

It was declared that the shareholders would get nothing. The company would be shut down. Its assets would be sold to recover the debt dues.

Shareholders would get nothing.

And yet, the share price did not fall to $0. It kept hovering somewhere in the $0.20 to $0.40 range.

Why?

It was declared that shareholders would not get anything. Why were there investors who were still buying these shares? Why didn’t all buyers vanish and the price fall to $0?

Different investors. Different ideas.

A very tiny portion of shareholders were still hoping for a miracle. Some did not understand the gravity of the situation and expected a bounce back.

Some didn’t care. They were just trading and speculating using the stock — playing games like passing a ball between two players.

Eventually, the shares were delisted and taken off the share markets. They were cancelled on 31st Oct 2022.

The last traded price was $0.10 (and not $0).

The message here is that the stock markets are filled with many different kinds of investors and traders. They all have different philosophies and timelines.

Those philosophies and timelines might not match. And that’s the beauty of the markets.

Because everyone is thinking in different ways, the buyer almost always thinks they are making a good deal. The seller (who is literally selling the same stocks to the buyer) is also thinking they are making a good deal.

The funny thing is, they both can be right in their own ways!

Types of Market Participants: Long Term

That heading, it’s just a fancy way of saying “Types of Investors in the Stock Markets”.

There are a few different types of ‘market participants’. They all may be in it for different durations, different goals, different returns, and different philosophies.

The one thing that unites them, though, is this: make money.

Let’s look at the major investing groups.

Promoters:

They are the founders or owning family of the companies that are listed. In India, they often command large portions of the share market.

That is, a large portion of Indian shares are owned by promoters. It is not uncommon to see promoters own 40-50% of a company. In the case of Western companies, this number is usually lower (closer to 10-20%).

This category of shareholders tends to stick around the longest. They almost never sell. They may sell small portions of their holdings during overvalued bull phases and buy the same shares back during undervalued bear phases.

Sometimes, they may sell or buy for other reasons.

But the point still holds. They do not usually sell. For them, it’s more about control over the company.

By the way, the Government can also be a promoter of a company. It’s not always a private player. That’s what happens in the case of PSU (Public Sector Undertaking).

Pension Funds:

In the case of India, this would be EPFO.

They blindly invest in index funds or ETFs. They are buying every month. They don’t care if the markets are undervalued, overvalued, or fairly valued.

They don’t even care if the company they are investing in has good future prospects or otherwise. Index investing only.

For that reason, they are incredibly long term investors. Running for decades. When a company falls out of an index is when they also sell.

SWFs:

SWFs or Sovereign Wealth Funds, are funds that are government-owned. It’s like a mutual fund with only one customer: a government body.

Different countries have different SWFs that invest across the globe. Norway’s SWF is one of the biggest in the world. Singapore’s SWF is also quite huge. There are many like that.

They often do actively choose the companies they want to invest in. But again, they are very patient investors. They do not invest in and exit companies very fast.

It is common to see them hold on to stocks for more than a decade.

Mutual funds:

Mutual funds usually hold stocks long-term. When they buy a stock, they do so with an aim of holding for a few years at least.

Yes, they do exit before that if some negative event happens or they feel the stock has reached an overvalued state and profit booking is possible.

But it is possible that they sell before that as well.

PMS:

PMS or Portfolio Management Services are similar to mutual funds, but for higher amounts.

They are allowed to accept a minimum of Rs 50 lakh. This is clearly designed for an investor comfortable with risk.

PMS tend to behave similar to mutual funds. But they can be more opportunistic. Which means, they can sell much sooner than mutual funds.

It is not uncommon for them to sell within 1-3 years of holding. Sometimes, they sell even before that.

Family Offices:

These investors are usually investing for one family. They tend to stick around long term, usually.

UHNIs (Ultra High Net Worth Individuals) and family offices are often the same thing or behave similarly.

Their investments could be held for any period from a few years to decades.

Types of Market Participants: Short Term

So far, we spoke about the kind of investors who buy and usually hold a stock for months, years, and decades.

