Examining the gravitational pull of index investing

The blockbuster IPO of SpaceX has drawn attention to the role of the index investing market segment, which originated fifty years ago. The scrutiny will only intensify in the days ahead as both Anthropic and OpenAI are listed. 

Despite only about 4 per cent of SpaceX’s shares being listed, a high level of demand was built in, also because some index investors will soon be required to add the company to their portfolios. Nasdaq amended its rules (as also CRSP and FTSE Russell) to allow SpaceX to enter the Nasdaq-100 index via fast-track, thereby providing it free liquidity through a captive market. Morningstar follows 6,006 US-registered mutual funds and 5,100 ETFs, covered by 3,203 separate benchmark indices against which $41.1tn of assets are managed. 

The current entry requirements for indices are very liberal for large companies.

However, what distinguishes SpaceX is its very low float (just 4.25% compared to above 90% for the other big companies) and the fact that it does not yet make any profit. Toby Nangle and Co at FT Alphaville tabulated that active fund managers (who want to ignore Musk) and passive portfolio managers (who have no choice) must purchase $14.2bn of SpaceX stock in the first three weeks of trading to avoid going short. 

We think that managers who have absolutely no interest in going either long or short Elon will need to collectively buy $8.5bn of SpaceX stock on the 19th June, a further $1bn on 26th June and a final $4.7bn on July 3. And so we’re talking a cumulative, de facto mandated $14.2bn of mutual fund and ETF orders by July 4 to avoid having to take a view on Elon. That number would’ve been around $11bn higher if the S&P 500 index committee had leaned a different way. But it’s $13.2bn bigger than the $1bn it would’ve been if index committees had sat tight on their existing fast-track methodologies. And this is before we count institutional assets like pension funds, insurers and foundations, as well as every single foreign owner whose benchmarking habits we currently lack information.

So this is a big deal. Clearly, the market has been brazenly manipulated by changing the rules to create the stage for SpaceX (and the other two mega IPOs). 

I took the help of Claude to generate a few graphics to understand the scale of index investing, its dynamics and distortions, and possible reforms. 

The conventional measures dramatically understate index investing because they count only labelled index mutual funds and ETFs. However, using the indexation definition, passive ownership of global equity mutual funds and ETFs is 50% and 60% for US equities. In fact, a stunning three-fourths of the equity market exposure of the big three US asset managers is through ETFs.

SpaceX’s shares could have an index exposure of 43% in a year when it joins the S&P 500, and that too on a volume which would be a fraction of that for the Mag7 firms. It is estimated that S&P 500 funds would need to absorb 19% of SpaceX's public float upon inclusion, with the Russell 1000 and Nasdaq-100 funds absorbing another 24%. A tiny supply of $22-27 bn would meet a mandatory demand of 43%. 

The research on the impact of index inclusion on stock price offers striking findings. Gabaix and Koijen find investing $1 in the stock market increases the market’s aggregate value by about $5. Since marginal holders of equity (index funds, pension funds, insurance companies) operate under mandates that fix their equity allocations within narrow bands, when aggregate demand shifts, few participants can absorb the change, and prices must move substantially to clear the market. 

Haddad-Huebner-Loualiche point to a Mathew Effect in indiex investing. They find that a $3.6trn market cap company is only about five times as liquid as a $100bn company, despite being 36 times the size. The largest stocks are disproportionately impacted by each dollar flowing into passive funds, causing the largest stocks to outperform and stock market concentration to rise. Passive investing has reduced market efficiency by over one-third.

Index investing brings the benefits of access to a low fee, diversified, and tax efficient asset pool to the retail investors. In the words of the legendary investor Jack Bogle, index investing is the equivalent of not looking for the needle but instead buying the haystack. 

However, it distorts price discovery, creates inelastic demand, amplifies concentration in stocks and asset managers, and erodes governance. All of these distortions are greater for the mega-cap stocks. 

Further, index-investing comes from asymmetric flow elasticity. While passive funds are mechanically symmetric (the 1:5 multiplication), the rest of the system (margin lenders, derivatives dealers, momentum funds, retail behavioural agents) is not. When flows reverse, the multiplier still applies, but additional positive feedback channels switch on, creating an overshoot below fundamental value before mean-reversion can bring prices back. The resultant instability can tip markets into prolonged and deeper downturns. This is an illustrative example

Suppose 2 years post-IPO, growth disappointments and rate-policy reversal trigger a ~20% net outflow from Nasdaq-100 trackers ($280 bn × 20% ≈ $56 bn). Applying the firm-level multiplier (~2 for stock-specific flows, higher for concentrated names): mechanical impact on SpaceX share price could be ~30–45%, on top of any fundamental revaluation. The same flow proportionally affects all Mag 7. Index investing does not just amplify upside — it removes the price-discoverers who normally cushion downside.

