SEBI created a new investment vehicle called Specialised Investment Funds (SIFs) for sophisticated, high-net-worth investors (HNIs) who want more flexibility and higher-risk strategies than standard mutual funds but do not want to commit the higher minimum capital required for PMS (Portfolio Management Services).
In theory, this is a good thing. It allows mainstream mutual funds to be “boring” while allowing asset managers to provide differentiated strategies (alternatives) to investors.
Some fund houses have already got approvals to launch long-short funds and are waiting for the distribution infrastructure to catch up (business-standard).
However, for investors long used to beta, getting used to alternatives will need some work.
First, every alt fund will have a different benchmark. You cannot (and should not) compare them to vanilla beta indices and freakout when they don’t beat them over extended periods of time. For example, absolute-return ETFs have been around in the US for a while now.
Each one of these has a specific benchmark and follow a differentiated “alternative” strategy. When you compare them to the returns of the S&P 500 index, they look terrible.
Second, they tend to be expensive. The average expense ratio of the ETFs in this sample is 1.1%. Contrast this to SPY’s 0.095% and you will begin to wonder if you are actually paying these fund managers to under-perform.
Third, no strategy works all the time, every time. Most mass-market, high-capacity alternative strategies (long/short versions of trend-following, momentum, etc.) have long periods of drawdowns that tests everyone’s patience. Implementation differences could also mean that two funds doing the same thing (say, top 100 trend long-short) might end up with different returns.
Here’s a 5x5 long/short momentum strategy over Indian equity futures, for example:
It had a 30%+ drawdown that lasted almost a year and it has been flat since July last year. Absolute returns of 100%+ in 3.5 years.
Not many have the tolerance for pain that alternative strategies entail. There might be specific strategies who’s inclusion in your portfolio either reduce volatility or peak drawdowns that might be worth looking into holistically. However, as standalone funds, investors need to tread with caution.
Markets this Week
More here: country ETFs, fixed income, currencies and commodities.
Links
Research
Composition Beats Collapse (NBER)
Fertility rates have fallen below replacement in most countries, fueling predictions of demographic collapse and even human extinction. These forecasts overlook a crucial fact: societies are not homogeneous. Subpopulations with persistently high fertility survive, expand their share, and push the total fertility rate (TFR) upward over time. Even if every country’s TFR reaches a below-replacement level, the persistence of above-replacement groups makes extinction unlikely. Our simulations point to a future of growth with pronounced compositional change—driven above all by high-fertility religious communities—rather than collapse. In particular, in our baseline ten-generation world calibration, Muslims become the largest tradition by share.
Why are Manufacturing Plants Smaller in Developing Countries? (IFDP)
Poorer countries (and poorer states within India) have a larger share of manufacturing employment in small plants. This relationship is driven by greater demand for lower quality goods in poorer regions, which can be produced efficiently in small plants.
Military Spending and War (NBER)
We revisit the theory of critical deterrence—the idea that military spending may reduce the risk of conflict by increasing its expected costs. We find that increases in military spending have no effect on short-run conflict risk—contrary to concerns that buildups may provoke escalation—but that they do lead to a small and persistent decline in conflict over the long run.
India
India's real GDP growth in Q1 of FY 2025-26 accelerated to 7.8%, up from 6.5% recorded in Q1 of FY 2024-25 (etnownews).
Tens of thousands of Indian small businesses are scrambling to find new buyers in markets across Europe, Africa and Asia to dull the impact of a 50% tariff on exports to the U.S. (reuters)
Nearly every diamond sold in the world is first cut and polished in Surat. The U.S. is the single-largest buyer of these precious stones, purchasing roughly $5 billion in the last fiscal year. Trump’s escalating tariffs have brought the city to a near-standstill (washingtonpost, reuters).
Tiruppur exporters fear 1.5 lakh job losses and ₹12,000 crore revenue hit due to US tariffs. The industrial town accounts for nearly 68% of India’s total knitwear exports, generating an export turnover of ₹44,747 crore in FY25 and employing nearly one million workers. The town is the backbone of India’s apparel exports, catering to global majors such as GAP and Walmart (cnbctv18).
Damage from Ukrainian drone attacks and extensive planned maintenance have sent Russia's offline oil refining capacity to a record high. Ukrainian drone strikes knocked out around 17% of Russia's refining capacity, or 1.2 million barrels per day, this month. The strikes on refining have pushed more crude towards export (reuters).