When you go to buy or sell a stock, most large stocks are available almost all the time. Which means, someone is selling or buying those stocks all the time.

This is possible only if there are many different long term holders. So, inevitably, there is always someone buying or selling.

Or, there are other investors who buy and sell over much shorter periods of time.

Which do you think is the case?

Yes, there is a class of investors buying and selling over much shorter periods of time.

The reality is that we are easily able to buy or sell stocks because both long term and short term investors are plentiful in the markets.

Let’s look at some of the short term investor types.

Arbitrage Traders:

These are some of the fastest traders in the market. They do not care about what the company’s shares are, or how the company is doing.

They simply use arbitrage opportunities to trade.

The simplest example of this is if a stock is trading on two different exchanges (NSE and BSE), they monitor the shares’ price on both. If the price is even slightly different, they buy shares from the cheaper exchange and sell on the more expensive exchange.

This actually causes the share price to rise (where it used to be cheaper) and fall (where it used to be more expensive).

This is why shares of the same company have a very similar share price even on different exchanges. The difference is negligible.

This is how they earn their profit.

They can buy and sell shares in a matter of seconds or even milliseconds.

HFTs:

Similarly, High Frequency Traders (HFTs) rely on various strategies to buy and sell shares. They usually buy and sell within milliseconds.

HFTs can use a multitude of strategies that vary from HFT to HFT.

But the common theme across them is their speed.

Retail Traders:

These are individual traders. If you have a job or business, while also trading stocks, and you operate individually (not as a team), you come under this category.

This segment of investors tends to hold anywhere from a few minutes to a few hours (in case of intraday trading).

Many retail traders also take positional bets which may last a few days to few weeks.

Retail Investors:

These are individual stock market investors (not traders) who pick their own stocks.

This segment is very varied — there are all sorts of different investors, and they invest differently.

They usually hold a stock for anywhere from 1 year to a couple of years.

The Other Side

If there’s one thing you need to understand from this write up, it’s this: you never know who is on the other side of the trade.

And you do not need to.

There is an exception to this though.

Block Deal:

A block deal is a trade where both parties know each other. This is more like a traditional deal. Two parties meet. One is the seller. The other is the buyer. They agree on the number of shares, and the price per share.

At a fixed hour, their trade is settled. The shares change hands.

In India, this happens during two windows: 8:45 AM to 9:00 AM and 2:05 PM to 2:20 PM.

Block deals can only take place if the value of the deal is worth more than Rs 25 crore or a large number of shares are changing hands.

Since the price is fixed, it does not affect the share’s demand and supply in the open markets. So, it does not change or affect the live share price.

But when the news of a block deal gets out, many investors get influenced. Some might see it as a good event. Some might see it as a bad event. Buying/selling because of the news of a block deal can certainly affect the share price.

This must not be confused with another type of a deal called bulk deal.

Bulk Deal:

A bulk deal happens when one investor (or investing entity) buys/sells more than 0.5% of a company’s shares.

This happens during market hours and the buyer/seller does not need to know each other. It is an open market buy/sell order just like any other buy/sell order.

It’s just that this order is so big, it can affect the share price (increased demand leads to increased price and vice versa).

So there you go.

When you sell, you have no clue who the buyer is. When you buy, you have no clue who the seller is.

Maybe the other side is selling because they know something bad is going to happen. Or maybe, it’s all good but they need that money for a personal reason.

Maybe they found another better investment while this one continues to be very good.

They have their reasons to do what they are doing. You have yours. Win-win.

Quick Takes

+ India’s annual inflation rate rose marginally to 3.48% in April (vs 3.40% in March).

+ The Indian Rupee reached an all time low, falling beyond Rs 95.5 per USD.

+ India’s equity mutual funds inflows rose 58% year-on-year to Rs 38,440.20 crore in April (vs an inflow of Rs 40,450 crore in March). Debt funds inflows rose 12.9% to Rs 2.47 lakh crore (vs an outflow of Rs 2.94 lakh crore in March): AMFI

+ The government approved a scheme worth Rs 37,500 crore to support coal and lignite gasification projects, aiming to reduce India’s dependence on imports like LNG, urea, ammonia, and methanol.