Below is a listing of some channels that amplify the downside. 

All things taken together, index investing must reconcile the conflicting requirements of democratising investing (through passive funds) and limiting market instability. The answer lies in the empirical fact - the more capital becomes index-tracking, the less price discovery the market performs, and the more the system is exposed to flow-driven valuation and procyclical unwinding. Clearly what is optimal for individual investor is not optimal for market function. In the circumstances, this can be an illustrative framework to reconcile the conflicting requirements. 

The problem with index investing is that of internalisation of its negative externalities. Passive investors capture the upside of cap-weighted indexation (low fees, diversification, momentum) without bearing the price-discovery cost, whereas active investors bear the cost of analysis but cannot compete on fees. 

This free-riding can be resolved only if passive investors internalise the marginal cost they impose on the system without eliminating the substantial benefits they deliver to retail investors. Like with carbon emissions, this can be done through fees, governance obligations, or structural caps. 

To dive a bit deeper, there are perhaps four levers for reforming index investing - index methodology (rules of index construction), voting and governance obligations, fund-level liquidity thresholds, and limiting structural concentration in the passive investment ecosystem. A combination of all of them is a formidable regulatory toolkit. 

Each lever will have its set of reforms. It may be required to prioritise a limited set reforms that have the highest-impact-per-cost. The simplest and highest value reform could be mandatory free float minimums (say 10-15%), a twelve-month public trading history before index inclusion, and a 4-5% cap on any single stock in an index. Second, bring index providers under SEC regulation as “investment advisers” subject to fiduciary duty and disclosure requirements. 

Third, for passive funds with more than 1% holding, return governance to the ETF or index fund holders by allowing them to vote their proportionate share directly via the fund, thereby reducing the influence of the Big Three asset managers. Fourth, cap the passive fund ownership of US banks at 10% (the regulatory "controlling interest" threshold) and impose mandatory liquidity stress tests for funds with more than $5 bn AUM in cases of extreme outflows and market dislocation. 

Fifth, the Department of Labour should tighten defined-contribution retirement-plan portfolio diversity rules, thereby providing a structural counterweight to cap-weighted default portfolios. Such plans must offer either equal-weight or capped-weight default or cap cap-weighted defaults at e.g. 80% of the plan portfolio. This would reduce forced concentration in 401(k) default portfolios. Finally, there could be regulatory roadmap for orderly winding-down of overweight positions during the life-cycle or retirement transition. A coordinated guidance, including some rule-based gradual decumulation, reduces fire-sale risk. 

The proposals above seek to reconcile the diversification and fee benefits of indexation while also internalising its costs. Once index providers face fiduciary duty, once Big Three votes are partially passed through, once retirement defaults include non-cap-weighted options, once liquidity is stress-tested, and there is some transition guidance, the same products can continue to serve retail savers while delivering far less of the distortion that has been documented.

Weekend reading links

1. Ruchir Sharma goes behind the record corporate profits share of GDP in the US (11% of GDP, up from 7% in the 1990s) and finds two problems. One, the share is boosted by the lower corporate tax rates which translate into higher fiscal deficits.

Lately the US deficit has risen to more than 6 per cent of GDP and a deficit that high reflects a large transfer of income to households and corporations. Under a well-established accounting formula, the Kalecki-Levy Equation, corporate profits are in part a mirror image of the government’s deficit. Based on this framework, deficits were the single largest contributor to the increase in earnings as a share of GDP since the late 1990s. And in this decade, deficits have accounted for more than half of corporate profits, twice the level of the dotcom era. Strip away government support, and US profits look less extraordinary.

Second, the share falls sharply when we include the universe of private companies.

Since the dotcom bust in 2000, the number of publicly listed businesses has fallen by half, with many new companies remaining private for longer, funded by private equity and venture capital. This is the new home of excess and weak earnings. As a result, the profit growth of the average business listed in standard indices provides a misleading picture of the overall economy. Profit growth has been less impressive once the private companies are included in the data. Further, private firms planning to go public are much larger and less profitable today than in the 1990s. The biggest names in the IPO pipeline, including SpaceX, Anthropic and OpenAI, have little to no profits.

