Story of The Year FY25

By Harini Dedhia

Dear Investor,

Over the last 6 years, I have relished the tradition of reflecting and picking a story from the year gone by, and I would like to continue that into 2025.

As I state every time, most of the “news” is not structural and not indicative of a seismic shift but merely following a cycle.

On March 31st, 2019, I wrote:

“Narratives and stories drive investment outcomes in the short run. For the most part, they provide us with shock therapies with complete elasticity. The effect of the story is felt temporarily, and over a period, we are back to business as usual. Yet there are few stories that alter the course of business and cause a structural shift. As an investor with the intent of long-term wealth creation, we need to ignore the stories with elasticity as noise and focus only on those few that create a change bringing about a new or enlarged addressable opportunity.”

From the indigenization of pharma and chemical supply chains in 2019 to energy sovereignty in 2023 and claiming India manufacturing’s coming of age as process innovators, this exercise has ended up sparking a lot of ideas for us. Going through the news cycle for the past year should be no different.

What happened in FY25?

Headlines in FY25 were far narrower in variety than FY24. With half the world’s population going to polls, elections and therefore politics dominated news cycles globally. Environment — its tantrums and healing shocked and amazed the world in equal parts.

Sports was the third big genre, especially with the Paris Olympics and India’s drought of an ICC trophy finally ending! The only time we paused from these three news genres was to briefly discuss the impact of DeepSeek and China tech in general; and that too got political.

Incumbents take a hit

This was perhaps the single largest year of elections the world has ever seen.

Source: Time Magazine

Incumbents across the board took a hit. India, Japan and South Africa saw strong governments make way for weaker, coalition-enabled governments. The UK and USA both sent their incumbents packing. The French President called for early elections and regretted the outcome.

This is all however cyclical. Even with President Trump’s tariff tantrums- they are just that; tantrums. Globalization had taken a beating even prior to his election. Covid-19 pandemic was the catalyst for the same. The constant flip-flop makes his assertion on tariffs and trade restrictions less structural and far more a part of a larger cycle in nature.

Even the Assad regime in Syria fell after over five decades of being in power. The new leader of the state is an ex-Al-Qaeda operative. Then again, this has been the nature of politics in the region and in Syria. No signaling of a shift in trends here.

Environment tear and repair

The wildfires (not flowers; Pushpa 2 after all deserves a mention in the letter) in South California displacing over 200,000 people, destroying 18,000+ homes and leaving 1.5 million+ without any electricity grabbed headlines given that it affected some of the most popular people in the world. Nature didn’t discriminate based on fame and money - a wakeup call to all those in power. But not all have been deaf to the growing tantrums of mother nature.

The UK became the first G7 country to go coal-free in October of 2024. The country that was the harbinger of the industrial revolution and powered it with the invention of coal-fired thermal power plants became the first to shed it.

Source: BBC.

100% of the UK's electricity was powered by coal a century back and as much as 40% just a decade ago. Driving this to 0 was therefore no mean feat. 142 years after the world’s first coal-fired power plant was made operational in London; the UK gave up on coal-fired plants completely.

A shift to renewables was catalyzed by a need for energy sovereignty as cited in our 2023 letter. This was an outcome of the shift discussed there; not a shift.

Sports re-instills pride

The Indian cricket team ended its 11-year drought in ICC tournaments by winning the T20 world cup in 2024 followed by the Champions Trophy in 2025. Not only did it break our ICC jinx, it elevated our bowlers to the same level of adulation that our batsmen enjoy.

Gukesh became the youngest world chess champion at the age of 18 and we couldn’t stop gloating about it. But India’s time in sports has been coming for a long time now.

Chinese tech startling the world

Chinese DeepSeek’s R1 with a training cost of just US$5.5m, consumes 93% less power than GPT-4 (US$78.3m) and 97% less than Gemini Ultra (US$191.4m)—yet delivers comparable performance. This has reduced the costs of AI by a significant margin and put Chinese at the helm of innovation in the space.

BYD’s supercharger can add a range of 80km per minute of charging vs. Tesla’s mere 18!

Both these herald the age of Chinese innovation but again are simply a carry forward of the ongoing trend of a bi-polar/multipolar world and productivity gains seen with the adoption of any new technology.

Story of the Year FY25

If we can’t decree any of the following as a story of the year: 50% of the world’s population going for elections, wildfire leaving the rich and famous without electricity, ex-AL Qaeda becoming head of state with the blessings of the western nations, the Ambani wedding (had to be said) or the harbinger of industrial revolution giving up on coal - surely a large switch (or in this case switchback) is in the offing.

Our story of the year was the meeting Ukraine’s President Zelensky had with President Donald Trump in the Oval Office. The meeting, best described by Germany’s foreign minister as follows: “Unspeakable” “bad dream” “underlined that a new age of infamy has begun” elicited a passionate response from most European leaders; best exemplified in her words again, “Germany will wholeheartedly push for measures that help Ukraine withstand Russia’s aggression even if US withdraws support, so that it can achieve just peace and not just capitulation.”

This event is a catalyst for the European manufacturing Renaissance. Post the second world war, exhausted and drained by two world wars, Europe plunged into a metaphorical dark age. They didn’t regress on an absolute scale but gave up their leadership in innovation and manufacturing - first to the US and now to China.

The Ukraine-Russia conflict highlighted a need for reduced dependency on Russia for energy. Protests by Italian auto factory workers given the losses faced owing to the dominance of Chinese EVs or by Hennessy workers in France against bottling of cognac in China - has forced European customers and producers, alike, to rethink their consumption patterns.

Source: Goldman Sachs

Trump’s proposed tariffs will dent the economy but none of it induced the immediacy that the Trump-Zelensky meeting did. This resurgence in manufacturing will be heralded by re-arming of Europe. At the heels of two world wars, tired of fighting, Europe looked to the US to act as a big brother when required and “protect” it from communism and other external movements.

The big brother no longer looks fondly at their brotherly obligations. Rheinmetall, one of Germany’s largest armaments companies had an unbelievable FY2024.

“An era of rearmament has begun in Europe that will demand a lot from all of us. However, it also brings us at Rheinmetall growth prospects for the coming years that we have never experienced before.”

There will be multiple more companies experiencing similar surge in orders as EU member states pledge 800 billion Euros to finance the ReArm Europe 2030 plan. With member states having a far more manageable fiscal scenario- Germany has the lowest debt to GDP of all G7 countries, the EU is slated to see a defense budget increase equivalent to 1.5% of its GDP!

Indian subsidiaries of European manufacturers could see a surge in exports to help fulfill the orders seen by parent cos. Indian components manufacturers will see a surge in European exports. Earnings and revenues from Europe that were being ascribed a lower multiple by Indian investors, will now need a rethink. This presents a massive shift in the manufacturing hegemony of the US and China and therefore is our story of the year!

As always, we thank you for putting your faith in us. Wish you a very happy and prosperous FY26!

Best,
Head of Research