+ India has signed an MoU with South Korea’s HD Korea Shipbuilding & Offshore Engineering to develop a mega greenfield shipyard at Thoothukudi, Tamil Nadu.

+ India’s wholesale inflation rose 8.3% year-on-year in April (vs 3.88% in March). Wholesale fuel and power inflation rose to 24.71% (vs 1.05% in March).

+ The Indian Rupee hit a fresh all-time low, crossing Rs 96 per USD during the day before settling at Rs 95.92 against the US dollar.

+ India’s merchandise exports grew 13.79% year-on-year in April and imports grew 10.03%. The merchandise trade deficit rose to $28.38 billion.

+ India’s forex reserves rose by $6.3 billion to $696.99 billion in the week that ended on 8 May.

+ India’s unemployment rate rose marginally to 5.2% in April, (vs to 5.1% in March).

+ India’s passenger vehicle sales rose 25.4% year-on-year to 4.37 lakh units in April: 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

‘Meditations’ by Marcus Aurelius, is a book heavily praised by many.

One such modern example is that of James Mattis, the former US Defence Secretary.

James Mattis has been through some very difficult phases in the US’ military operations.

His appreciation comes from being in somewhat of a similar position to Marcus.

Marcus Aurelius was the emperor of Rome about 2,000 years ago.

As a ruler, he had a hard life. He was constantly up north in his territory, fighting invaders, and protecting Rome from losing territory.

During Marcus’ reign, Rome was the biggest it had ever been. It was in its golden era.

Rome had been stable for about a century with well established internal systems. During this period, 5 emperors had ruled over Rome. Marcus was the 5th emperor.

It was not easy.

The role required a deep understanding of human nature, self control, and discipline.

‘Meditations’ was not a philosophical book written by Marcus. It was not a book at all. It was a personal diary. The writings were letters to himself. He wrote them throughout his life.

Marcus’ tenure was marked by many struggles.

Of the roughly 20 years he ruled, many years were spent in military tents. He believed in fighting wars from the front, not by sitting in the capital.

Rome was under attack and his struggles ranged from military strategy to arranging funds for the war effort.

Wars are expensive and Rome was always arranging money for them.

It didn’t help that simultaneously, Rome was suffering through a plague that resulted in the deaths of a significant portion of its population.

The plague itself caused death, illness, labour shortages, and an economic slowdown.

At the same time, only a few of Marcus’ 13 children survived to reach adulthood.

We also see a co-emperor of Marcus who had revolted and launched a campaign to break off from the Roman Empire.

Marcus was always under attack figuratively and literally.

It was in this setting that he wrote to himself in his diary. ‘Meditations’.

His demeanor, restraint, discipline and approach to life earned him the title of being a ‘philosopher-king’.

Today, he is most famous for ‘Stoicism’ — the philosophy of not reacting too much to any situation, and maintaining composure.

Rome was marked by constant chaos. While the kingdom gained and expanded, the internal chaos remained constant.

There were a string of absolutist rulers. They viewed their position as permission to do whatever they felt like.

Power led to reckless behaviour. Killing and seizing the property of citizens was easily possible. All sorts of rumours used to float around. Punishments based on the rumours, without verification, were also common.

Extreme amounts of internal politics and backstabbing coupled with assassinations were common among the ruling classes.

The period of the 5 emperors is often referred to as the golden period in the history of Rome.

Among other rules, one particular rule that enabled this period was that of succession.

Emperors of Rome were often appointed because the older one had been killed or forcefully replaced. If not that, then the son of the current ruler would take over the throne.

In Rome, the next ruler was selected from the existing senior bureaucrats. It was merit based. The best candidates were promoted.

The winner would then be adopted to become the son of the present ruler.

The adopted son and father would rule together until the death of the father. Then, the adopted son would continue as the ruler from there on — after having learnt the ropes along with an experienced ruler.

