By 
By: Karnvir Mundrey
Ananth Narayan’s unsettling explanation of India’s stock-market boom, its missing factories, its F&O casino – and the policy accident connecting them all.
“At 6.1%?”
Not one hand went up.
Ananth Narayan looked across a room full of investors in Chennai. He had just asked how many of them would lend money to the Government of India for ten years at a yield of 6.1%.
“At 6.5%?”
Still nothing.
“At 7%?”
A few hands finally appeared.
The silence before them contained the entire argument.
India congratulates itself on becoming a nation of equity investors. SIPs arrive every month like clockwork, IPOs are oversubscribed before lunch, demat accounts multiply, and families that once compared fixed deposits now debate small-cap funds at weddings. The standard explanation is flattering: Indians have grown financially mature and finally discovered equities.
Narayan’s question was more dangerous. Did Indians choose equities – or did India make everything else irrational?
Because if the safest domestic asset offers a return that investors in the room will not accept, and that return is then taxed at the investor’s marginal rate, and taking money abroad remains restricted, the savings do not disappear. They move. Into gold, into property, into mutual funds, into equities – and, at the most reckless edge, into weekly options that expire before the trader has understood what he bought.
Then India marvels at the equity boom it helped manufacture.
The man asking this was not an armchair critic. Ananth Narayan served as a Whole-Time Member of SEBI from October 2022 to October 2025, after more than two decades in global banking and markets, and now works as Senior India Analyst at the Observatory Group. He has seen the machine from the dealing room and from inside the regulator.
He spoke in the after-lunch slot every conference speaker fears, joking that he would have to stay awake while the audience slept. An hour later nobody was sleepy.
He had not given them a Nifty target. He had given them an autopsy.
The arithmetic of irrelevance
Before Narayan talked about stocks, he talked about power – and he did it as a quiz.
The United States has roughly 4-5% of the world’s population, yet produces about a quarter of global GDP, owns roughly a third of global wealth and accounts for an even larger share of defence spending. Narayan put its share of global data-centre capacity, measured by power consumption, at 51%. Four percent of the people, half the computing power.
China has about 17% of the world’s population and a broadly comparable share of global GDP – a country roughly proportional to its own size.
Then came India. Approximately 18% of humanity, but only around 4% of global GDP, roughly 3% of global wealth, and less than 2% of defence spending and data-centre power capacity, according to the figures Narayan presented.
Eighteen going in. Three or four coming out.
His conclusion was deliberately brutal: “If we don’t have growth of 8–9%, frankly, we are irrelevant.”
This was not the usual plea for higher GDP because rising incomes are desirable. It was an argument about sovereignty. Narayan believes the old rules-based global order has effectively died, and he does not expect it to reappear when one American administration leaves office. For the next five, ten, perhaps fifteen years, countries will depend increasingly on economic power, military power, technological power and control over supply chains.
Nobody is coming to secure India’s medicines, semiconductors, energy systems, defence production or digital infrastructure out of affection. Growth is no longer merely an economic ambition. It is national insurance.
And that is where China enters the story.
China is not just exporting goods. It is exporting deflation.
China can manufacture far more than its households consume, so the surplus must go somewhere. It arrives in world markets as machinery, chemicals, electronics, solar equipment, consumer goods and industrial components – produced at enormous scale and priced with terrifying aggression.
China is not merely exporting products, Narayan argued. It is exporting deflation. For the consumer that can look like a bargain; for the manufacturer competing against it, it looks like extinction.
He pointed to Germany’s Mittelstand – the specialised, often family-owned engineering companies that form the spine of German industry – now facing Chinese competitors with scale, integrated supply chains and prices they cannot match.
So Europe has a China problem. India has one too, but of a stranger kind: we depend on Chinese machinery, components and industrial inputs while keeping Chinese direct investment at effectively negligible levels for strategic reasons. We need what Chinese factories know how to make; we do not want Chinese capital controlling the factories that make it.
That contradiction creates a once-in-a-generation opening for Europe and India. It also creates a trap.
