On the morning of October 15, 1932, J.R.D. Tata climbed into the cockpit of a de Havilland Puss Moth carrying little more than sacks of mail and an ambitious idea. Flying from Karachi to Bombay, he inaugurated India’s first commercial airmail service, laying the foundations for what would eventually become Air India.
It was a modest beginning. There were no sprawling airport terminals or fleets of aircraft. Just one small aeroplane and the belief that India could build a commercial aviation network of its own.
Nearly a century later, that journey has come full circle. The Tata Group once again owns the airline whose origins it helped shape. But this time, the challenge is not to build an airline. It is to rebuild one.
That challenge came into focus this week when Tata Sons Chairman N. Chandrasekaran said Air India’s transformation should be viewed as a five- to ten-year journey.
The revised timeline extends the five-year roadmap outlined under the Vihaan.AI transformation plan unveiled in September 2022 after the group acquired the airline from the government. Chandrasekaran cited persistent supply-chain disruptions, the need to modernise legacy systems and the fleet, reshape the airline’s culture, and build a much larger pool of technical and aviation professionals.
At first glance, this may appear to be a story about a delayed corporate turnaround. It is also a reminder of something markets often overlook. Investors tend to ask whether a turnaround will succeed. They spend much less time asking how long it is likely to take.
That distinction matters because in some businesses, time is not merely a consequence of execution. It is one of the key inputs.
Rebuilding an airline can be compared to repairing a ship while it is still crossing the ocean. Flights cannot simply stop while new systems are installed. Aircraft have to remain in service even as cabins are refurbished. Pilots, engineers and cabin crew continue to operate under exacting safety standards while new technology is introduced in the background. Every improvement has to happen without interrupting the business itself.
Air India’s own transformation illustrates that complexity. Since returning to the Tata Group, it has ordered hundreds of aircraft, begun refurbishing older planes, invested in technology, and integrated Vistara with Air India while combining AirAsia India with Air India Express.
At the same time, it has had to contend with global supply-chain disruptions that have delayed aircraft and component deliveries, higher fuel costs arising from tensions in West Asia, and more recently, the operational and reputational fallout from last year’s fatal crash.
These challenges not only more than doubled Air India’s losses in FY26 to Rs 22,238 crore but also explain why the original timeline has become harder to achieve.
The contrast is striking because this rebuilding is taking place during one of the strongest periods of growth for Indian aviation. Passenger traffic continues to expand, airlines have placed record aircraft orders and airports are investing heavily in new capacity. Yet the industry’s economics remain demanding.
That is perhaps the most useful lesson for investors. Turnarounds are often judged by visible milestones—a new logo, refurbished cabins, additional aircraft or quarterly earnings. The harder work usually happens out of sight. Integrating organisations, replacing ageing technology, training thousands of employees and changing service standards rarely produce immediate results, even though they often determine whether a transformation ultimately succeeds.
None of this guarantees that Air India’s turnaround will be successful. Markets are still trying to assess whether the investments being made today will eventually translate into a stronger airline.
A longer timeline is not evidence of failure, just as a shorter one would not have guaranteed success. What this week’s announcement does change is expectations. It acknowledges that rebuilding an airline of Air India’s scale is proving to be a longer and more demanding exercise than originally envisaged.
When J.R.D. Tata took off from Karachi in 1932, he was beginning a journey whose destination could hardly have been imagined. Today’s Air India is on another long flight. This one will not be measured by the miles it flies, but by whether years of rebuilding produce the airline its owners have set out to create. For long-term investors, the reminder is a simple one: some businesses can be acquired in a day, but rebuilding them is measured in years, not quarters.
Letting Markets Decide
From aviation, let us move the spotlight on markets.
For years, investors have looked to the US Federal Reserve not just to set interest rates, but to explain what might come next. Policy decisions were often accompanied by enough guidance to help markets understand how officials were reading the economy and where interest rates might be heading.
This week’s policy meeting suggested that the existing relationship may be evolving.
The Fed left its benchmark interest rate unchanged at 3.50% to 3.75%, a decision that was widely expected.