2. Britain's much-delayed HS2 railway project's cost has increased by another £20bn to £102.7bn (a range of estimates ( £87.7bn to £102.7bn in 2025 prices) and will be completed only by the 2040s, with the first trains not expected till 2036. 

3. Why has oil not hit $150 or $200 despite about 12-15 mbpd being taken out?

One of the biggest surprises for the oil market has been China, the world’s largest importer. It slashed inbound shipments by almost 40 per cent in May compared to last year’s average, according to Vortexa Ltd. The reduction is enough to offset anywhere between a third and a fifth of the barrels lost to the war, depending on the estimates used. At the same time, the US has emerged as the world’s most important swing supplier since launching strikes on Iran in late February. American crude and fuel exports in May were more than 2 million barrels a day higher than the average for all of last year. Other emergency measures have also eased the strain. Governments around the globe coordinated a historic release of strategic reserves, while Gulf producers rerouted shipments through alternative export routes. Some tankers continued moving cargoes via the strait despite the risks, using increasingly opaque methods to avoid military threats... Saudi Arabia’s East-West pipeline shipped millions of barrels a day to the Red Sea, while the United Arab Emirates has been piping barrels to the port of Fujairah outside the gulf.

And this is important. 

Another factor keeping a lid on prices has been Trump’s relentless jawboning, making it hard for even the most bullish traders to hold long positions for prolonged periods of time. Open interest in Brent crude futures is the lowest since August as elevated market volatility forces traders to roll back risk exposure. Steep price drops on the prospect of peace have pushed many oil bulls to the sidelines, leaving them to hold small positions for very limited periods of time, several traders said. The lack of risk-taking has helped keep a lid on financial flows, while supply levers have averted the worst hit to the market. The question now, is whether that can last without a peace deal.

4. The evidence to date points to widespread AI use not translating into anything proportionate in terms of business value creation. Sample this from the software industry pointed out by John Burn-Murdoch. 

5. EU energy subsidies during the Ukraine invasion and spike in gas prices. 

Between late 2021 and mid 2023, EU countries spent about €540bn on subsidising energy prices to protect consumers from price shocks in the aftermath of Russia’s full-scale invasion of Ukraine and to cushion energy-intensive industries from soaring costs. Of that total, €158bn was accounted for by Germany, whose industry heavily depended on Russian gas supplies. In the wake of the Ukraine energy shock, Brussels also relaxed state aid rules for the rest of the decade to allow governments to subsidise clean technologies and industrial decarbonisation.

6. Emerging AI-related roles in the software industry.

Agent engineers who build and fine-tune agents; architects who determine how humans and agents divide tasks; AI governance specialists who keep agents compliant and accountable; AI transformation advisors who help enterprises navigate workflow reimagination; solution designers who translate business problems into agentic solution architectures; and AI assurance partners who help clients govern their own AI deployments.

7. Rana Faroohar makes the point that we may be at the cusp of a new investment super-cycle driven by the combination of AI, clean energy, defence, and manufacturing.

In a recent issue of his TPW Advisory Monthly report, investor Jay Pelosky did just that, collating data on AI, clean energy and defence spending around the world from sources including Gartner, BloombergNEF (on energy), the Stockholm International Peace Research Institute and the International Institute for Strategic Studies (on defence) and others. So far, $6.9tn was spent globally in 2025 in the three areas, and the number will probably reach $10tn by the end of this year and $16tn by 2030. 

What’s more, says Pelosky, these three areas reinforce one another, amplifying potential investment. AI requires more energy. The move towards tech sovereignty in the US, China and even Europe (in a nascent way) adds to the need for investment in AI and energy, while the move towards a more 19th-century “spheres of influence” geopolitics calls for greater defence spending globally. Add to this the desire of policymakers in all three regions to increase resilience in critical sectors affected by concentration or globally dispersed supply chains: products such as advanced semiconductors, active pharmaceuticals and lithium batteries, for example.

8. Rupee trajectory over the last two years

The rupee depreciating by nearly 6 per cent against the dollar in the first five months of 2026 alone, exceeding the combined full-year declines recorded in 2025 (5 per cent) and 2024 (2.8 per cent). The rupee touched a record intraday low of 96.57 per dollar on May 19 and has lost roughly 14 per cent of its value against the greenback over the past two years. Against the euro, the erosion has been equally stark, with the Indian currency declining by more than 7 per cent over the past 12 months and nearly 16 per cent in the past two years, he added.

The problem with a depreciating rupee is that foreign investors now must earn an extra 14% over the last two years to offset the depreciation.