India emerged as Ukraine's largest diesel fuel supplier in July (swarajyamag).
During the era of grand central planning, the role of the private sector was highly circumscribed. It was either not allowed to grow, or the players that were permitted to be large were protected from competition (both internal and external). The real cost of the planned economy was that it created rent-seeking opportunities for a lucky few who were privileged to be employed in the industrial sector, as they could not be fired. While protecting labour, even before industrialisation had taken root, the planners unintentionally guaranteed that India remained an agrarian economy (theprint).
You cannot justify India’s valuation premium unless you are fully convinced it will deliver outperformance in both economic growth and earnings. Over the past 24 months, this belief in India’s long-term economic outperformance has come under question, as reforms have lagged. Global investors of all stripes have used the high valuations and domestic investor appetite to cash out (business-standard).
Japan's legacy LCD and chip technology find new home in India (nikkei).
The Reserve Bank of India (RBI) capped overseas investments by Indian mutual funds(MFs) at $7 billion, a ceiling hit in February 2022. Since then, ordinary Indians have been barred from investing through regulated funds in global markets, while wealthy individuals can freely remit up to $250,000 a year (₹2.25 crore) under the Liberalised Remittance Scheme (LRS).
Increase cap on overseas investments through MFs for better returns
Some back-of-the-envelope math:
Total LRS outflow: ₹15,000 crore
Total amount collected through SIP for July 2025: ₹ 28,464 crore
10% of it for 12 months: ₹ 34,156.8 crore
Allowing mango people to allocate to overseas investments will 3x the current outflow. This is why RBI doesn't want to make it simple.
row
Most Trump tariffs are not legal, US appeals court rules (reuters)
So far in 2025, issuers have launched nearly 700 ETFs. With more than 4,600 ETFs now listed in the U.S., about 15% of the entire market has been born this year alone. And much of it is slop (etf).
Total datacenter spend for 2025 is estimated to be $400 billion. Assuming that the building depreciates over 30 years, the chips are obsolete in 3 to 5 years, and then the other stuff lasts about 10 years on average, it gets you a 10-year depreciation curve on average for an AI datacenter. Which leads you to the first shocking revelation; the AI datacenters to be built in 2025 will suffer $40 billion of annual depreciation, while generating somewhere between $15 and $20 billion of revenue. The depreciation is literally twice what the revenue is.
Since late 2022, there is a 13% decrease in employment in those jobs that are likely to be automated, not just augmented by AI (forbes)
A century ago, it would have been folly to invest in an outdated agricultural economy at the expense of the then-roaring manufacturing sector. It’s just as foolhardy today to attempt to resuscitate a manufacturing sector that’s been in decline for half a century when knowledge-based services power today’s global economy and the labor market is undergoing dramatic changes brought on by advanced technology, artificial intelligence and automation (usnews).
The CFTC has taken a step that could make it easier for some overseas crypto exchanges to legally offer derivatives to American traders (bloomberg)
For the first time in decades, more immigrants are leaving the United States than arriving. An analysis of census data by the Pew Research Center found that between January and June, the foreign-born population declined by nearly 1.5 million (nytimes).
China’s solar exports to Africa are surging. Solar imports from China rose 60 percent between July 2024 and June 2025. Sierra Leone imported the equivalent of more than half its total current electricity capacity, and Chad, nearly half (nytimes).
Chinese goods barred or resisted elsewhere are receiving little pushback in Africa (bloomberg).
China’s chipmakers are seeking to triple the country’s total output of artificial intelligence processors next year, as Beijing races the US to develop the most advanced AI (ft). The Real DeepSeek Moment Just Arrived (interconnect)
France may need IMF bailout, warns finance minister (telegraph)
Britain heading towards IMF bailout (telegraph)
Two of Japan’s largest media groups are suing artificial intelligence search engine Perplexity over alleged copyright infringement (ft).
Odds & Ends
Meta created flirty chatbots of Taylor Swift, other celebrities without permission (reuters)
Today, America is a competitive authoritarian system, with a rapidly increasing emphasis on the authoritarian part. The concept of competitive authoritarianism is useful because it suggests that there is not a binary option between democracy and authoritarianism, like a light switch. Instead, democracy can be powerfully degraded even as elections still exist.
Meme of the Week