Marcus was extremely intelligent and able.

However, he did not follow this succession rule.

He simply appointed his biological son, Commodus, as the successor.

This was despite being well aware of Commodus’ faults.

Commodus was one of Marcus’ children who had survived to be an adult.

Commodus just wasn’t interested in being a ruler. He was more interested in keeping himself entertained.

Things didn’t go well after Marcus died.

He did not spend time on the frontiers. Rome was his primary location. He signed deals with others easily and without much pushback.

Commodus delegated most of the work to his favourite senior senators (many were corrupt).

Internal fault lines formed. Corruption, bureaucracy, inefficiency, and general public resentment built up.

Over time, many senators grew unhappy with Commodus. A general sense of trust in the system vanished. Everyone was suspicious of the other. Internal struggles started to take place.

All the while, Commodus thought of himself as a gladiator.

Gladiators were wrestlers who fought each other, sometimes to death. The public used to gather to watch these fights (similar to any sport).

He took a keen interest in these sporting events and even fought (staged) fights himself.

Commodus’ reign ended with his assassination.

After 5 great emperors selected by merit, Rome’s golden age ended.

Rome went back to utter chaos – similar to the situation before the 5 emperors.

Rome went from a good ruler to a bad ruler.

Domitian to Nerva

Domitian belonged to an era when the emperor’s throne was seen as family property. It was inherited.

Domitian inherited the throne from his brother.

He spent money building vast palaces and monuments, distancing himself from the public and senators.

He was afraid and suspicious. He was always scanning the room for rivals. When he noticed a rival voicing his opinions strongly, Domitian would have him killed.

This created a sense of fear in the senate’s atmosphere.

Senators avoided saying anything altogether. This resulted in crucial work in not getting done, including passage and amendment of laws.

The condition of Rome as an empire worsened. The period before Domitian hadn’t been any good.

Over time, Domitian became distrustful of most people around him.

He was left with an inner circle who he trusted.

Skepticism and doubt soon entered this inner circle as well.

Domitian started targeting members of this inner circle who he developed suspicions against.

He maintained a diary which he kept under his pillow. The diary contained the names of the people he wanted killed. They even found his own wife’s name in that diary.

In an act of self preservation, the senators and advisors who were a part of this circle started making plans to get rid of Domitian.

They planned his assassination.

But, before they assassinated him, they made preparations to prevent Rome’s collapse into chaos.

They chose Nerva.

Nerva was a senator who had been a diplomat and a lawyer.

He was old and had no sons. He did not have dynastic ambitions. His coming to power would signal the rule of law.

Because of his past work, it was believed that he would act as a good bridge between the military and the senators.

Nerva started facing problems soon after he took power.

He realised the army needed someone strict and strong, not a diplomat like him. Before leaving, he drafted a key rule: succession of power.

Nerva is credited with the merit-based succession system.

The one that allowed 5 great emperors to rule over the golden era of the Roman Empire. He laid the foundation for the era to start.

He was the first of the five emperors. Marcus was the fifth.

Rome went from a good ruler to a bad ruler.

Rome’s Golden Era

Nerva marked the start of one of the best periods of the Roman Civilisation.

As Nerva was getting old, he handed over the reins to his successor, Trajan.

Trajan was at the border areas when this happened. Instead of rushing back to Rome, Trajan decided to continue manning the frontiers, leading the military forces.

This signalled that he valued Rome more than personal power.

Trajan ruled for about 20 years. His death was sudden but the successor had already been selected. His name was Hadrian.

On his way out, Hadrian selected Antoninus as his successor. In fact, he even made Antoninus adopt Marcus.

In short, Hadrian ensured two generations of rulers had been appointed.

When Antoninus died, Marcus simply stepped into the role.

This century in Roman history was marked with unseen stability, peace, prosperity, and economic expansion.

Many new cities were built. Urbanisation became the theme.

An extremely fair system was built. People from newly conquered and ethnically different territories could rise through the ranks and become senators.

Trade flourished and the Roman economy grew stronger.