But the meeting produced an unusually divided outcome. Three members of the Federal Open Market Committee voted in favour of an immediate quarter-point rate increase, while the majority preferred to wait. Fed’s new chair, Kevin Warsh, reaffirmed the commitment to bringing inflation back to its 2% target, but offered little indication that policymakers had settled on what should happen next.
The decision itself was straightforward. Interpreting it was not. Inflation slowed to 3.5% in June but remains well above the Fed’s target. At the same time, higher energy prices linked to renewed tensions in West Asia continue to cloud the inflation outlook. In its policy statement, the Fed acknowledged those supply-side pressures while also noting that economic activity, investment and the labour market remain resilient.
Markets had entered the meeting unusually uncertain about the outcome. Reuters reported that investors were pricing roughly a 36% chance of a rate increase beforehand, making it the most uncertain Fed decision since late 2018.
After the announcement, expectations shifted repeatedly. Futures markets briefly implied a much higher probability of a September rate increase before those expectations eased later in the day. Analysts described the outcome as a “hawkish hold” – a pause that still leaves open the possibility of further tightening.
The more interesting shift, however, may lie beyond this meeting. Several analysts told Reuters that Warsh appears less inclined than many of his predecessors to use forward guidance as a tool for shaping market expectations. Instead, future decisions are being presented as more dependent on incoming economic data. That changes what investors have to pay attention to between policy meetings.
For years, markets have often looked to the Fed to interpret the economy. Increasingly, they may have to do more of that interpretation themselves.
That has implications beyond forecasting the next interest-rate decision. As Treasury yields have moved higher over recent months even without further action from the Fed, some analysts argue that financial conditions are tightening through the market itself. In other words, investors are no longer simply reacting to monetary policy. They are playing a larger role in determining how restrictive financial conditions become.
A similar story has played out in India, where government bond yields have risen in recent months even though the Reserve Bank of India hasn’t lifted its interest rates.
For investors, the Fed, the RBI and other central banks matter because their decisions shape borrowing costs, capital flows and risk appetite. But if markets themselves are playing a greater role in setting those expectations, periods of uncertainty could become more frequent even when the policy decision itself is uneventful.
Counting the Cost
Building artificial intelligence has become one of the biggest investment programmes in corporate history. This week, some of the world’s largest technology companies made one thing clear: they have little intention of slowing down.
The question for investors is beginning to change.
For the past two years, markets largely rewarded companies for demonstrating that they were serious about AI. This earnings season, they seemed more interested in something else—whether that spending is beginning to translate into stronger businesses.
The results from Alphabet, Microsoft, Meta and Tesla suggested that simply committing more capital is no longer enough. Investors are increasingly looking for evidence of what that investment is delivering.
The contrast was most visible between Alphabet and Microsoft.
Alphabet’s quarterly revenue rose 23% year-on-year to $119.8 billion. But it increased its projected capital expenditure for 2026 to as much as $205 billion, about $15 billion higher than the guidance it provided just three months earlier.
That investment showed up clearly in its cash generation. Alphabet reported negative free cash flow of $5.9 billion for the quarter—the first time that measure has turned negative since the company became publicly listed. Chief Financial Officer Anat Ashkanazi attributed the decline almost entirely to AI-related capex, saying the company invested $45 billion during the quarter, with spending concentrated on servers and data centres.
Management left little doubt that the investment cycle would continue with CEO Sundar Pichai describing AI as being in the “early innings” and arguing that the opportunities ahead justified heavy investment.
None of those comments suggested that Alphabet’s business was weakening. They pointed instead to a company choosing to invest aggressively despite the near-term impact on cash flow. Yet the market’s reaction suggested investors were paying closer attention to that trade-off than they might have a year ago.
Microsoft told a different story. Like Alphabet, it continued spending heavily. Capital expenditure and finance leases rose 69% year-on-year to $41 billion, while free cash flow fell 23% as the company expanded its AI infrastructure.
