A natural Ponzi scheme.

"Foreign investments in Indian government bonds have climbed more than $1 billion in the two weeks since domestic sovereign debt was included in a JP Morgan index, adding to the $11 billion yield-influencing inflows since the inclusion was announced in September 2023." Since the number of bonds available for sale is finite, increased buying leads to a rise in prices and a fall in yields. That lowers the borrowing costs for the government. Yields closed at 6.966% on the benchmark 10-year India government bonds on 16 July, still flirting with the 7% mark. Investing.com. In June, the Reserve Bank of India (RBI) kept its repo rate unchanged at 6.5% for the eighth successive time. Mint. "Repo rate is the rate at which the central bank of a country (RBI in India's case) lends money to commercial banks in the event of any shortfall of funds." ET. It is surprising that yields on sovereign bonds are higher than that of commercial banks when the chances of default should be non-existent on government bonds. Yields on 10-year US Treasuries closed at 4.173% yesterday (CNBC), when "The US Federal Reserve (US Fed), on 12 June, maintained its key interest rate at 5.25%-5.5% for the seventh straight meeting (BS). In addition to dollar inflows into G-Secs, "According to the data with the depositories, foreign portfolio investors (FPIs) have made a net inflow of Rs 153.52 billion in equities this month (till July 12). This came following an inflow of Rs 265.65 billion in equities in June." BS. With so much foreign money coming into Indian markets, the rupee should have hardened against the dollar, but it has not budged. One dollar buys Rs 83.58 this morning. xe.com. Both the stock markets in India are trading at record highs, with the Nifty 50 index closing 26 points higher at 24,613 and the BSE Sensex gaining 51 points to close at 80,716 yesterday. Mint. Nobel Prize winning economist Robert Schiller calls this a "naturally occurring" Ponzi scheme, in which there is no fraud but "Investors, their confidence and expectations buoyed by past price increases, bid up speculative prices further, there by enticing more investors to do the same, so that the cycle repeats again and again." Wrote Vivek Kaul. "Basically, the sharp rise in Indian stock prices is currently the strongest attraction for new retail investors." "Promoters are the ultimate insiders," and "in the first six months of 2024, promoters or owners of businesses have sold stocks worth Rs 620 billion" because "they feel that their share prices are overvalued and that they don't expect the future earnings of their companies to rise at a pace that justifies the rise in share prices, and so there is money to be taken off the table," wrote Kaul. So 'irrational exuberance' (Investopedia) on the one hand and a shrug of the shoulders on the other. "There's a sucker born every minute," say Americans. wikipedia. In our case, it is in millions.