More peaceful professions like philosophers, architects, and intellectuals were celebrated.

It is said that Marcus was the peak of the golden era of Rome. He was the culmination of the great work done by the four emperors before him.

Between each of these five emperors’ succession, no blood was shed, no civil war took place, prosperity didn’t suffer.

Rome went from one good ruler to another good ruler.

Transition of Power

The lesson we are trying to highlight from Roman Civilization is this: a change of leader can mean many things.

You would have noticed that the section talking about transition from a good state to bad state is much longer.

The one that talks about going from good to another good ruler is relatively short.

That’s mostly because when things are good, there’s not much to record.

Any leadership change is an opportunity. But it can also be a threat.

But when done absolutely right, it barely feels like news.

As investors, we can see this happen all too often in corporate circles.

Good to Bad

This can be a bit controversial since these names can be opinion based.

Disney.

Bob Iger spent years building Disney to what it was. Then, Bob Chapek was appointed CEO of Disney in 2020.

The poor performance and loss of confidence led to a 40% drop in share price in the 2 years he was CEO. Market forces were involved too but the board was unhappy for other reasons as well.

Bob Iger was brought back from retirement and re-appointed the CEO of Disney.

Yahoo!

Marissa Mayer, an ex-Google top executive was hired as CEO of Yahoo. Under her, the company made some poor acquisitions and Yahoo! continued to perform poorly.

Bad to Good

Ford.

Alan Mulally was appointed CEO of Ford in 2006. Until his hiring, the previous CEO had struggled to build trust in the company. He repaired the culture in the company.

Ford was the only American car company that did not require a bailout post the 2008 Recession.

Microsoft.

This one’s a controversial one. Many argue that Steve Balmer had not done justice to his role as CEO of Microsoft.

Though the company was indeed profitable, it was losing ground fast. He was blamed for missing the smartphone revolution which was taken up well by Google (Android) and Apple (iOS).

He was succeeded by Satya Nadella, who turned the company’s fortunes around and took at back to the top — to being one of the top 10 biggest companies in the world.

Good to Good

PepsiCo.

Indra Nooyi took over as PepsiCo CEO from Reinemund.

She propelled an already successful brand into the 21st century and ensured the leadership transition was absolutely flawless.

Apple.

Steve Jobs leaving Apple was seen as a drastic change. But the new CEO, Tim Cook, took over the reins and continued pulling the company to newer heights.

Apple today is facing yet another power transition as Tim Cook steps down and the new CEO John Turnus, takes over.

Quick Takes

+ India’s manufacturing PMI rose to 54.7 in April (vs 53.9 in March). This means manufacturing activity grew more in April than in March.

+ India’s LPG consumption fell 16.2% year-on-year in April (vs a fall of 12.3% in March): Ministry of Petroleum and Natural Gas

+ SEBI has proposed allowing online bond platforms to offer overseas-listed debt securities regulated by the International Financial ​Services Centres Authority (IFSCA), as part of ease-of-doing-business measures.

+ The government approved the Emergency Credit Line Guarantee Scheme (ECLGS) 5.0, providing 100% government credit guarantee for MSMEs and 90% for the non-MSMEs as well as the airline sector to boost liquidity amid the disruptions due to the West Asia conflict.

+ India’s composite PMI (manufacturing + services) rose to 58.2 in April (vs 57.0 in March). Services PMI rose to 58.8 (vs 57.5 in March). This means economic activity rose more in April than in March.

+ India’s forex reserves fell by $7.79 billion to $690.69 billion in the week that ended on 1 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

Elevators (or lifts) were used for hoisting goods.

What’s peculiar about elevators is that despite being thousands of years old, they were almost never popular for transporting people.

The chances of ropes snapping were high. Goods falling to the ground and getting ruined is an acceptable risk.

The same is not acceptable for humans.

In 1954, Elisha Otis arranged for a stunt. He got into an elevator that went up a few floors. He then cut the rope. The elevator fell only a few inches before the safety brake kicked in.

This stunt left the audience absolutely stunned.