9. India's FTAs may be creating a perverse incentive for even domestic manufacturers due to the inversion of duty structures.

Many finished goods now enter India at low or zero duty from partners such as ASEAN, Japan, South Korea, the UAE and Australia. As a result, Indian manufacturers often pay high duties on imported inputs, especially those sourced from non-FTA countries, while competing against finished products imported duty-free under FTAs. For example, steel and aluminium attract MFN duties of 7.5-10 per cent, but machinery, industrial equipment and engineering products made from these materials can enter India duty-free under several FTAs. Indian manufacturers, therefore, face higher input costs when competing with tariff-free imported machinery produced with globally priced inputs.

Similar distortions exist in chemicals, plastics, rubber and textiles. Duties on inputs such as caustic soda, soda ash, polypropylene, PVC and SBR raise production costs. At the same time, many finished products in these sectors can be imported at low or zero duty... the growing incentive for firms to manufacture outside India rather than within it. When raw materials and components attract duties in India, but finished products can be imported duty-free from FTA partners, companies may find it more profitable to locate production abroad and export back to the Indian market. In such cases, FTAs effectively encourage offshore manufacturing at the expense of domestic value addition. ASEAN countries are increasingly becoming manufacturing hubs for supplying the Indian market.

10. The Gulf War has resulted in a surge in Chinese exports of solar panels, especially to South East Asian and African countries. This came at a time when many Chinese firms laden with excess capacity, low margins, and large indebtedness were facing an existential crisis. 

11. The revival of manufacturing in the US hits the wall of labour scarcity.

Perhaps the largest problem for would-be reshorers is a lack of labour. Despite widespread nostalgia for manufacturing jobs, new US factories often struggle to find reliable workers. When Japanese group Panasonic started producing electric vehicle batteries near Reno, Nevada in 2017, the company suffered more than 100 per cent annual turnover in its early years. Not only were employees reluctant to take jobs in an access-controlled, sterile environment, but every November, the group would lose workers to seasonal logistics jobs at nearby Amazon facilities that paid a similar wage... Despite political enthusiasm for reviving manufacturing, jobs posted on LinkedIn receive fewer applications than other sectors it competes with, such as technology.

12. More on the SpaceX bubble.

Goldman Sachs, the investment bank leading the IPO, projects that SpaceX’s AI revenues need to increase 100-fold by 2030, reaching $322bn from $3.2bn today. But its AI lab remains far behind Anthropic, Google and OpenAI at the frontier, and shows little sign of catching up. Morgan Stanley also estimates that overall revenue needs to increase 180-fold to $3.4tn by 2040, up from $18.7bn last year. Earnings must flip from a $4.9bn loss in 2025 to $2.7tn.

SpaceX ends the first day of trading at 20% premium on its $135 listing price, which raised $75 bn and left it with a valuation of $2.1 trillion. The listing prospectus claimed at $28.5 trillion addressable market.

SpaceX plans to use the IPO proceeds for a range of ambitious projects, from its skyscraper-sized reusable Starship rocket, founding a 1mn-strong colony on Mars, starting a lunar economy to building a network of orbital AI data centres capable of delivering vast amounts of computing capacity... A portion must also go towards repaying a $20bn bridge loan the group took out in March to back its merger with Musk’s lossmaking AI start-up, xAI, and social media platform X.

This is staggering. 

It also hands Musk a vast financial windfall, with his 42 per cent stake in SpaceX valued at more than $800bn. Combined with his $280bn holding in electric vehicle maker Tesla, his wealth has now surpassed $1tn, equivalent to about a third of the market value of the UK’s FTSE 100 index.

Richard Waters explains the rationale driving the astronomical valuation.

It is hard to find changes in SpaceX’s business prospects that account for a fourfold valuation jump within the space of a year. Rather, it is testament to Musk’s unrivalled grip on the public imagination, transmuted into Wall Street gold. When the history of SpaceX’s record-breaking IPO is written, it will go down as a textbook case of Musk’s ability to conjure a compelling vision of the tech future for both Silicon Valley and Wall Street, ably backed by an army of promoters in the financial world. (With fees estimated at about $500mn, it’s probably not surprising that there were few warnings from the Wall Street establishment that the shares might be overvalued.)... 

Musk has been busy in recent months spinning up new visions capable of embellishing his company’s prospects... What starts out sounding like science fiction fantasy doesn’t take long to seem not only plausible but even downright likely. Wall Street has been more than willing to translate Musk’s tech dreams into financial projections capable of supporting the sky-high valuation, implausible as those numbers may seem. Goldman Sachs, the lead bank on the IPO, predicted that revenue would soar to $474bn by 2030, most of it from AI...

