Do it yourself

 1H2025 was marked by stressful events, high volatility, and uncertainty. In geopolitics, several conventions were breached and new doctrines established. The war between Russia and Ukraine continued. India and Pakistan had a brief but intense conflict. The US entered the Middle East (Israel-Palestine) conflict by attacking Iran.

Climate wise, India had a mild winter followed by a mild summer, impacting crops. Europe continued to witness warmer weather, while the US, Canada, UK, Korea and several other countries in Africa witnessed intense and widespread wildfires, causing immense damage to the climate, lives of people and economy.

Politically, the US witnessed one of the most boisterous power transitions with Donald Trump taking over as the President (POTUS). He started his second term in the White House with radical changes in immigration, trade, and climate change policies. This put the US administration on the path to confrontations with citizens, judiciary, major trade allies (e.g., Japan, EU and China), strategic partners (E.g., Mexico, GCC, Canada and India). Towards the end of 1H2025, however things appear somewhat calming and progressing towards sustainable resolutions. The process of developing a new world order based on new ground realities and future prospects took a few more strides.

Technologically, Artificial Intelligence (AI) entered the lives of common men with Google and X (Formerly twitter) launching their user-friendly models. China launched DeepSeek to compete with ChatGPT (Open AI) and most social media platforms, search engines, financial and other services providers, integrating some sort of AI interface for the users.

Markets were volatile as the forces of hope and fear took turns to dominate the participants’ sentiments. In the end, the forces of hope appear to have emerged stronger. Most markets have recovered their losses and are progressing well on the path to growth.

In India, the economic growth returned to the normal pre-Covid trajectory, as the base effect of FY20 and FY21 low growth tapered off, and external challenges mounted. Equity markets settled close to their all-time high levels recorded in 3Q2024.

The following are some of the highlights of the performance during FY25.

Equity Markets

The Indian equity market managed to end 1H2025 with strong gains, despite yielding negative returns for three out of the six months. Indian equities performed in line with the European and US equities. The benchmark Nifty yielded a return of ~8% (9% in USD terms), which was better than the US markets (S&P500 +6%), Japan (Nikkei +1%) and Europe (Stoxx600 +7%) but much lower than South Korea (KOSPI +20%), Brazil (BOVESPA +14%) and Germany (DAX +20%). The valuation premium of Indian markets to the other emerging markets therefore remained elevated.

Financials saved the day for Indian benchmark indices

The benchmark Nifty (+8%) sharply outperformed broader markets (NSE500 +5.5%, Midcap Nifty 100 4.4%, Smallcap Nifty 100 +1.6%). The gains in benchmark indices were mostly led by banks (Nifty Bank +12.7%). Overall market cap of NSE was higher by 4.6%.

Sector-wise, Financials, Private Banks, Infra were top outperformers. IT Services, Realty, Pharma, FMCG, Energy were notable underperformers. Micro-sector-wise, Defense, Capital Markets, Healthcare, Fertilizers were outstanding. Renewable energy and real estate builders were notable losers.

1H2025 witnessed 3/6 negative months

The benchmark Nifty50 yielded negative month-on-month (MoM) returns for three out of six months in 1H2025. April was one of the best months ever for Nifty, yielding a gain of 16% MoM. The market breadth was negative in three out of six months implying much higher volatility in the broader markets.

Institutional flows positive

Over institutional flows were materially positive for 1H2025. Net domestic and foreign flows in the secondary equity market amounted to Rs2630bn. Foreign Portfolio Investors (FPIs) were however net sellers of Rs945.36bn in the secondary market, while domestic institutions pumped in Rs3575.75bn. On an encouraging note, FPIs were net buyers in the last four months of 1H2025. The nifty-institutional flow correlation was very weak in 1H2025.

Debt and Currency Markets

Indian debt and currency markets were volatile in tandem with the global trend. The benchmark bonds managed to close 1H2025 with decent gains, the long-dated bonds were lower. USDINR ended almost unchanged, but EURINR, JPYINR and GBPINR were materially weaker.

