Dot-com plus subprime, says RBI.

"Reserve Bank of India (RBI) Governor Sanjay Malhotra said the Indian financial system remained resilient and the economy had navigated the West Asia crisis well, but policymakers needed to stay vigilant." "Malhotra cautioned against stressed valuations, especially those related to AI, elevated debt levels globally, elevated leverage that could spill over to banks and markets in case of tightening of financial conditions, private credit, and cyber risks that have been compounded by AI." ET. In short, a combination of the 'dot-com bubble', in which the soaring share prices of Internet technology companies reached unsustainable levels, leading to a sudden collapse (Britannica), which caused central banks to lower interest rates to stimulate a recovery and this led to a housing boom caused by lending to high-risk borrowers with poor credit rating, camouflaged by credit default swaps, resulting in the sub-prime crisis in 2008 (Investopedia). The Federal Funds rate dropped to 1% on 6 November 2002, rose to 5.25% on 29 June 2006, and dropped to 0% to 0.25% on 16 December 2008 (Forbes), reflecting the boom and bust cycles of the US economy. Market capitalization of AI related companies sounds like fiction, with Nvidia at $5.67 trillion, Alphabet at $4.16 T, Microsoft at $3.84 T, Amazon at $2.71 T, TSMC at $2.45 T and SpaceX at $2.1 T. Bullfincher. "Total US debt has topped $40 trillion for the first time, the Treasury department said, drawing fresh warnings that a fiscal crisis is brewing." Outstanding total public debt stood at $40.047 trillion. Reuters. "Global debt rose by around $7.5 trillion in the first three months of the year to a record high of over $324 trillion, data from a banking trade group showed." "The global debt-to-output ratio continued to move slowly lower, standing at just above 325%. However, in emerging markets (EM) the ratio hit a record high of 245%." Reuters. India is classed as an EM. India's "seasonally adjusted HSBC Purchasing Managers' Index (PMI) rose to a seven-month high of 55.1 in September after hitting a five-year low of 52.8 in August (below 50 is negative)." "High input costs are adding pressure across transportation, energy and manufacturing activities." "For manufacturers, there is little room to raise prices and protect margins." Mint. "While private consumption gained traction - rising 7.1% in the June quarter against 6.8% a year ago," "new project announcements rose 33% year-on-year (y-o-y) during the April-September (H1) period of fiscal year 2027 (FY27) to Rs 30 trillion." "Manufacturing, once a major contributor to capex, saw a 23.2% decline in new investments," while "intentions in construction and real estate plummeted 31.5%." Mint. While "the listed sector's investments amounted to Rs 12-13 trillion, (averaging about 4% of GDP) in the four years from 2022-23 to 2025-26," "the unlisted corporate sector invests as much as 10% of GDP, or more than two-thirds of aggregate corporate capex," wrote Nikhil Gupta. "While the listed sector's profits are closer to their all-time peak of 5.8% of GDP and its leverage ratio at 17% of GDP was at a two-decade low in 2025-26, the profits of the unlisted sector dropped to a 15-year low of 3.5-4% of GDP, while its debt-to-GDP ratio was at a seven-year high of 33% of GDP in 2025-26." As a result, the listed sector's capex is healthy while the larger unlisted sector has to reduce new investments. Foreign direct investment (FDI) is also down, with net FDI "down from nearly $44 billion in 2020-21 to under $1 billion in 2024-25, even as gross inflows touched a record $94.5 billion," wrote Ashish Dhawan & Piyush Doshi. Is the global economy careering towards an almighty explosion? Should we be concerned here in India? Perhaps, only a little. With a nominal GDP of $4.15 trillion (IMF), compared to Nvidia's market value of $5.67 trillion, and manufacturing contributing only 17% of GDP  (IBEF), the effect on us should be more of a ripple than a wave. Dot-com plus subprime? No problem.