Unlike Alphabet, however, Microsoft paired that spending with signs that investors could recognise. Azure revenue grew 43%, faster than in the previous quarter. Annual Azure revenue crossed $100 billion for the first time, commercial commitments continued to expand, and the company said Microsoft 365 Copilot had surpassed 30 million paid seats.
Microsoft’s shares surged 15% after the results, even though it said capital spending would remain elevated.
Meta and Tesla reinforced the same tension from different directions.
Meta raised the lower end of its annual expense guidance and increased its planned capex range to between $130 billion and $145 billion, much of it earmarked for AI infrastructure. Revenue exceeded expectations, but earnings fell short of forecasts, and the shares declined as investors assessed the higher spending alongside the latest results.
Tesla also reported negative free cash flow of $1.1 billion, its first such reading in two years, while signalling that capex could reach $25 billion this year and continue rising over the next several years. Its shares slumped following the results.
Viewed individually, each company’s results reflected its own business, strategy and challenges. Taken together, however, they highlighted a broader shift in how markets appear to be evaluating AI investment.
The debate is no longer centred on whether companies should invest. Most executives remain convinced that demand for computing capacity, data centres and AI services justifies continued spending. Investors are asking a different question: how quickly are those investments beginning to strengthen the underlying business?
That is a subtle but important distinction.
Large technology companies have entered a phase where AI infrastructure increasingly resembles any other long-term capital investment. The amounts involved continue to grow, but investors are paying closer attention to the relationship between spending, cash generation and commercial outcomes than to the size of the investment alone.
The race to build AI is clearly far from over. If anything, this week’s earnings suggest it is becoming even more capital-intensive. What appears to be changing is not companies’ willingness to invest, but the market’s willingness to wait for evidence that those investments are beginning to earn their keep.
The Crowded Trade
Strong earnings are usually expected to lift a company’s share price. This week, they did not.
South Korean memory chipmaker SK Hynix reported a six-fold jump in quarterly profit, underlining the continued demand for advanced memory chips used in artificial intelligence. Yet its shares fell nearly 20% during Wednesday’s session before recovering some ground to close down 9.6%.
That contradiction explains much of what happened in South Korea’s stock market this week.
The benchmark KOSPI suffered two consecutive sessions of heavy losses, extending a sell-off that has erased almost 40% of the index’s value from the peak it reached a little more than a month ago. Many of the sharpest declines came in technology companies that led this year’s AI-driven rally, including SK Hynix and Samsung Electronics.
The selling did not coincide with any obvious weakening in demand for AI hardware. If anything, SK Hynix’s results suggested the opposite. What changed was not its business, but the yardstick against which investors appeared to judge it.
Markets rarely reward companies simply for delivering strong results. They reward companies for exceeding the expectations already reflected in their share prices. Those expectations had become particularly ambitious in South Korea.
Retail investors had poured into AI-linked stocks, many of them using borrowed money to increase their exposure. Rising prices encouraged more buying, helping fuel one of the world’s strongest equity rallies this year.
Then the process began to reverse.
As prices fell, some investors who had borrowed to buy shares were forced to reduce their positions, adding further selling pressure to stocks that were already declining.
Analysts described the move as the unwinding of a crowded trade, with the biggest falls concentrated in stocks where leveraged positions had become especially large.
The speed of the decline has now drawn in policymakers.
Finance Minister Koo Yun-cheol apologised for the introduction of single-stock leveraged exchange-traded funds, saying they had not been considered carefully enough. The government announced plans to tighten restrictions on such products, including possible investment limits, higher trading costs and a legal framework for emergency market-stabilisation measures.
One statistic helps put the week’s events in perspective. Despite the sharp correction, the KOSPI remains up 41.5% in US dollar terms this year, making it the best-performing major equity market globally. And the index rebounded on Friday, extending this year’s gains. The rally had been remarkable. So, inevitably, were the expectations that came with it.
Markets often become most fragile not because the underlying story suddenly changes, but because too many investors have come to believe the same story at the same time.
That does not mean the investment case for artificial intelligence has disappeared. The world’s largest technology companies continue to spend heavily on AI infrastructure, while demand for advanced chips remains strong.