RBI cut the policy rates by 100bps and Cash Reserve Ratio for commercial banks also by 100bps during 1H2025. The benchmark 10-year treasury bond yields eased to 6.31% from 6.80% at the beginning of the year. Lending and term deposit rates were lower by up to 10-25bps. The yield steepened sharply.

The RBI maintained its policy stance to “neutral”. The liquidity position remained comfortable with RBI conducting OMOs to keep the system liquidity in surplus. The credit growth continued to decline; however, there are signs of corporate credit demand picking up. Overnight and call money rates cooled ~50bps.

Economic conditions

4QFY25 GDP growth (+7.4% yoy) came sharply higher than the estimates. The consensus estimates for FY26E GDP growth however remain pivoted to ~6.5%. CPI Inflation mostly remained within the RBI’s tolerance band of 4-6% and has recently breached on the lower side. Core inflation has also eased. Real rates have mostly remained in positive territory during 1H2025. Fiscal deficit continued to decline. The private sector investments failed to gather the desired pace, despite several government incentives. The government capex showed some improvement in 1H2025. External conditions remained stable during 1H2025 despite geopolitical conditions remaining volatile. Lower trade helped the current account balance. However, BoP was briefly negative. RBI replenished most of its USD reserves, expended to support USDINR earlier in the year.

Commodities

1H2025 was a mixed period for commodities. Precious metals (Gold +26%, Silver 23%) and Copper +12.8, recorded good gains, while energy (Brent Crude -11%, Coal -12%), other metals (Steel -10%, Zing -8%) and soft commodities (Sugar -16%, Corn -11%) ended the period with strong losses.

Crypto shine

Cryptocurrencies further strengthened their position with material rise in trading volumes and market capitalization. Bitcoin ended the period 1H2025 with a strong 14% gain. More jurisdictions accepted cryptocurrencies as a valid medium of exchange, financial asset and/or tradeable asset.

A famous fund manager recently expressed serious concerns about a “financial crisis” that is just about to hit the Indian middle-class households (see here). In a podcast with Mint, he said, “With household financial savings at a 50-year low and debt levels (excluding mortgages) among the highest globally, the country is dangerously unprepared for a looming wave of tech-driven job disruption.” He was apparently referring to the disruption created by the popularity of “Artificial Intelligence” (AI) in the global job market.

I have no disagreement with the analysis of this gentleman. In fact, to a large extent I do agree with his concerns. The fabled Indian middle class may indeed be facing an unprecedented crisis. However, I have my reservations about AI causing or accentuating this crisis. I firmly believe that this advancement in technology, just like all the previous ones, will definitely improve overall employment prospects, in particular, and quality of life, in general.

If anything, I see AI — like past technological leaps — as a net enabler. The threat isn’t AI; it’s how unprepared we are to adapt to it.

History is full of examples where transformative technology triggered fear, resistance, and dire predictions — most of which didn’t age well. For example, note the following developments.

·         In the 19^th century, grave concerns were expressed about the adverse impact of using motorized vehicles. Concerns were raised about the potential dangers of motorized vehicles to horse riders and horse-drawn carriages, especially in terms of speed and noise. The British Parliament devoted significant time on debating (i) potential displacement of horse-related industries, such as carriage building and horse feed businesses; and (ii) the potential dangers of motorized vehicles to horse riders and horse-drawn carriages, especially in terms of speed and noise.

The Locomotive Act 1865 (Red Flag Act), a historical example of resistance to technological progress, was passed to impose strict speed limits (4 mph in the country, 2 mph in towns) and require a person to walk ahead of every motorized vehicle waving a red flag to warn horse traffic.

The Highways and Locomotives (Amendment) Act 1878 and the Locomotive on Highways Act 1896 eventually relaxed these restrictions, reflecting growing acceptance of motor vehicles.

·         Employees’ unions of Public Sector Banks in India went on a 10 days strike in early 1990s, when the government decided on computerization of banking operations to improve efficiency and scalability. Job security was their prime concern. By October 1993, unions reached a Computerization Settlement Agreement with the Indian Banks' Association (IBA). This agreement allowed for the gradual introduction of technology in PSBs, with assurances to protect jobs and involve unions in the process. By 1998, about 25% of PSB branches were partially or fully computerized, increasing to 50% by 2001. The adoption of Core Banking Solutions (CBS) and technologies like ATMs transformed Indian banking, improving efficiency and customer service. In the following two decades the banking network expanded at a record pace. The job opportunities created by the expansion were exponentially higher.

