A "handwaving" bubble.

"India's packaged consumer goods companies reported their best quarter in a year as smaller packs, lower grammage and price hikes helped them overcome a consumption slowdown that has weighed heavily on the sector in recent months." Mint. Increasing profits through a combination of inflating prices and shrinkflation which means reducing the amount of a product while maintaining its sticker price (Investopedia). "Biscuit maker Britannia Industries Ltd has started increasing prices to counter a surge in the cost of key ingredients, palm oil and cocoa." Mint. Increasing prices is an easy way of increasing profits so Indian companies are always begging the government to increase tariffs on imports so as to stifle competition. On the other hand, high tariffs on raw materials forces them to increase prices. In his first term, President Donald Trump labeled India "the king of tariffs". BBC. In 2017, "India's trade weighted average was 11.7%." Customs duties were increased on a range of imports in the Budget of 2018 "to promote the creation of more jobs in the country". ET. In 2021, "India's average applied import tariffs dropped to 15% in 2020, from as high as 17.6% in the previous year." FE. "The US trade-weighted average tariff rate is about 2.2%, according to World Trade Organization data, compared to 12% for India, 6.7% for Brazil, 5.1% for Vietnam and 2.7% for European Union countries." NDTV. Higher profits translate to higher dividends and share prices for companies. As a result, "India is now the most expensive equity market in the world, and 'no amount of handwaving' can justify its current valuation levels, according to 'Valuation Guru' Aswath Damodaran." BT. "India trades at a staggering 31 times earnings, 3 times revenue, and 20 times EBITDA in aggregate," he wrote in his blog. Foreign portfolio investors (FPI) withdrew Rs 73.42 billion from Indian equity markets in the first week of this month. The outflow in January was Rs 780.27 billion but they invested Rs 154.46 billion. BS. "The Nifty 500 Total Returns Index, a good overall representation of the overall Indian stock market, has fallen 11.3% since peaking on 26 September," wrote Vivek Kaul on 22 January. "The narrative built around certain stocks and sectors got many retail investors to invest in such stocks," and "mutual funds tried to cash in by launching new schemes around which narratives have been built," leading to a surge in prices. Now "regression to the mean is at work," so prices are dropping. "The US stock market now floats above the rest, with relative prices at a record since data began over a century ago," and "As a result, US accounts for 70% of the leading global stock index, up from 30% in the 1980s," wrote Ruchir Sharma. "But, mesmerized by 'American exceptionalism' analysts can talk only of how US has been the world's premium market for a century." But, "When flying in such thin air, it doesn't take long to stall the engines," wrote Sharma. "A much bigger problem is the indirect impact of Trump's chaotic, unpredictable policies." "I have long said that valuations in the US and India are crazily high, and in bubble territory," "This indicates that the Indian markets could fall by half and still be well above all others, save the US," wrote Swaminathan SA Aiyar. In February 2024, "Mutual funds and individual investors now have a bigger stake than FPIs in the Indian stock markets." CNBC. A sharp fall in markets could see panic selling and a massive erosion of wealth. That would reduce consumption and cause a fall in GDP growth. Creating bubbles through high prices and high tariffs is not a good idea. "Handwaving" will not work on Trump. So, now what?