Three agreements, one missing factory
On paper, the bridge is already being built. The India-EFTA Trade and Economic Partnership Agreement took effect on 1 October 2025. The India-UK Comprehensive Economic and Trade Agreement came into force on 15 July 2026. And in January 2026, India and the European Union announced the conclusion of their long-negotiated free-trade agreement.
The government’s India–EU factsheet says Indian exporters will receive preferential access across 97% of tariff lines, covering 99.5% of export value, with labour-intensive exports worth roughly $33 billion – textiles, leather, footwear, chemicals, toys, marine products, gems and jewellery – entering at zero duty when the agreement takes effect.
For a European manufacturer facing China, the proposition is seductive:
- Bring machinery and capital into India.
- Use Indian labour and engineering talent.
- Sell into the Indian market.
- Export back to Europe with dramatically lower tariff friction.
- Reduce dependence on China without surrendering competitiveness.
It is the rare arrangement in which both sides have something the other urgently needs.
But an FTA does not build a factory. A factory needs land that can actually be acquired, power that stays on, a port that moves, a court that resolves, a tax officer who agrees with the customs officer, and labour rules that work outside a presentation. Above all it needs a state government, a central ministry and a municipality that do not treat the project like a volleyball.
The tariff can fall to zero while the file remains stuck for eighteen months.
Narayan’s joke carried more policy truth than a hundred official brochures:
“If you leave it to the babus – and by the way, the babus in Europe are terrible; they’re almost as bad as the babus in India – we can make a mess of these things.”
The geopolitics is favourable. The execution is not guaranteed. And India’s employment numbers show exactly what failure would cost.
The demographic dividend is sitting in a waiting room
Narayan introduced the jobs discussion with another joke: if you want good news on employment, read the official Periodic Labour Force Survey; if you want terrible news, read the Centre for Monitoring Indian Economy.
The surveys disagree because they are not asking precisely the same question – but this time even CMIE’s numbers contained good news. According to the data he presented, non-farm employment (industry plus services) has recovered sharply since Covid and moved above its pre-demonetisation level, salaried employment has increased, and formalisation has improved.
India is creating jobs again. It is simply nowhere near finished.
Narayan put India’s labour-force participation at roughly 56%, below the global average and far behind manufacturing competitors such as Vietnam. The deepest gap is among women, where participation can appear to be anywhere between roughly 20% and 35% depending on the survey and the definition used.
That gap is not statistical trivia. It tells us what we are calling “work”. Under the broader PLFS framework, a woman who spends limited time helping on a family farm or household enterprise – even without an independent wage – may be counted as employed, while a stricter survey produces a far lower figure. The official data does show more women moving out of “domestic duties” and into work as helpers in household enterprises, which may represent genuine economic participation. But it also suggests that part of the apparent improvement is unpaid family work rather than the mass arrival of women into secure salaried employment.
Narayan’s larger point survives any argument over definitions: tens of millions of educated, working-age Indians remain outside productive, paid employment. He said fewer than half of India’s graduates are employed and nearly two crore graduates are actively seeking work – and many more are absent from the unemployment rate entirely, because once a person stops searching, the statistics stop calling that person unemployed.
Stop looking, and you vanish.
India does not merely need more jobs. It needs jobs that use education, deepen skills and raise productivity. Otherwise the demographic dividend becomes a demographic waiting room: young, qualified, impatient and economically invisible.
Those jobs were supposed to come from manufacturing. The factories never arrived at the required scale.
The country that exports medicines imports their ingredients
Manufacturing’s share of Indian value addition has moved in the wrong direction. Narayan said it fell from roughly 18% around 2012–13 to about 14%, while Vietnam and Bangladesh climbed. The World Bank’s comparable series places Indian manufacturing value added at only around 13% of GDP.
India is the great generic-pharmaceutical supplier to the world. Yet beneath the Indian label sits a Chinese ingredient: government data shows China supplied approximately 73.7% of India’s API, bulk-drug and drug-intermediate imports in FY2024–25, with similar dependencies running through electronics, chemicals and capital equipment.