·         In the mid-1990s computerized trading platforms (first OTCEI and then NSE) were introduced in India. The traditional stock exchanges resisted the move, fearing that the people employed in the floor based open cry trading system will become unemployed and traditional stock brokers may not be able to adapt to the new technology. Within one decade, the stock markets in India had grown exponentially, creating a significantly higher number of job opportunities.

·         In the mid-1990s, Indian farmers, particularly through organizations like the Karnataka Rajya Raitha Sangha (KRRS), staged massive protests against India’s integration into the World Trade Organization (WTO) and the General Agreement on Tariffs and Trade (GATT). The Uruguay Round of GATT concluded in 1994, leading to the establishment of the WTO in 1995. The AoA aimed to liberalize agricultural trade by reducing subsidies and trade barriers, which farmers feared would favor developed nations and multinational corporations. A 1993 rally organized by Vandana Shiva and others saw 500,000 farmers protest against GATT/WTO, highlighting fears of losing food sovereignty. Protests continued into 1995–1996, with farmers’ groups like KRRS and the Bharatiya Kisan Union (BKU) organizing marches, seed satyagrahas (non-violent resistance to save indigenous seeds), and public campaigns to demand India’s withdrawal from the WTO.

It was feared that Liberalized trade would flood Indian markets with cheap, subsidized imports from developed countries, undercutting local farmers. The government however managed to negotiate protections for Indian farmers, such as maintaining MSP and public procurement systems.

Advent of smartphones made several legacy products and technologies like camera and radio etc. redundant; but it democratized creativity and access. The market for music has grown several times, offering opportunity to millions of new performers who would have struggled to get noticed. Millions of enthusiasts have taken to photography, caricatures, dancing, acting, etc. People living in obscure corners of the country can easily access global audiences and markets for their products and talents.

“Artificial Intelligence”, in my view, will similarly democratize several professions, e.g., software development, designing, teaching, governance, farming, etc. It could enhance efficiency several times, just like the commercialization of internal combustion engines (ICE) and the internet did in the 20^th century.

I am not oblivious of the fact that almost half of present-day jobs in developed economies could be at risk of automation, with similar risks in emerging markets like India, particularly in IT and service sectors. Nonetheless, I am not unnecessarily worried about this. But history shows these disruptions are often overstated, and adaptation creates more jobs than it destroys.

I am able to foresee millions of new business ideas and software applications coming out of ordinary households just like the entertainment reels (short video clips) are coming these days. Of course, there could be a pain period as the new job opportunities may emerge with a lag, while disruption may be immediate.

What actually worries me is the fast degenerating public school education system in India. The divide between quality private education (affordable for top 10% of the student population) and poor quality private and public education (availed by the 90%) is widening every year. This divide shall perpetuate the income and wealth inequalities in the country and prevent it from a democracy in the true sense. We may continue to remain a feudal society dominated by a few.

AI isn’t the villain; it’s a tool that can empower millions if we prepare for it. The real crisis is our failure to equip the next generation to seize those opportunities. More on that soon.

Continuing from last week

 Last week I started a discussion (see here) on how the human race might already be in the process of obliterating the memories of the devastating wars fought during the first half of the twentieth century. These wars not only changed the global political map but also deeply impacted international relations, human psychology, demography, technology, and global economics.

 “Fourth Industrial Revolution” is one of the most popular buzzwords these days. One gets to hear this almost every day in one context or the other. Business leaders, administrators, policy makers and money managers etc. have been using it in their presentations and interactions. In some cases it is used as a cliché, without intending any specific trend or opportunity. However, in most cases it is used to imply that new technologies and applications being used in the areas like manufacturing, mobility, communication, healthcare, education etc. are bringing remarkable change in the ways we are used to function. Metaverse, Clean Fuels, 5G, Drones, Artificial Intelligence, Convergence of Technologies, Blockchain, etc. are some of the pieces that are putting this revolution together.