He repeated the stunt several times over the following months.

The demo finally changed the public perception of the elevator. Their use for transporting people finally became acceptable.

When buildings are built, the shaft is custom-made for the elevator in use. So once an elevator is installed, changing the elevator is hard.

Additionally, elevators require mandatory inspections and servicing by law.

Otis got an early head start because of their safety brake.

Since potential buyers loved the safety it offered, more buyers bought it. To help service these lifts easily, Otis was quick to expand their service network.

This had a reinforcing effect.

Many new buyers bought Otis lifts simply because their service network was better.

More lifts sold. More service centers opened. Therefore, increased ease of servicing. Therefore, more new customers prefer Otis lifts.

They just continued to grow big faster than all others — helped because they were the biggest already.

And thus, today, we don’t think twice before boarding an elevator.

Big Becomes Bigger

This effect is called the Matthew Effect.

The big continues to grow bigger. The winner keeps winning.

There’s an investment philosophy centered around this very idea. It’s called momentum investing.

The idea is as simple as it sounds. Stocks that have been going up will keep going up.

Obviously stocks do not keep going up all the time. So, the strategy involves switching. You buy stocks that are going up and sell the ones that have slowed or have started going down.

But how is the Otis case any different from regular investing? Isn’t that literally what investing is all about?

You analyse companies and the business behind them. You try to get an idea for how the future looks. And based on that future, you buy shares to gain from its good future.

That’s just plain investing.

Top 40 Charts

Globally, many radio programs and playlists have top songs’ lists.

It’ll be something like ‘Top 10 Best Songs of the Year’ or month or some version of that.

Many observed that once a song made it into the list, it tended to get more popular. And the more popular it got, the longer it stayed on the charts.

Similar to Otis’ success?

As in, were these songs staying in the charts because they were that good? Or were they simply there because being on such a list ensures greater visibility.

That would mean that a song is becoming more popular not because it is actually good.

It would mean the song is on the charts simply because more people are able to listen to it more often.

A few researchers from Columbia University decided to answer this question.

They created a website called MusicLab where songs could be downloaded from. They had about 14,000 listeners.

They divided this group in two parts.

One group could only listen to songs and vote which songs they liked. The list of top songs were made based on listeners’ listening habits. But the list of top songs was never shown publicly.

The other group could see the list of top songs. Which means, they could see the songs the others were liking too.

The results were sort of expected.

In the second group, a few songs emerged as the top choices and made massive leads compared to the others.

It appeared that more listeners had started enjoying the songs simply because others were listening to them too.

It wasn’t the songs themselves. It was that they were also liked by others.

Different parties concluded different theories.

But by and large, it was agreed that a song enters the charts because it is good. Its success is because of it being good, not popular.

But once a song has entered and climbed higher on the charts, the climb to the absolute top may just be merely because of its popularity.

Momentum Investing

Momentum investing sort of tries to take advantage of this.

It isn’t just about catching a good business early on. It is also about profiting from the hype around it.

Value investing is about buying stocks that are undervalued and sticking with them as they climb and succeed.

If a stock should cost ~Rs 300, they want to pay ~Rs 250 for it. And then they would hope the price rises from there. They would not want to pay ~Rs 350 for it (at that point in time).

Value investors dislike paying a high price. They are not comfortable buying overvalued stocks.

Momentum investors are more comfortable with overvalued prices — if they think the prices will go up even more, often because they feel the market hasn’t fully priced in the company’s growth yet.

If they feel the stock price will reach Rs 400 soon, they’d rather pay Rs 350 rather than wait for the price to fall before Rs 300.

Momentum Strategies

Great, so the idea behind momentum investing as a concept is somewhat understood. But how does it look in actual investing?

It starts with a simple strategy. And gets more and more complex. The specific strategy being used would depend on what the investor feels is right.

Many advanced investors (and traders) develop their own way of using this strategy which can be extremely complicated and even proprietary.

Simplest:

The simplest would be time series momentum.

Invest in Nifty 50 if it has been up over the last 12 months. Sell if it is negative over the last 12 months.