This is why “China plus one” cannot be manufactured as a slogan. A supply chain is not one factory with a tricolour on the gate; it is a dense living organism of toolmakers, component suppliers, technicians, testing labs, warehouses, logistics firms, patient capital and accumulated know-how.
And here the strategic logic collides with the industrial logic. India wants to replace Chinese imports while admitting almost no Chinese investment. Strategically that may be understandable. Industrially it creates a savage challenge: you depend on one country for the inputs to your highest-value industries, you close the door on capital and technology from that country, and then you instruct domestic manufacturers to raise value addition without the ecosystem that made the imports cheap in the first place.
Europe may supply part of the missing capital and know-how. India still has to give it somewhere easy to land.
Meanwhile, the world has made money expensive again
Even if India gets the factory, it must finance it in a world that has changed.
US federal debt crossed $40 trillion in August 2026, according to the US Treasury; it was roughly $5 trillion at the turn of the century. At the same time, the AI infrastructure race is demanding extraordinary sums for chips, data centres, power generation, cooling and transmission. Governments and some of the richest corporations in history are now competing for the same pool of capital.
The old official buyers of US debt are also less dependable than they were. The freezing of Russian reserves taught every central bank an unforgettable lesson: a foreign reserve is only yours while the country holding it agrees. Gold suddenly looks less primitive.
Narayan’s conclusion was not that the US must collapse or that the AI bubble must burst. It was simpler and more immediately useful: global interest rates may remain structurally higher than investors became accustomed to.
A US Treasury yield is not an American curiosity. It is the world’s hurdle rate. Before a foreign investor accepts Indian currency risk, governance risk, liquidity risk and valuation risk, the expected return must comfortably beat what is available from a supposedly risk-free dollar asset.
An Indian company trading at 70 times earnings is not competing only with another Indian company. It is competing with every yield in the world.
Which brings us back to the hands that did not rise in Chennai.
The bond nobody in the room wanted
India’s fixed-income market, Narayan argued, is repressed.
When inflation fell, the RBI appropriately cut its policy rate. But it also purchased large quantities of government securities, injecting durable liquidity and helping push lower rates through the system – by Narayan’s count, ₹8.8 lakh crore of bond purchases in FY2025-26 and nearly ₹12 lakh crore across two years. At one point the ten-year government yield fell to approximately 6.1%.
That was the number he offered the room. Nobody wanted it.
The reason becomes even clearer after tax. For a high-income investor, interest can face a marginal burden around 40% or higher after surcharge and cess, so a 6.8% pre-tax return shrinks towards 4%. Lock away money for ten years, accept duration risk, and earn little more than inflation.
Narayan asked the question more colourfully:
“If you are investing in that, I have to ask you: do you have rocks in your head?”
But notice what the silence in the room actually proves. If private investors will not buy the asset at that price, the rate is not being discovered by a free market at all – it is being maintained by regulated institutions, central-bank operations and pools of captive liquidity. And then the same saver is told that every rupee of interest is ordinary income.
So the saver leaves. Not the country, necessarily. The asset class.
The money moves into gold, property, equities, mutual funds or foreign assets under the Liberalised Remittance Scheme – not always because those choices match the saver’s risk tolerance, but because the tax and policy system has made the alternative look absurd.
And here Narayan produced the number that gives the headline its spine. He compared private, non-government credit with stock-market capitalisation: in India, that ratio is only 65% – the lowest among the major markets he examined. The United States, supposedly the home of equity culture, is around 95%. Germany, Japan and South Korea run much higher. China is in another universe.
His verdict: “We have butchered the credit market.”
This is financial repression with a cheerful marketing department. We call it financialisation.
SEBI’s 2026 study of household savings estimated that households routed approximately ₹6.91 lakh crore into the securities market in FY2024–25 under its revised methodology – almost twice the previous year’s figure, with mutual funds absorbing the overwhelming share.
India’s equity culture is real. The question is whether it was created for the right reasons.
The river of money meets a narrow gate
Once savings leave fixed income, they do not enter an infinite equity market. They hit a limited supply of investible companies.