For the youngest generation, the changes this revolution is bringing to their lifestyle might not appear stark. They were born in a world where technological changes have been fast, dramatic and disruptive. For the older generation, however, the experience is overwhelming.

The pandemic has added another dimension to the extant global development paradigm. A larger number of people are now looking for evidence to assess if we human being were less “happy” before we started to study and research the functioning of universe, cosmic events, natural phenomena like gravity & relativity, adopted the modern science and technology to carry out our day to day functions, trade and commerce, etc. In fact, if we do honestly assume "happiness" as the "ultimate goal" of all our social and economic activities; then most parts of modern science and technology may appear redundant to us.

An esoteric explanation of the fourth industrial revolution could be that we as a scientifically evolved society are trying to complete the circle by connecting the present to the point where it all started. Some indicators of this endeavor could be seen from the following trends:

·         We are increasingly accepting the Sun and Water as the primary source of energy and nutrition. Terms like chemical free, carbon free, etc. command the highest premium. Smoke rising from chimneys that symbolized earlier industrial revolution is considered regressive now.

·         We are increasingly preferring to stay in our respective caves, leaving the job of hunting and bringing food to few warriors (ecommerce, food delivery, work from home, video conferencing etc.)

·         The commitment to family and society is diminishing. “Individual” rather than the “community”, is becoming the focus of most activities, including sales & marketing, politics, religion, etc.

·         “Tribes” are becoming smaller and inward focused.

·         Procreation is not a priority for a significant proportion of the global population. In the next five decades we might see the global population stagnating or even declining.

·         The laws of the jungle have gained acceptance in most jurisdictions. The interest of the strong is accepted as justice even in the most developed societies. Lions and Elephants act at will while the rabbits and deer wait in horror to be devoured.

The Federation of Indian Chambers of Commerce & Industry (FICCI) in a recently released knowledge paper – “Metaverse and Emerging Opportunities” – highlighted some interesting aspects of this massive opportunity that has the potential to transform, inter alia, the way we work, study, communicate, entertain, socialize, get healthcare and transact with each other. The following are some excerpts from the FICCI paper that I believe are relevant for researching Metaverse as an investment theme.

What is Metaverse?

Meta (Beyond – Greek Word) + Universe (English) = Metaverse is an offering which provides users immersive and multisensory experiences using futuristic technologies.

In technical terms, Metaverse is a network of 3D virtual worlds focused on social connections. It is a collective virtual space, created by the convergence of virtually enhanced physical and digital reality. It is an independent virtual economy, enabled by digital currencies and non-fungible tokens (NFTs). It is device independent and is largely democratized and not owned by a single vendor. Metaverse is built on a combination of Blockchain, Virtual Reality (VR), Augmented Reality (AR), 3D hologram, and Video.

Metaverse allows people to enhance or mimic their physical activities in the virtual space. This could mean transforming the existing physical activities that one is doing or by transporting to a new virtual world. Presently, multiple Metaverses are functioning independently from each other, having a functionality of their own. However, as the concept evolves, we shall see large Metaverses encompassing all the activities with broad functionality, or even conglomerates of multiple Metaverses integrated with each other.”

The opportunity size

A recent Citi report predicts that with 5bn potential uses, the total addressable market for the Metaverse in B2B and B2C segments could be between $8 trillion and $13 trillion by 2030.

Gartner expects that by 2026, 25% of people will spend at least one hour a day in the Metaverse for work, shopping, education, social media and entertainment. Metaverse is a trillion dollar opportunity per year around 2030 onwards while it is a $60billion now in 2022.

On the B2B segment, some of the use cases include:

·         Transformation of “Workspace collaboration” with always ON conference/meeting rooms for global meetings, conferences.

·         Talent acquisition, hiring and onboarding taking a new dimension in Metaverse

·         Digital test run of products and experience different options.

·         Learning, education, training, skill development with avatars (manufacturing, factory setups will get good leverage with this tech)

·         Healthcare (Telemedicine, Therapies, Surgeries)

·         Defense (Training, On-boarding, Recuperation, Simulation)

·         Real-estate, E-commerce companies can have product demos, showcase and branding opportunities

·         Advertising will move to the next level with a unique kind of storytelling experience for the audience using 360 videos and 3D technology.