The IPO involved only about 4 per cent of SpaceX’s shares, but a high level of demand was built in, partly because some index investors will soon be required to add the company to their portfolios. Even without the index funds, SpaceX’s sheer size — at about 2.5 per cent of US stock market capitalisation — has made it too big for many investment managers to avoid.

13. South Korean capitalism is spreading wealth around

Samsung Electronics... agreed last month for employees to share the chipmaker’s blockbuster profits from an AI-led boom... SK Hynix... handed employees a similar profit-sharing deal last year... Samsung is also going to give Won500mn loans at low rates to employees... Samsung and SK Hynix together control much of the market for the advanced memory chips used in AI servers. Employees at both companies are in line for average annual bonus payouts of Won600mn, which compares with a national average salary of about Won50mn... district of Hwaseong... expected to gain corporate income tax receipts of Won1tn to Won1.3tn from Samsung alone this year, an extraordinary sum for a city authority whose annual budget is about Won3.5tn.

14. Germany amps up spending on its ailing railways sector, where on-time arrivals of long-distance trains have fallen from 84% two decades back to 60%. 

By the end of 2026, Deutsche Bahn will have rebuilt 900 kilometres of train lines since 2024, close to a quarter of its 2036 target. That is equivalent to half of the roughly 1,900 kilometres of new lines built after 1945. Flix, which started as a coach operator but also runs long-distance trains, has earmarked €2.4bn for up to 65 new high-speed trains that it plans to roll out from 2028. Italian high-speed train operator Italo also has ambitions for Germany, promising up to €3.6bn of investment in new trains if it gets multiyear access to the network.

 

Some thoughts on the likely impact of AI in countries like India

This post will argue that the long-term impact of AI innovations on the typical household’s daily life in a developing country like India will be far smaller than the discourse suggests. Much the same could be said for basic human development and public services delivery in general. 

While there will be some overlap, I make the distinction between the macroeconomic impact in terms of automation and resultant job losses, and the material impact on the lives of people. Also, while much has been written about the former, this post will focus on the latter. 

As a note of caution, as is the case with any such debates, evidence and data to substantiate claims are hard to come by. So there is a lot of judgment in the argument below. And I’ll only be too happy if the judgment is proved wrong. 

The argument rests on four observations.

First, the bulk of the economy and daily life in these countries lies in domains where AI can barely reduce costs. The two main production modes, agriculture and manufacturing, are unlikely to be significantly affected (see the third point). The main products that we buy - homes, vehicles, jewellery, and consumer durables - and the everyday services we buy - haircuts, repairs, domestic help, transport, retail, eating out, etc. - are dominated by physical inputs of materials, energy, land, labor, and transport. 

AI can reduce logistics and coordination overhead costs, which form a marginal share of the total production cost of these goods and services. The share of any of these prices that AI can potentially influence is likely a fraction. Of India’s roughly 470–565 million workforce, around 85% is informal, ~45% is in agriculture, and the formal IT/BPM/GCC sector employs only about 5.8 million people. The set of workers directly exposed to AI displacement is small - plausibly 5–8% over a fifteen-year horizon - and the consumption basket of the median Indian is composed almost entirely of goods and services whose prices AI is unlikely to meaningfully alter.

Second, the obvious rebuttal, that AI’s impact will come not through cost reduction but through dramatically expanded access to healthcare, education, finance, and government services for India’s 800-million-plus internet users, runs against some hard evidence. The last twenty years of EdTech, Medtech, SkillTech, and AgTech across India and comparable low-income contexts amount to a rich natural experiment. The result is essentially zero examples of even significant, much less transformational, district-scale impact in any of these domains. 

Despite massive amounts and efforts on EdTech, aggregate learning outcomes, as measured in the likes of ASER scores, have hardly moved. In fact, the share of Class V children in rural India who can read a Class II text has actually declinedover much of the EdTech era. Like Diksha for school education, eSanjeevani logs vast consultation volumes with no measurable population health effect. It is hard to find meaningful signatures of MedTech in primary or secondary healthcare. In skill development, a succession of schemes has trained tens of millions with dismal placement outcomes, including using technology extensively. Digital Green and dozens of AgTech pilots have generated good papers, but no district has measurably transformed agricultural productivity because of them. Outside India, the picture is similar - Kenya's M-Health pilots, Brazil's rural EdTech, Indonesian AgTech apps. The hit rate on "scaled, measurable, transformational" is essentially zero.

