Trump Back To Planet Earth?

Good morning. In today’s edition — China’s DeepSeek wreaks havoc for US president Donald Trump’s tech bro friends; will there be a turn around soon for Indian equities?; and India’s central bank, the Reserve Bank of India’s (RBI’s) push for liquidity. 

THE TAKE

DeepSeek AI Brings Trump And His Good Friends Back To Planet Earth

Poor Donald Trump. Barely a week ago, he and his tech bro pals appeared to be on top of the world and in control of it. They were riding on the back of trillions of dollars of wealth riding in turn on top of trillions of dollars of market capitalisation gain in businesses ranging from e-commerce and search to social networks and electric cars.

If there was any problem that raised its head, it could be swatted down with a threat of tariffs or a stern gaze, as the US president did with a flourish with Colombia and brought the Latin American nation in line to take back illegal immigrants.

But along came DeepSeek, a free, open-source large-language model launched in late December, apparently developed in just two months for less than $6 million — much lower than what it took for OpenAI in the US.

Last week, the company released a reasoning model that also reportedly outperformed OpenAI’s latest in many third-party tests.

The result: stock prices of almost all tech majors started spiralling downwards on Monday, including artificial intelligence (AI) chip giant NVidia. Losses were expected to cross more than $1 trillion in value.

Global Shock Waves

Why are the stocks crashing? 

Because DeepSeek has raised questions about the amount of money big tech companies have been investing in AI models and data centres.

“DeepSeek clearly doesn’t have access to as much compute as US hyperscalers and somehow managed to develop a model that appears highly competitive,” Srini Pajjuri, semiconductor analyst at Raymond James, said in a note Monday reported by CNBC. 

As other analysts pointed out, this also raises questions on the entire AI supply chain, not just the software but the hardware that powers the software as well.

On one side there is the US and its new Stargate Project, a massive $500 billion pledge with backing from the biggest names in tech to build data centres across the country. On the other, a scrappy Chinese startup that’s released an impressive open-source model trained on a shoestring budget, wrote Fortune columnist Nicholas Gordon last week.

Back home, what sense would it make for a company like Reliance to invest $20 to $30 billion, according to Bloomberg estimates, in a data centre in a far corner of the country on the west coast of Gujarat with capacities three times that of all of India’s? 

Those questions are yet to be posed because it will take a day or two for the global shock waves to subside.

Meanwhile, there will be questions on how much computing capacity is really required, at what cost and if the Chinese can come up with this killer price, then could others do this too?

Obviously, we don’t know right now.

Meta CEO Mark Zuckerberg said last week they would invest between $60 billion and $65 billion in capital expenditures on AI in 2025. 

He also said he expects Meta AI to “be the leading assistant serving more than 1 billion people” this year and that Meta’s Llama 4 model is expected to “become the leading state of the art model” this year, and that the company plans to “build an AI engineer” that can contribute more code to its research and development efforts.

So what happens now? 

Every tech CEO knows in his or her heart and mind that technology changes can come out of nowhere and overturn business models that seemed solid just a day ago. 

Covid kicked off a wave of investment in people and infrastructure at a pace not seen for a while in Silicon Valley as it appeared that our lives were becoming rapidly digital and could stay that way. 

A year later, the major tech firms including Meta, Google and Amazon were downsizing furiously, laying off tens of thousands.

AI happened and stock prices shot up again and once again the Valley was in full control. The tech bros worked on securing and cementing their future and also indulged in world opinion domination, by standing alongside Donald Trump, who has been only too glad to welcome them.

AI’s Sputnik Moment? 

And then came DeepSeek.

If Trump and team thought the China trade war would be largely about cheap imports of apparel, toys, furniture and leather, this would be a big shock. 

China is now demonstrating that it can do a lot more cheaply, even if people argue it is more than $6 million, it’s still a knock-out punch that comes from nowhere.

Thomas Friedman wrote in The New York Times in mid-December — Donald Trump’s “relentless China-bashing and tariffs during his first term as president lit a fire under Beijing to double down on its efforts to gain global supremacy in electric cars, robots and rare materials, and to become as independent of America’s markets and tools as possible”.

“China had its Sputnik moment — his name was Donald Trump,” Jim McGregor, a business consultant who lived in China for 30 years, told Friedman. 