B2C use cases for Metaverse include

·         Gaming and entertainment

·         Education, Learning, Skilling

·         Travel and Tourism

As a consumer I could already imagine a few things like:

*  No need for expansive showrooms for automobiles, electrical appliances, electronics, watches etc. Virtual shopping malls could be equally popular as the traditional shopping malls.

*  Much less need to physically visit doctors for regular consultation.

*  Much less frequency of business visits. Virtual conferences, book launches.

*  Lower frequency of visits to stadiums for watching games; or to theatres for watching movies.

*  No need for physical coaching/training centers.

*  No need for builders to make a sample flat or employ a huge sales team.

All of this essentially means less traffic on roads and lesser use of air conditioning and therefore less pressure on the environment. The present generation which is reasonably tech literate and is more comfortable with virtual shopping, working and socializing could be hitched to the Metaverses with broader functionalities.

Key concepts

The Metaverse is composed of many core elements that are combined together to provide a whole new world to the users. These technologies include eXtended Reality (XR), Blockchain, Artificial Intelligence and the Internet of Things but are not limited to them.

Blockchain is a shared, immutable ledger for recording transactions, tracking assets and building trust. An asset can be tangible (a house, car, cash, land) or intangible (intellectual property, patents, copyrights, branding). Virtually anything of value can be tracked and traded on a blockchain network, reducing risk and cutting costs for all involved.

A non-fungible token (NFT) uses the technology of blockchain to create something that is unique and irreplaceable in the digital world.

A cryptocurrency, crypto-currency, crypto, or coin is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it. Individual coin ownership records are stored in a digital ledger, which is a computerized database using strong cryptography to secure transaction.

Artificial intelligence (AI) is the ability of a computer or computer-controlled robot to perform tasks commonly associated with intelligent beings like humans.

The eXtended Reality (XR) is a superset that covers Augmented Reality, Mixed Reality and Virtual Reality. Virtual Environments are considered as synthetic or computer-based spaces.

The Internet of Things (IoT) is a network of people, devices, and services [2] that can sense, connect to one another, make inferences, and act(uate) at scale. It is considered that over 30 billion IoT devices are already deployed globally today.

Self-Reliance (Atamnirbharta) has been one of the key policy objective of Indian government, especially during the second term of the incumbent prime minister. It is clarified that self-reliance does not connotes self-centred systems; rather it encompasses a concern for the whole world’s happiness, cooperation and peace.

The stated aim is to make the country and its citizens independent and self-reliant in all senses. The five primary focus area identified to achieve the objective of self-reliance are —

Economy — Quantum jumps in various growth parameters, not just incremental changes.

Infrastructure — Building infrastructure that represents modern India.

Systems — Making systems technology driven.

Demography — Making the population vibrant.

Demand — Realizing full potential of the power of demand.

A number of programs, schemes and incentives have been announced in past one year under the umbrella of Self-Reliant India, encompassing support to a variety of sectors like agriculture, MSME, manufacturing, housing, infrastructure building, and exports, etc.

From various documents and public speeches by the prime minister and his cabinet colleagues, it appears that the idea of self-reliance is still at the stage of developing a conceptual framework; even though a slew of schemes and incentives have already been placed under this umbrella. Defining this idea in terms of a robust conceptual framework may actually take few more years, given the extraordinary circumstances presented by the Covid19 pandemic, which may result in result in reprioritization of fiscal and monetary policy objectives.

There is little debate on the point that digitalization has to be at the core of any economic development and modernization plan for future. In this context, I find it pertinent to highlight some of the data from ‘Digital Economy Compass 2020”, published by statista group. The report, inter alia, highlights some of the key global markets and consumption trends that may sustain in post Covid19 world. It also mentions the key players in each evolving market segment.

The services like healthcare, fitness, learning, entertainment, gaming, 3D printing, contact tracing (bio metrics, travel, GPS, demographics, talent hunt, etc.), communication, financial services (payment gateway, money transfer, transactions), collaborative software development, cloud hosting, cybersecurity, business and manufacturing process automation have acquired larger part of the markets (consumption, investment, and development etc.)

