MARKET PERSPECTIVE

By J Mulraj

Jan 25- 31, 2025

Future Economic Growth will be Technology Led

DeepSeek (Image created by Bing, using AI)

A Chinese startup called DeepSeek launched two AI models, V3 and R1, creating waves because of their significantly lower costs than the US AI firms, causing technological disruption. For example, the startup claimed that V3 required less than $600m of compute using Nvidia H800 chips. Its R1 model is 20-50 times cheaper to use than Open AI’s 01 model, it claimed. Because it needs  fewer chips, and costs far less, it impacted American rivals. The stock price of Nvidia, other technology stocks, and the Indian stock market, fell.

A few days later the Jack Ma promoted Alibaba revealed its own AI LLM, the Qwep 2.5, claiming it to be better than DeepSeek.

China followed this display of its technological capabilities with another demonstration of dancing humanoid robots.

The stock market is concerned about the possibility that, using DeepSeek, an open source large language model, Chinese EV makers would be ahead of Tesla in the launch of a FSD ( full self driving) vehicle. However, there are many other requirements for successfully launching autonomous vehicles, such as the amount of historical driving data, in which Tesla is leagues ahead. Even for humanoid robots, though the ability to dance is impressive,  more useful is the demonstrated ability of Optimus, Tesla’s humanoid robot, to catch a ball, displaying speed, anticipation, motor skills which would be more needed to perform tasks. Tesla is having its Q4 earnings call on 31/1, and is a good long term story, with huge potential from FSD, cyber truck, humanoid robot Optimus and other developments.

It is interesting that China’s display of its technological prowess comes at a time when Xi JinPing and Donald Trump are slated to meet. Trump has threatened to raise tariffs on Chinese imports and China is responding by saying we can achieve things independently, so let’s work cooperatively not combatively. Decisions emerging from this summit meeting will have a big impact on stock markets. If Trump were to impose the threatened 65% tariff, the market would head south, as global trade will be affected, hence global GDP. If tariff hikes are deferred, or modest, markets will cheer.

As per a recent study by Aiddata, China is using its financial muscle, helping countries to mine critical materials crucial to the energy transition, and has a stranglehold over the transition material supply chain. All these will become bargaining chips during negotiations, and likely result in a less hostile summit.

Also interesting is the fact that Liang Wengfeng, the founder of DeepSeek has also, earlier, founded a quantitative hedge fund, High-Flyer, creating speculation that, perhaps, there was shorting of stocks like Nvidia (which fell) before the announcement od DeepSeek’s launch.

A welcome decision of Trump was the signing of an executive order banning the issue of a CBDC (Central Bank Digital Currency). The onset of CBDC raised serious privacy concerns, for private consumption, location and travel data could be easily tracked. Worse, assets could be frozen at will by Government.

Last week the BSE Sensex rose 1310  points to close at 77500 .

In India, the erudite and articulate Minister for Electronics and I.T. Ashwini Vaishnav, has stated that India, too, will announce its LLM like DeepSeek, shortly. India has yet to announce progress in development of technologies like humanoid robots, FSD, and quantum computing. More importantly, how it will approach, and tackle, the political implications of the labour displacement these will usher. It is essential to educate the electorate about their impacts, and to set up skill development programs swiftly. The time spent by bureaucrats consumed by petty minded bureaucrats arguing over the GST tax rate on caramelized popcorn would be far better spent on preparing for the future.

An Indian company, Vardhan Lithium P Ltd., is investing Rs 42000 crores to set up a lithium refinery and battery manufacturing factory in Nagpur, which will help in India’s energy transformation efforts.

Besides making greater effort to develop capabilities in emerging technologies, the Government also needs to rethink its plethora of taxes it raises to meet its insatiable appetite for resources. These include IT, GST, Property Tax, Stamp Duty, Service tax, professional tax, capital Gains tax and others. Several times in the past, Governments have witnessed tax buoyancy when rates are reduced. A serious effort should be made to reduce the plethora of taxes and the tax rates, rewarding the one who comes up with good suggestions, with a bowl of caramelised popcorn!

It’s possible that geopolitical factors may cause a market drop. If it is a sharp one, the new retail investors, who have hitherto done well in systematic investmemt plans, may panic. They have not witnessed a bear market. Their behaviour would be the litmus test.

Comments may be sent to jmulraj@asiaconverge.com