What this week’s events demonstrated is something different: strong fundamentals do not always prevent sharp corrections when expectations and positioning have moved even further ahead.
The events in Seoul are a reminder that markets are shaped by more than earnings and economic data. Positioning, leverage and expectations can quietly reinforce a rally for months. When sentiment turns, those same forces can accelerate the move in the opposite direction.
Market wrap
India’s stock market benchmarks rose this week to end July with gains for the second month in a row, as corporate earnings and an unwinding of the global AI trade led to a recovery in foreign portfolio inflows.
The BSE Sensex climbed 2.7% while the Nifty 50 rose 2.6% this week. In July, the Sensex and the Nifty gained 2.1% and 2.2%, respectively. This comes after they rose 2.3% and 1.4%, respectively, in June.
Foreign portfolio investors bet $1.6 billion on Indian stocks this month, after selling $29.3 billion in the previous six months. July’s rally was powered by a 16.8% jump in the information technology index. HCL Technologies surged 25.7% this month while Infosys, Tata Consultancy Services and Tech Mahindra jumped between 12.9% and 17.6%.
Bajaj Auto revved up 18.6% this month on strong quarterly profit. drugmaker Dr. Reddy’s Labs was the worst performer and slumped 15.4% after missing earnings estimates and reporting a disruption in semaglutide supply.
For the week, 11 of the Nifty 50 ended in the red. These included state-run companies Bharat Electronics, Coal India, ONGC and Power Grid; FMCG companies Hindustan Unilever, ITC and Tata Consumer; Adani Ports, Adani Enterprises and Dr. Reddy’s.
Bajaj Finance was the biggest winner, gaining more than 12% after topping earnings estimates, while its twin Bajaj Finserv jumped over 8%. Infosys, HCL, Tech Mahindra and TCS rose between 8.5% and 5%.
Mahindra & Mahindra jumped 7.5% while other automakers Maruti Suzuki, Tata Motors Passenger Vehicles, Bajaj Auto and Eicher also gained this week. Jio Financial, Eternal, Nestle India, Asian Paints and Titan were among the other stocks that recorded strong gains.
Earnings Snapshot
- Tata Steel Q1 net profit rises 11.6% to Rs 2,318 crore, tops forecasts
- Adani Enterprises Q1 consolidated loss at Rs 1,160 crore on US settlement charge of Rs 2,644 crore
- Adani Ports consolidated profit rises 9% to Rs 3,620 crore
- Hindustan Unilever Q1 profit falls 4% to Rs 2,631 crore, signals price hike
- Hyundai Motor India profit falls 35% to Rs 889 crore, revenue slips 0.5%
- Bajaj Finance reports 28% rise in consolidated profit after tax to Rs 6,081 crore, beats estimates
- Vedanta names Arun Misra as CEO, Q1 profit jumps 72% to Rs 5,473 crore
- Royal Enfield maker Eicher Motors Q1 profit rises 21% to Rs 1,463 crore; tops estimates
- Asian Paints consolidated profit jumps 40% to Rs 1,539 crore, beats estimates
- Larsen & Toubro Q1 consolidated net profit rises 14% to Rs 4,123 crore
Other Headlines
- NSE says SEBI agrees in principle on settlement offer over past lapses for Rs 1,491 crore
- RBI allows banks to offer different interest rates on bulk deposits based on liquidity risk
- Oil price spike can strain fiscal deficit, current account balance: Finance ministry report
- SAIL, Indonesia’s Krakatau Steel plan $350 million investment in stainless steel plant
- US semiconductor firm Marvell Technology to invest $250 million in India, double headcount
- Mahindra & Mahindra to transfer truck, bus business to SML Mahindra
- IPL’s business value soars above $20 billion, says US investment bank Houlihan Lokey
- Delhi High Court orders winding up of Paytm Payments Bank after RBI licence cancellation
- HDFC Bank finds no improper motive in deposit pricing review, penalises executives
That’s all for this week. Until next week, happy investing!
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