“He woke them up to the fact that they needed an all-hands-on-deck effort to take their indigenous scientific, innovative and advanced manufacturing skills to a new level.”

Bizarrely, Silicon Valley venture capitalist and Donald Trump advisor Marc Andreessen on Monday described DeepSeek-R1 as "AI's Sputnik moment". 

Sputnik was the first artificial Earth satellite that was launched by the Soviet Union in 1957 and then set off the US space race which led to the first man on the moon.

Where will DeepSeek land and how firmly? We don’t know yet but for now, it does look like Trump and his good friends will have to descend to Earth from their lofty heights.

CORE NUMBER

Rs 60,000 crore

This is how much money the RBI wants to spend on government bonds as a step to introduce liquidity in the banking system. The central bank said it will spend this amount in three tranches and also carry out a 56-day variable rate repo auction worth Rs 50,000 crore on February 7. A release from the RBI announced a USD/INR buy/sell swap auction of $5 billion for a tenor of six months on January 31. “The Reserve Bank will continue to monitor evolving liquidity and market conditions and take measures as appropriate to ensure orderly liquidity conditions,” the release said. 

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HOW INDIA’S ECONOMY WORKS

Taxes are in focus this budget, with expectations of not only the simplification of tax laws, but rationalisation of indirect taxes and the change in tax slabs for personal taxes. Can tax deductions really usher in changes for the economy? Suranjali Tandon, associate professor at the National Institute of Public Finance and Policy, told journalist Puja Mehra, that things can go either way with tax deductions as there are multiple effects in play usually, aside from taxes. 

Speaking of the corporate tax deductions in 2019, “There was a parliamentary committee, first of all, which estimated the loss in terms of revenue, and it was about 1.85 lakh crore. It was said that, you know, this is a cost to the exchequer for bumping up activity in the economy. But did it really bump up activity in the economy? So, just plain facts, if you look at corporate tax collections, the growth hasn't been stellar, at least at the top level. We see that, you know, companies have been showing higher profits. But what have these profits really resulted in?” 

What could this year's budget look like when it comes to taxes of all kinds?

FROM THE PERIPHERY

—✈️ Airfares to Prayagraj have soared by nearly 600% due to the ongoing Maha Kumbh Mela, drawing over 12 crore visitors since January 13. With Mauni Amavasya on January 29 marking a key bathing day, ticket prices have hit Rs 21,000+ for Delhi-Prayagraj, Rs 22,000–Rs 60,000 from Mumbai and between Rs. 26,000 and Rs. 48,000 from Bengaluru, compared to the usual Rs 5,000. The DGCA has urged airlines to rationalise fares and approved 81 additional flights, raising Prayagraj’s air connectivity to 132 flights in January. While airlines cite supply-demand dynamics, raising concerns over recurring festive season fare hikes in India. 

—⚖️ In India, OpenAI is readying for a legal battle with several digital news outlets such as The Indian Express, Hindustan Times, NDTV and News18 over copyright issues. Reuters said in a report that these news organisations have approached a court in New Delhi to join an already existing lawsuit against the tech giant as they are worried that the AI tool is scraping their websites and reproducing their work without giving them proper credit. OpenAI faces such legal battles in other parts of the world including in the US. 

—📱 India’s smartphone buyers prioritise processor performance when choosing a device, followed by battery life, storage, and camera quality. According to a Counterpoint Research report conducted with 1,097 consumers, 28% of users believe processor performance significantly impacts overall device performance. With the rise of AI-powered smartphones, 16% are willing to pay more for faster processors. The report also noted that 84% of respondents understand the role of chipsets, with Qualcomm, Exynos and MediaTek leading the market, especially with MediaTek’s AI advancements. 

—⛓️ India’s finished steel imports from China reached a seven-year high during April-December, totalling 2.1 million metric tonnes - a 13.3% year-on-year increase, provisional government data shows. Along with China, South Korea and Japan contributed 79% of total imports, with shipments from these nations hitting multi-year highs. While imports soared, finished steel exports from India dropped 24.6% to a six-year low of 3.6 million metric tonnes, raising alarm among domestic producers. Industry players, long critical of unchecked imports, continue to demand safeguard duties and policy measures to protect local manufacturers. The government is reportedly probing potential interventions to address this issue. 

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