The same could be said about most areas of public services delivery - primary health care and school education; municipal government services like tax assessment, building permissions, utility service connections; and the services of regulatory agencies. While there are pilots and small slivers of some success, aggregate impacts across all these realms attributable to digital technologies, notwithstanding numerous and repeated initiatives, have been minimal. 

Third, the reason this pattern matters for AI is that it points to perhaps a wrong diagnosis being made about why previous efforts, including using technology, failed. The standard story that “the tech wasn’t good enough yet” implies AI will finally break through because it is qualitatively better. However, I’m inclined to argue that the diagnosis is wrong. 

The binding constraint in these domains has never been information quality or delivery. The child in the village school does not fail to read only because she lacks access to a good pedagogical sequence; she fails also because she has accumulated large antecedent learning lags, the teacher is over-burdened, indifferent, or absent, the system has no consequence for non-learning, she is hungry and has chores in the evening, her parents cannot reinforce at home, and so on. A perfect AI tutor in Hindi and Math does not change those facts.

The villager seeking treatment doesn't suffer only because no one can diagnose her condition; she suffers also because the doctor is indifferent or isn't there, the PHC has deficient diagnostics or medicines, transport to the CHC costs a day's wage, and the prescribed drug regimen is incompatible with her work and food situation. It is not only the lack of plumbing knowledge that holds back the aspiring plumber. Instead, he also lacks an apprenticeship network, a credential the contractor trusts, and tools. The farmer is also constrained by the inertia to change long-standing practices, water, fertiliser subsidies, and the price he gets from the mill, not only by ignorance of best agronomic practice or market information.

In all four cases, the recipient is operating in a bound system where information is, at best, the fifth-binding constraint. Solving the fifth-binding constraint produces no visible improvement because the first four still hold. Even with this constraint, the ability of AI to make significant improvements at scale in these difficult contexts is questionable. More than two decades of the internet and digital technologies have made little or no impact on actual outcomes, except for a few oft-repeated pilots. 

This is exactly what the vast majority of development economics literature has been telling us for two decades, and it’s why “information-delivery” technologies have a flat impact curve regardless of which generation of tech is doing the delivery. AI is, fundamentally, a much better information-delivery technology. By the logic above, it should be expected to have roughly the same impact profile - better demos and pilots, but similar real outcomes - unless something about AI breaks the pattern.

Having said this, it is also logical to argue that AI can address and relax all these constraints just enough to enable outcomes that, while not the best, are far better than those achieved now. While appealing and comforting, I am not inclined to agree. 

Fourth, the genuine exceptions exist but are narrower than the transformational claims that mainstream discourse suggests. AI is plausibly different in three specific places: supply-side augmentation that flows through existing institutions (Qure.ai’s tuberculosis screening integrated into state programs is the cleanest example); voice and vernacular interfaces that break the literacy ceiling text-based apps could never cross; and AI built on top of India Stack to alter citizen-state interactions. These are real but bounded effects, not transformations.

So what’s the final assessment?

AI radiates a wide beam of capability (advice, diagnosis, tutoring, prediction); the beam hits a wall of thick structural constraints, each labelled with the human reality it represents and the domain it blocks (say, education, health, livelihood, farming). Only a thin sliver of information makes it past the wall to reach the villager with the phone below. AI delivers information, but not transformation. 

The mainstream discourse on AI is built on the worldview that assigns outsized importance to knowledge-based services over the production of goods. This is a real blind spot that obscures the reality of the vast majority of non-AI-influenced interfaces and interactions in the daily lives of most Indians. 

In conclusion, I’ll stick out my neck and argue that AI’s footprint on median Indian life will look much more like the mobile phone’s did - ubiquitous, individually useful, but hardly transformational on people’s daily lives. The mobile phone did not move India’s Human Development Index; it moved convenience and communication. AI is on track to do something similar: meaningful at the margin, but layered on top of structural conditions it cannot itself relax. 

The global discourse, calibrated on knowledge-work economies where AI strikes the dominant production input, badly overstates the implications for a country where physical and institutional constraints set the floor. 

Unfortunately, like with the internet and digital technologies, this is likely to be a costly distraction for development. Instead of working to get the plumbing right, it is likely to displace resources and efforts towards getting AI solutions to address these problems. I have blogged here, here, and here on this.