Manufacturing processes are being increasingly dominated by artificial intelligence, robotics, internet of things, etc. Development of 5G ecosystem is another major area of growth in global economy. Blockchain technology has made a prominent place in global commerce ecosystem.

Global trade is overwhelmingly dominated by ecommerce. Last year Chinese ecoomerce giant Alibaba alone logged a total merchandise trade that exceeded GDP of all but 14 top nations in the world.

Work from home trend is likely to sustain for longer than presently expected. This is leading to higher demand for products and services like home automation, food delivery, gaming, streaming of music and video, home management services, fitness, e-dating, shared mobility etc.

All these trends are essentially leading to materially higher demand for electronic devices (phones, tablets, laptops, servers etc.) and semiconductor chips to be embedded in various appliances (washing machines, cars, alarm systems, automatic machines, smart TV, refrigerators etc.)

Software is essentially the fulcrum that supports this entire global digital ecosystem. There is a variety of software development services like enterprise software, system infrastructure software, application development, and productivity enhancement software, etc.

The point to note is that presently Indian capabilities in these spheres are limited. Only 4-5 Indian companies appear on global podium, but their participation is mostly limited to software services. In most other areas our capabilities and size are limited in global context. The government programs and schemes (e.g., production linked incentive for mobile manufacturing) are presently focusing on low end value addition (mostly component assembly and contract manufacturing). If India has to become self-reliant in the modern world, the focus has to be on joining the top league in global digital ecosystem. Manufacturing mobile phones and chemicals may help in little more than managing the current account.

 Over past couple of weeks, I had exciting interactions with some professionals from the IT capital (Bengaluru), Pharma Capital (Hyderabad), Engineering capital (Chennai), Financial Capital (Mumbai) and political capital (Delhi) of India. From these interactions I learned that a definite new paradigm is emerging in Indian commercial space. The following are some key take away from my interactions:

1.    Traditionally, a majority of Indian entrepreneurs have not aimed for global scale in their businesses. Despite a rich history in the areas like culinary and textile, few businesses of global recognitions and scale could be created in these areas. However, now the first generation entrepreneurs have materially widened their vision. Many of them are now working on business ideas with global markets and scale in sight. No eye now widens on the mention billion dollar figures.

2.    The skills in Artificial Intelligence are becoming common place. In late 1990s Indian youth acquired skills in basic programing and coding of computer programs. This helped them crossing ocean in hoards and make a good career. A similar phenomenon is developing in artificial intelligence skills. The difference however is that unlike 1990s, now a large proportion of the young professionals want to become entrepreneur of independent professionals. They are not looking just good salary. I am sure a few of them would certainly be able to repeat the fables of Bill Gates, Jack Ma, Jeff Bezos et. al.

3.    The best part is that there is a strong start up ecosystem already in place. There are numerous investors who are willing to risk money on a good idea. Not many are looking at government for support. In fact, if I were to take my sample as representative, the only support neo entrepreneurs are seeking from the government is (i) less interference; and (ii) supportive tax structure.

4.    A lot of people of Indian origin, who are settled abroad are positive on Indian skills and entrepreneurship. They are helping the new ideas with financial and technical support. Many of them appear to be keen to have substantial exposure to Indian startup ecosystem.

5.    Though, the visibility of startups in technology enabled financial services (FinTech), retail, food delivery, and gaming is highest, some amazing developments are happening in the area of agriculture technologies, space technology, engineering design, water management, logistics management, pharmaceutical research and healthcare.

After this round of discussions, I am even more convinced that we have already entered into a business and economic paradigm. I believe that over next couple of decades, maximum value creation shall happen in businesses with technology leadership. Intellectual property shall derive significantly higher premium over conventional property. “Services” will continue to be key driver of economy rather than “Goods”; notwithstanding the government’s focus on manufacturing and construction.

On the negative side, the pace of elimination of smaller businesses, which cannot invest in technology and are not equipped to become ancillary of a large business, will continue to accelerate. The inequalities shall rise on multiple levels – economic, skills, access and opportunity.