Narayan reconstructed FY2024-25 like a plumbing diagram. Domestic mutual funds bought approximately ₹6.1 lakh crore of equity; insurers, pension funds and individuals added roughly ₹2.7 lakh crore; foreign investors removed about ₹1.3 lakh crore. Net demand still stood near ₹7.5 lakh crore. Against it, he estimated only about ₹4.6 lakh crore of new supply through IPOs, follow-on offers, qualified placements, rights issues and other routes.
The gap was roughly ₹2.9 lakh crore.
Every buyer requires a seller. So who stood on the other side? Promoters. Founders. Strategic owners. Multinational parents. The people who knew the companies best sold pieces of them to the river of domestic savings arriving at the gate.
That does not automatically mean the companies were bad or the sellers dishonest. It means the price had become irresistible.
This is how an excellent business reaches 70, 80 or 90 times earnings – and how a multinational subsidiary in India can command a dramatically richer valuation than its own parent at home. Around their listings, Hyundai’s Indian operation and LG Electronics India were both valued at multiples far above their Korean parents. The child can become worth more than the parent because the child is listed where the captive money lives.
And then India asks why foreigners are selling.
Foreigners may love India – and still refuse to buy it
Narayan recalled the message FPIs repeatedly gave SEBI. They admired India’s energy and ambition, and preferred its entrepreneurial hunger to many competing emerging markets. But the companies they liked were simply too expensive. What were they expected to do at 70 or 80 times earnings?
Foreign selling is therefore not necessarily a referendum on India’s future. Sometimes it is a verdict on the price India has placed on that future.
It is also worth keeping the panic proportionate. SEBI’s 2025–26 annual report records net FPI equity outflows of ₹1.81 lakh crore during the year – a headline that sounds apocalyptic. Yet total net FPI withdrawal across asset classes represented only about 2.1% of the previous year’s assets under custody. Large in rupees; far smaller in proportion.
“Foreigners are selling” is a fact. It is not an investment thesis.
The deeper question is why Indian savers cannot price domestic assets with the same freedom.
When the tax code becomes your fund manager
In every respectable investment textbook, asset allocation begins with the investor. How old are you? What return do you require? How much volatility can you tolerate? When will you need the money? What loss can you survive without panicking?
In India, Narayan argued, the exercise often starts somewhere else: what will the tax department leave me? The saver begins by deleting fixed income because the post-tax return looks pointless, then allocates among whatever remains.
That is not asset allocation. It is tax-induced migration.
So he proposed a radical simplification:
- Cap tax on interest income, perhaps at 20%.
- Apply comparable long-term capital-gains treatment across equity, debt, REITs and InvITs.
- Stop using tax policy to favour one asset class over another.
- Gradually relax restrictions on overseas investment.
- Move towards residence-based taxation for non-controlling foreign portfolio investors, closer to the practice in many global markets.
Every proposal has an obvious objection. Why give wealthy depositors a tax concession? Why allow more Indian money to leave? Why should foreigners receive treatment unavailable to residents?
Narayan’s answer is that the current system is not free either. It produces mispriced bonds, overcrowded equities, operational friction and weaker foreign participation. A foreign fund may have to calculate gains in rupees even when it lost money in dollars, obtain tax certification, and endure procedures it does not face in competing markets; a tax-exempt sovereign fund or university endowment may have no home-country liability against which to offset Indian withholding at all.
The friction becomes part of India’s price.
Which makes his most counterintuitive prescription worth remembering:
Let some money go out so that money can come in.
Capital controls protect an inefficient market in exactly the way import controls once protected inefficient cars. When nobody can leave, the domestic producer never has to become globally attractive. Open the window gradually, Narayan argued, and Indian valuations must earn global capital rather than trap domestic capital.
But some of that trapped money has already found a more dangerous escape. It expires every week.
The three-minute casino
Narayan is not opposed to derivatives, and nor is SEBI. Futures and options are essential for hedging, price discovery and liquidity, and healthy markets need speculators willing to take the other side of risk.
The problem is not that speculation exists. The problem is what Indian index options became.
