Moneycontrol Pro Panorama | Lessons from DeepSeek's wake-up call

China’s ability to produce a large language model DeepSeek at a vastly lower cost upended Wall Street’s calculations on America's stranglehold over the AI ecosystem.

Dear Reader,

Indian stock markets staged a recovery in Tuesday’s trade after falling sharply on Monday. The benchmark stock market indices rose despite weak global cues, helped by buying in shares of banks and financial services companies. The Reserve Bank of India’s (RBI) decision to infuse liquidity into the banking system has stoked optimism that the central bank may reduce policy rates as early as next week.“We expect the RBI to commence the rate easing cycle with a 25 basis points rate cut, reflecting the current domestic growth-inflation dynamics,” economists at Morgan Stanley Research said in a note. RBI’s monetary policy committee is scheduled to meet on February 5-7.

You can read Aparna Iyer’s analysis of the latest RBI measures here.

Stocks outside the large caps and financial services companies continue to face selling pressure, tracking the losses in the Asian and US markets. China’s ability to produce a large language model DeepSeek at a vastly lower cost upended Wall Street’s calculations on America's stranglehold over the AI ecosystem. The technology moats espoused by the US AI giants are suddenly under threat. The implications can be profound if low priced language models such as DeepSeek succeed in real world applications.

The massive investments in data centres, computing power and electricity production that are expected till now will have to be reworked then. Business enterprises, which have been slow to adopt AI, will look for cheaper options. “For most business users, having the absolute best model is less important than having one that’s reliable and good enough,” notes this Financial Times piece on how DeepSeek changes rules of AI’s game.

As things stand, the implications for Indian IT will be known only over a period of time. Customers are still at the exploratory stage and AI revenues are yet to reach critical scale for IT firms. At worst, customers will delay implementation of AI projects, awaiting results from new models and cost benefits.

For investors, the DeepSeek episode highlights the importance and risks from technology breakthroughs, and asset diversification.

The US tried to constrain the growth of China’s technology industry by restricting sales of advanced microchip sales to the country. But the country seems to have managed to develop an advanced AI model without using the latest chips.

The commercial potential of an evolving technology can be fleeting. Investors sent the shares of the so called ‘Magnificent Seven’ stocks to dizzying heights as the companies secured initial breakthroughs in AI. But emergence of cheaper models can undermine their initial lead.

Indeed, many of the AI pioneers are yet to make a commercial success with the new technologies. As investors reassess business potential and risks, a balanced portfolio sprinkled with stocks from different parts of the economy can help them withstand the current market correction better.

Investing insights from our research team

Coal India: Quarterly show sequentially strong, but weak year on year

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360 ONE Wealth: Organic growth drives Q3 earnings, inorganic growth to solidify market position

Bajaj Housing Finance: Business momentum in line with expectations

Ion Exchange: Expansion in chemicals, strong orders in core business deliver steady growth

Tracker

Pro Economic Tracker: Auto sales show mixed trend, consumer sentiment improves

What else are we reading?

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What does power sector need to fulfil India's economic ambitions?

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Tech and Startups

Tanglin Venture Partners looks to raise $250 million for third fund

Technical Picks: SBICARD. 

R Sree Ram
Moneycontrol Pro