Weekend reading links

1. Potato glut hits Europe, and in particular Belgium.

Europe faces a surplus of five million metric tons of the type of potato used for fries. For months, the price of a metric ton of potatoes on the spot market in Belgium, the world’s biggest exporter of frozen fries, has languished at precisely zero. It was nearly 600 euros ($690) three years ago.

2. The Murugappa Group (through Axiro Semiconductors and CG Semi), the Tata Group (through Tata Electronics), and Crystal Matrix are leading India's semiconductor chip design and manufacturing push. 

3. Very good assessment of a decade of the IBC law.

The idea was to enable timely exit of non-viable firms, preserve viable businesses, restore credit discipline, and unclog credit channels... Till March 2026, 1,419 companies had emerged from insolvency with approved resolution plans, with the proportion of companies achieving such outcomes improving steadily... Creditors have realised ₹4.32 trillion through resolution plans. The oft-cited haircut of around two-thirds, measured against admitted claims, can be misleading because claims are frequently inflated while asset values are deeply eroded by the time firms enter insolvency. A more meaningful benchmark is liquidation value: Resolution plans have, on average, yielded 167 per cent of the liquidation value. Importantly, firms resolved under the IBC demonstrated operational revival post-resolution. Within five years, sales and capital expenditure nearly doubled, asset utilisation improved sharply, and the aggregate market capitalisation of resolved firms rose from about ₹2.8 trillion to ₹9 trillion... 

In all, 3,003 companies have entered liquidation under the IBC, but most had little realistic prospect of revival. Their assets averaged barely 5 per cent of admitted claims, and four-fifths were already sick or defunct before entering insolvency. The IBC merely provided an orderly exit for firms that had failed long before the process began. Yet, the incidence of liquidations in India is comparable to that in the United States and significantly lower than in the United Kingdom and Australia... Resolution plans rescued 78 per cent of distressed assets, while liquidations accounted for 22 per cent. When all pathways to revival are considered — resolution plans, withdrawals, settlements, appeals, and rescues during liquidation — the number of revived companies substantially exceeds those liquidated.

4. John Burn-Murdoch points to evidence that remote working and NOT AI is responsible for the ongoing declines in entry-level hirings. 

Peter John Lambert and Yannick Schindler have a fascinating counter-proposal: the take-off of remote work. Early-career workers require more supervision than experienced hires, and build important skills, knowledge and social capital by observing and working alongside senior colleagues. Working from home adds friction to these processes, making entry-level workers more costly to bring on board in terms of time and resources and slowing their prospects for promotion. As such, the rise of remote work has worsened the trade-off for hiring entry-level workers, while leaving the calculus for senior hires unchanged. The evidence fits the theory. Lambert and Schindler analysed hundreds of millions of new hires and job postings and found that although both occupational exposure to AI and remote working rates line up with the outsized pullback in junior hiring, the link with AI evaporates once you account for whether a role is remote. In other words, it only looks like AI is behind the hiring crunch for junior software developers because coding jobs are also disproportionately done remotely. Jobs less exposed to AI but amenable to remote work (eg lawyers) have also seen weak junior hiring; roles with high AI exposure but an emphasis on in-person work (eg receptionists) have held up better.

5. Is Steve Jobs leaving the greatest corporate legacy ever?

Apple now rakes in sales of over $1bn a day. Its services business alone, driven by the App Store and Apple Pay, generates more revenue than Netflix, Spotify and Adobe combined, with a margin of around 75 per cent. Under Cook, the company has returned around $1tn to shareholders through dividends and buybacks… Nearly two decades since the product launched, Apple shipped well over 200mn iPhones in 2025 and the device still accounts for about half of Apple’s $400bn of annual sales, with high product margins underpinned by the highly efficient, Asia-based supply chain also created by Cook. Apple’s astonishing profitability is sustained by an annual cadence of new iPhones, each iteration featuring largely incremental improvements on the one before. Research and development spending as a proportion of revenue went from 8 per cent at its height in 2001 to a 2 per cent low in 2012 as the iPhone boom began, meaning that for a while Apple was spending proportionally far less than its Big Tech peers.

6. Good primer on why oil prices have remained less elevated than expected - decline in Chinese oil imports (almost 4 m bpd) and rise in US exports (almost 4.5 mbpd).

7. The US economy is increasingly resembling a one-trick pony of AI.

The US corporate profit share has climbed to a record 13.8 per cent of GDP, while net income margins across the broad US equity market have recovered to about 9.7 per cent, close to earlier highs. At the same time, market leadership has become unusually concentrated: a handful of AI‑linked stocks now account for roughly 40 per cent of the S&P 500’s market capitalisation, according to Bank of America data. Headline profitability is being flattered by a small slice of the economy earning extraordinary returns from the scramble to build AI capacity...