SEBI found that 93% of individual traders lost money in equity F&O between FY2021-22 and FY2023-24, with aggregate losses exceeding ₹1.8 lakh crore. Its new FY2025-26 study, released two days before the Chennai talk, shows some improvement — but nothing resembling safety. About 87.7% of individual traders still lost money, and while the number of active participants fell, the average loss among losing traders reportedly rose to approximately ₹1.17 lakh.
The smallest investors suffered disproportionately. Many held negligible underlying equity: they entered with a few thousand rupees, bought an option and left minutes later. Narayan put the average holding period at around three minutes.
Three minutes is not investing. It is barely enough time to understand the bet.
The product resembles a lottery ticket because the premium looks small, the payoff looks spectacular, and the probability of ruin stays hidden behind the app’s clean interface. It is a slot machine wearing a Bloomberg terminal.
Yet retail losses were only Narayan’s first concern. The second was systemic.
₹10 lakh crore balanced on a much smaller market
An index derivative settles against a price discovered in the underlying cash market. That sounds safe until you compare the two sizes.
Narayan said the old closing mechanism could see roughly ₹8,000-9,000 crore traded in the final thirty minutes. But on an expiry day, the open interest riding on that closing price could exceed ₹10 lakh crore.
A mountain balanced on a pin.
If a participant carries an enormous options position, even a costly attempt to influence the much smaller cash or futures market can become profitable. Lose ₹50 crore moving the index; make ₹500 crore on the options that respond. Narayan compared the structural danger with LIBOR – a relatively small underlying process determining the value of an immense derivative universe.
The concern is not hypothetical, although the legal case remains contested. In July 2025, Narayan authored SEBI’s interim order alleging index manipulation by the Jane Street Group, which alleged that the firm used coordinated trades in Bank Nifty constituent shares, futures and vastly larger options positions to influence the index on expiry days, and identified ₹4,843.57 crore as alleged unlawful gains. Jane Street disputes SEBI’s characterisation and describes the activity as legitimate index arbitrage; the proceeding must therefore be treated as an allegation, not a final judicial finding.
But the market-design vulnerability exposed by the dispute is exactly the one Narayan described in Chennai: a huge derivative payoff can depend on a much smaller market that sets the reference price.
Nor can surveillance make that structure invulnerable. Detecting one giant firm with a visible footprint required transaction-level analysis across cash, futures and options. Narayan asked the room to imagine twenty parties in different cities quietly coordinating instead – and would the regulator find them? His answer was not reassuring.
India’s obsession with same-day and weekly expiries deepens the problem. In healthier derivatives markets, far more contracts extend beyond a month and serve recognisable risk-management needs. In India, trading crowds towards the nearest expiry, the moment when gamma, leverage and emotion are most explosive. Zero-day trading can manufacture volatility rather than absorb it.
So why not simply shut it down? Because the casino helps pay for the building.
The regulator’s impossible switch
Index options generate a very large share of revenue for exchanges, clearing corporations and brokers. Narayan estimated that a single options franchise can contribute 65-85% of an exchange’s profits, and that index options can generate around 80% of the revenue of major brokers. The exact proportion varies across firms; the dependence does not.
That creates a genuine trap. Do nothing, and small traders continue feeding a machine in which the odds are overwhelmingly against them. Move too abruptly, and revenue disappears from the very institutions that finance market infrastructure, surveillance, technology and access. An attempt to protect investors can destabilise the ecosystem protecting them.
SEBI’s response has therefore been incremental: larger contract sizes, fewer weekly expiries, tighter risk controls and, from August 2026, a new Closing Auction Session intended to produce a more reliable closing price.
Participation has begun to fall, and the smallest traders are retreating fastest. That may look like the market becoming less democratic. It may actually be investor protection beginning to work.
The regulator’s task is not to eliminate speculation. It is to prevent a useful derivative market from becoming a mass-loss entertainment product with systemic consequences – which requires evidence, patience, and the ability to ignore social media, where, as Narayan observed, people often declare the verdict before considering the logic.
Seven rules for the intelligent Indian investor
Narayan offered no stock tips. He offered something more durable: a framework for seeing the market as it actually is.