Individual investors might have different versions of this.

Next level:

Another strategy is to use the strongest in a group. This is called relative momentum.

So take a group (could be an index, or a sector). Then define the top in that. Top 3 pharma stocks. Top 10 Nifty 50 companies. So on.

Invest on only those. Sell the ones that exit the top criteria and buy the new top criteria.

Another level higher:

Combine the two. Buy only if the group (sector, index, etc) is moving up. And then choose only the top from that group.

Further:

A more complicated version would depend on a moving average instead of using an absolute price point. So instead of defining a criteria like “has the index moved up in the 12 months”, the investor would craft a condition based on the moving average of that index or sector.

Further:

Sector based. The investor defines a particular number of sectors. Say, top 3 sectors.

Then, among all sectors available, he/she invests in only the top 3 best performing sectors.

Similarly more conditions may be added to this.

More complicated strategies would involve going in greater depth. So, instead of price, they would use conditions like revenue, earnings, earnings growth, etc to decide when to buy/sell.

We can go on and on. The strategies are endless.

When It Works; When It Doesn’t

Well, momentum sounds perfect.

Why are more folks not talking about it?

They are, sort of. But yes, not enough folks.

And there’s a good reason behind it.

Momentum as a strategy works well during certain seasons in the markets. And it tends to perform poorly in others.

In 2000, the legendary Warren Buffett was addressing Berkshire Hathaway’s shareholders through the annual letter.

What he spoke about has now become very popular as the ‘Cinderella Ball’.

He was not talking about momentum investing. He was talking about the dotcom bubble.

But what he described perfectly explains a situation when momentum strategy fails often.

He talks about the separation between investing and pure speculation. The line between where investing ends and speculation starts is very blurry. There is no clear point where it stops being an investment and becomes only speculation.

Speculation is not about the underlying business or the revenues or profits. It’s about gaining from others’ behaviour.

Warren is famous for preaching not to take part in speculation.

Dotcom stocks or tech stocks had caused the share prices to balloon to astronomical levels. Those share prices were not justifiable given the revenues they were earning.

He says nobody likes to leave a party while it is fun. But nobody wants to stay after the party has ended.

Everyone wants to leave before midnight (when the party ends). But the clock in the room has no hands. So nobody can tell the time.

He is trying to highlight that when a share price goes up due to speculation only, it is a bubble. And nobody knows when the bubble will burst. But it will burst for sure.

This applies to momentum as well.

It works well when things are going up and up.

It performs poorly when there is a reversal.

When a falling market turns around. Or, when a rising market crashes.

Proponents of momentum argue that over a long period of time, despite those reversals, momentum as a strategy has given higher returns over some very long periods of time.

But the volatility — the ups and downs during reversals — is not for the faint of heart.

Hence, if someone does plan to use momentum strategy, nerves of steel are a mandatory requirement.

🔢 Quick Takes

+ India and New Zealand have signed a Free Trade Agreement to boost trade by reducing tariffs and improving market access.

+ India’s industrial output rose 4.1% year-on-year in March (vs 5.2% in Feb).

+ The RBI issued final norms on asset classification, provisioning, and income recognition for banks, introducing a new Expected Credit Loss (ECL) framework, effective April 2027. The new rules require banks to set aside money in advance for loans that might go bad in the future, instead of waiting for defaults to happen.

+ The United Arab Emirates has announced it will leave OPEC (Organization of the Petroleum Exporting Countries) effective 1 May 2026, which would cause a major shift in oil markets.

+ The US Fed kept the interest rate unchanged in the 3.5% to 3.75% range for the third consecutive time.

+ India’s forex reserves fell by $4.82 billion to Rs 698.49 billion in the week that ended on 24 April.

+ India’s gross GST collections rose 8.7% year-on-year to Rs 2.43 lakh crore in April. Net collections rose 7.3% to Rs 2.11 lakh crore.

+ The commercial LPG prices in India have been raised for the third time since February, with a hike of around Rs 993: as per media sources

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

Team Groww Digest

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