Spending strength is increasingly coming from upper-income households where wealth and income are more tied to equities than wages. The stock market has, in effect, become part of the growth model: rising AI profits lift share prices; higher share prices support the spending power of wealthier households; and that spending helps keep demand alive. Lower-income households, by contrast, are more exposed to squeezed real incomes and softer labour-market momentum... Large technology groups have produced surging revenues and margins with only limited growth in headcount... So long as investors believe AI will earn very high long-term returns, the loop can remain self-sustaining: capital expenditure stays firm, equities stay buoyant and affluent consumers keep spending.

8. The spectacular surge in Google's capex.

Five years ago, its capital expenditure on servers, network equipment and such was $25bn, which it funded out of operating cash flows of $92bn. In 2027, analysts expect $250bn of capital expenditure, versus cash flows of $260bn — a tighter fit. In its second quarter next year, Visible Alpha estimates suggest Google will spend more than it makes, for the first time in its listed history.

9. A good illustration of deficient national security discipline comes from how the US is allowing the exports of tungsten scrap to China even as it spends money abroad buying tungsten mines. 

Since early 2025, Chinese scrap traders have been seeking tungsten throughout the US, prompted by a shortage outside China caused by declining supply and intense demand from the aerospace, weapons and tools industries. The effort has set off a bidding war with American buyers and calls to ban sales of a critical national security resource to overseas buyers... Sellers said they were fielding calls from Chinese buyers looking for the material, while American buyers said they were being outbid by Chinese rivals willing to pay as much as five times the usual price... 

Tungsten scrap commonly comes from worn-out industrial tools such as drill bits and mining equipment. It can be crushed and chemically processed back into tungsten powder or carbide for use in new machinery and tools. The shortage has been triggered by Beijing imposing export restrictions on it and an array of other critical minerals in early 2025 and the country cutting mining quotas. China accounts for more than half of global mined and refined tungsten supply and about half of demand... 

Tungsten is broadly used in military applications, including in bullets and missiles. Traders said stocks were already low before the Iran war and that companies do not typically hold large stores of the metal. There was “no availability” outside China of the so-called “intermediate” products that manufacturers need — mined ore that has been processed... The price of tungsten has risen by more than 200 per cent since May 2025, while tungsten scrap has risen 350 per cent, according to Argus Media.

10. The AI wave is lifting all stocks, including those legacy IT firms like HP and Dell. 

11. India's non-tax revenue fact of week.

In the last three years, the share of RBI surplus in the government’s non-tax revenue has stayed between 42 and 52 per cent.

12. SpaceX IPO in a graphic.

13. Real Madrid at the top of European football club valuations.

14. The universe of PSUs in India has been rising.

15. Rama Bijapurkar's categorisation of India's consumption class.

The important thing is that 93% of households have annual consumption less than $5700.

16. Anthropic facts.

Last month, Anthropic crossed $47bn in run-rate revenue, a metric used by start-ups which estimates annual revenues based on short-term performance. This is a more than fivefold increase since the start of the year... Anthropic’s valuation has soared from $350bn to $900bn in 12 weeks. It is now one of the fastest-growing companies in history.

17. The biggest threat to the US superpower status now appears to be its surging public debt, which is now $36 trillion held by the public and federal agencies 

The exorbitant privilege has ensured the dollar's status as the world's pre-eminent reserve currency and the Treasury market's role as the world's safest haven asset, thereby allowing the US access to unlimited global capital at a low cost. While there are no competitors to the dollar on the horizon, the Treasury's safe haven status is facing competition. 

18. The most important difference between the dotcom bubble and the AI bubble.

19. Japan is losing people. 

Japan’s population peaked in 2008 at 128 million, and it is projected to fall to 87 million by 2070. The country is now roughly the same size it was in 1989... All but two of the country’s 47 prefectures reported population decreases in 2025, and the rate of decline is accelerating.

20. Finally, this says as much about the Indian stock markets as about the Korean and Taiwanese markets.

India’s stock market capitalisation was overtaken in the past week first by Taiwan and then by South Korea, as the value of Indian equities held by foreign investors slumped to a 10-year low of 7.3tn rupees ($76bn) on June 1. The value of Indian stocks was more than double that of Taiwanese stocks and roughly 3.5 times that of South Korean stocks 18 months ago, analysts at Bernstein said this week. “Fast forward just five months into 2026, and that lead has evaporated,” they added.