India’s Equity Indices Held Back by ‘Tired Business Models,’ Says SBI MF’s Balachandran

India’s equity benchmarks are under pressure as many of their largest constituents operate “tired business models” that no longer reflect future growth potential. Dinesh Balachandran, head of investments at SBI Mutual Fund, which manages assets exceeding Rs 12 lakh crore, explained that the maturity of these businesses is driving investor appetite toward new-age initial public offerings (IPOs) rather than existing blue-chip stocks.

In an exclusive interview with Moneycontrol, Balachandran emphasized that Indian markets today are dominated by companies whose models, while historically successful, may be vulnerable to disruption. “Logically speaking, the index should look very different five to ten years from now,” he said, highlighting the structural challenge faced by traditional sectors.

IT Sector Maturity

One of the key sectors cited by Balachandran is information technology. Indian IT services companies, which have long been major contributors to market capitalization and index performance, appear to have entered the mature phase of their business cycle. Balachandran expressed skepticism about the ability of these firms to meaningfully pivot to emerging technologies such as artificial intelligence (AI).

“Many of the heavyweights today are tired businesses—IT services, large generic pharma companies, even consumer majors that haven’t reinvented themselves,” he said. The lack of significant innovation or reinvention in IT services implies that growth may remain incremental rather than transformational. Investors seeking high growth potential may therefore look to new-age companies or IPOs that promise fresh business models and disruptive technologies.

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Pharmaceuticals and R&D Fatigue

The pharmaceutical sector, particularly large generic drug manufacturers, also faces maturity challenges. Balachandran pointed out that Indian generics companies have largely pulled back from investing in research and development (R&D) to create new products. “Indian generic manufacturers haven’t invested in R&D to develop anything new; in fact, they’ve pulled back, lacking the patience or will to pursue it,” he explained.

As a result, these companies operate models that, while historically profitable and managed by experienced leadership, may not capture future growth opportunities. This limits their appeal to investors seeking dynamic growth stories, further contributing to the relative fatigue of equity indices dominated by these firms.

Consumer Sector Stagnation

Even the consumer goods sector, historically a reliable performer for Indian equities, is showing signs of fatigue according to Balachandran. Large consumer majors that have not reinvented themselves are seen as mature businesses with limited growth catalysts. The combination of slow product innovation and entrenched business models can make these companies less responsive to changing market trends and consumer preferences.

“The business models are mature, and in some cases, vulnerable to disruption,” he said, emphasizing that the structural characteristics of these sectors contribute to the perception of India’s indices as being weighed down.

Impact on Investor Behavior

The maturity and limited growth potential of index heavyweights are influencing investor behavior. Balachandran noted that these conditions make newer IPOs and companies with innovative business models increasingly attractive. Investors appear willing to pay premiums for new-age offerings, seeking higher growth potential than what established sector leaders currently provide.

However, Balachandran also cautioned that valuations remain a critical consideration. While investors are drawn to fresh IPOs and new-age firms, the price they pay relative to future prospects must be carefully assessed. “The fatigue among index constituents is one reason investors are willing to pay up for new-age listings,” he said, underlining the importance of balancing growth expectations with valuation discipline.

Structural Implications for Indian Equity Indices

The insights from SBI Mutual Fund highlight the need for a gradual transformation in the composition of India’s equity indices. Over the next five to ten years, Balachandran suggested that indices could look markedly different as new sectors gain prominence and traditional heavyweights either reinvent themselves or see slower growth.

In practical terms, this may mean a greater representation of technology-driven companies, startups scaling through innovative models, and businesses in emerging sectors. Traditional heavyweights such as IT services, large generics, and consumer goods may continue to contribute to market capitalization, but their relative weight and influence could diminish if they fail to innovate or adapt.

Balachandran on Market Opportunities

Despite the concerns about maturity in traditional sectors, Balachandran remains focused on identifying opportunities within Indian equities. He emphasized the importance of understanding both structural growth trends and company-specific fundamentals. While mature businesses may appear tired, they often provide stability and consistent cash flows, making them suitable for certain investment strategies.

At the same time, he noted that investors should be prepared to seek out emerging businesses that are positioned to capture the next phase of India’s economic and technological growth. These may include companies leveraging AI, digital platforms, renewable energy, fintech, and other disruptive sectors.

Conclusion

India’s equity indices face a unique challenge as many of their largest constituents operate mature, “tired” business models. According to Dinesh Balachandran of SBI Mutual Fund, IT services, large generic pharma, and consumer majors dominate market capitalization but may lack the capacity for transformational growth. This has shifted investor interest toward new-age IPOs and companies with innovative models, although valuations remain a key consideration.

Over the next five to ten years, indices could see a structural shift as emerging businesses gain weight and traditional heavyweights either reinvent themselves or take on a less dominant role. Investors are balancing the stability and reliability of established firms with the growth potential of newer companies, shaping the evolution of Indian equity markets in the process.

The market’s focus on innovation, growth potential, and disruption underscores the dynamic nature of investing in India. While mature sectors continue to provide foundational stability, it is the new-age companies and IPOs that are capturing the imagination of investors seeking higher returns in a rapidly evolving economic landscape.

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