1. Stop treating foreign flows as a national confidence vote. An FPI can love India’s economic future and hate the price of Indian equities. Foreign selling may reflect valuation, dollar yields, currency expectations or better opportunities elsewhere. Read the flow; do not worship it.
2. Make every valuation compete with the global cost of money. When safe dollar yields are high, an expensive equity needs even stronger earnings growth. A wonderful company does not remain a wonderful investment at every price.
3. Buy the factory, not the FTA headline. A trade agreement creates access, not execution. Look for acquired land, installed capacity, supplier development, export orders, utilisation and return on capital – not a presentation containing the words “Europe opportunity”.
4. Do not let tax alone design your portfolio. Tax efficiency matters; survival matters more. If your temperament and liabilities require stability, forcing everything into equities because debt is tax-inefficient is not sophistication. It is hidden leverage against your own fear.
5. Treat short-dated options as a hazardous product. Unless an option serves a defined hedge or a tested strategy with strict loss limits, assume the platform, intermediary and professional counterparty understand the odds better than you do. The data says they probably do.
6. Separate India’s destiny from the price of Indian assets. India can become richer, more powerful and more productive while an overvalued stock delivers miserable returns. A great country story and a great entry price are not the same thing.
7. Watch the reforms too boring to trend. Interest taxation, corporate-bond liquidity, FPI administration, overseas-investment limits, female paid employment, factory approvals and derivative-market structure will rarely dominate prime-time television. They may matter more to long-term wealth than the next Budget slogan.
He ended with a request rather than a prediction. During three years inside SEBI, he learnt that regulators hear constantly from the loud – brokers, institutions, industry bodies, famous investors, social-media personalities. What the ordinary investor thinks, the regulator often has no idea. A serious investor association capable of producing considered, evidence-based recommendations would not be a nuisance to policymakers. It would supply something government cannot easily buy: a coherent view from the people regulation is meant to protect.
India is going in the right direction — crookedly
Narayan is not an India bear. He sees job creation recovering, a historic opportunity with Europe, domestic savings deepening, and a regulator trying to repair a derivatives market that grew faster than its safeguards.
But optimism without diagnosis is advertising. And his final assessment was devastating precisely because it did not require a villain:
“Without any intention of that kind, the unintended consequence is that we have managed to create a bit of a mess as far as the capital-market ecosystem is concerned. We have completely suppressed our credit markets, our fixed-income markets – it would have been a beautiful market for all of us otherwise – and we have managed to over-inflate our equity markets.”
No conspiracy. No secret room. Just a series of individually defensible decisions: keep rates low to help borrowers, tax interest as ordinary income, limit overseas investment to protect the currency, celebrate every new demat account, allow weekly options to fund an expanding market ecosystem.
Each decision can be explained. Together they create something nobody consciously chose.
India’s problem is not a shortage of capital; it is where policy pushes that capital. It is not a shortage of people; it is how few find productive, paid work. It is not a shortage of trade agreements; it is whether the factory promised by the agreement ever breaks ground.
And it is not a problem that Indians own equities. The danger is that too many may own them for the wrong reason, at the wrong price, because policy made the alternatives irrational.
Back in Chennai, the room had already delivered its verdict.
At 6.1%, not one hand went up.
The money had to go somewhere. Now we know where it went.
Ananth Narayan served as a Whole-Time Member of SEBI between October 2022 and October 2025, overseeing areas including market regulation, foreign portfolio investors and enforcement. He is currently Senior India Analyst at the Observatory Group. Follow him on LinkedIn and X. This article distils a talk delivered by him in Chennai. Opinions and numerical estimates attributed to Narayan are drawn from that talk; independently sourced material is linked in the text.
This article is for education and discussion and does not constitute investment advice.
Reporting note
Based on a fireside chat in Chennai, cross-checked against company disclosures and published reporting. Where recollection conflicted with the record, the published figure is used.
Karnvir Mundrey is the Editor of TheFutureOfPR.com. Reach out at tfofpr@gmail.com or at +918296303806.
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