31-07-2025
New-age tech may replace banks as market leaders: Sridhar Sivaram
"Once a consumer down-trades, it takes a long time for them to return to the original brand. A lot has been written about this. It's not that the middle class has shrunk—as one CEO claimed—it's that their pockets have shrunk," says Sridhar Sivaram, Enam Holdings.
ADVERTISEMENT But does it have that kind of depth? The same question applies to pharma as well—does it really have the depth to rival banks purely in terms of market performance?
Sridhar Sivaram: Yes, that's the question. If we go back, say 20 years, banks weren't 40% of the index. Index composition evolves over time—gradually. So, we don't know for sure if it has the depth yet. New sectors will emerge. As some participants believe, it could be the new-age economy that takes over. I don't know—maybe. People have different views. Personally, I find it hard to believe that financials will continue to be the leader. It could be another sector—maybe the new-age technology companies. A lot of them are going to get listed in the next few years; some have already made it to the index. So, they could lead. But at this point, it's all crystal-ball gazing.
What within pharma interests you? Rationally, with an aging global population and India also getting there in about 30 years, pharma makes sense as a theme. But what specifically within pharma excites you right now?
Sridhar Sivaram: Pharma is very bottom-up. Each company has its own dynamics. But CDMO—Contract Development and Manufacturing Organisations—is something we like. This whole segment that supports big pharma with research and manufacturing is quite attractive. A number of new companies have entered this space, and even older players are moving into it. There are also many opportunities arising due to the patent cliff in the US. A lot has been written about GLP-1 drugs and what might happen when those patents expire—that presents a huge opportunity. Many Indian pharma companies are linked to that.
Now, there's good, bad, and ugly here. Some believe these drugs have side effects—but that's for the regulators to evaluate. Our point is that there's significant opportunity. Also, if you look at companies like Glenmark, which recently announced the out-licensing of one of its products using newer technologies, others are likely to follow. So, beyond CDMO and generics, Indian pharma could enter a whole new era of drug discovery.
Because R&D has historically been a pain point for Indian pharma companies, right?
Sridhar Sivaram: Yes, exactly. R&D investments have traditionally focused on short-term gains—next quarter or next year. But new drug discovery takes four to five years, sometimes even longer. However, with the recent successes of a few companies, we believe more players will begin investing in that space. That's how we're approaching it.
ADVERTISEMENT We were just talking about new-age tech companies—some of them have already made it to the index. But on the consumption front, staples haven't shown great earnings so far. Do you think this signals a shift, where new-age companies might outpace staples?
Sridhar Sivaram: On staples, my personal view is that they're too focused on protecting margins, and that's coming at the cost of volume growth. If you look at companies like DMart or Jio, they have their own private labels, which are taking away incremental growth. Go to any of these stores and you'll see clones of well-known brands in different forms. And the quality isn't bad.
ADVERTISEMENT Once a consumer down-trades, it takes a long time for them to return to the original brand. A lot has been written about this. It's not that the middle class has shrunk—as one CEO claimed—it's that their pockets have shrunk. So they're down-trading, while these staple companies continue to obsess over margins. If you keep focusing on margins and give up market share, it's well documented that regaining that share is up to these companies to decide what they want to do. As investors, we have many options. I don't have to be invested in a company growing at 4-5% volume and trading at valuations north of 50 times. Why should I? Of course, there are investors with index benchmarks—they may not have a choice. But we don't have those compulsions.
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But as you say the middle class pockets are shrinking, we're also seeing a strong trend of premiumisation—whether it's autos, luxury real estate, or even within consumption. Luxury goods are outperforming staples. So how do you reconcile this argument—shrinking pockets but rising premiumisation?
Sridhar Sivaram: If you look at the actual volume of premiumisation, it's largely confined to the top 3% of India. That's not India. The remaining 97% has completely different dynamics. You need to travel to rural India to understand this. Most of us live in cities and assume that's the whole picture, but it isn't.
The average annual income in many parts of rural India is ₹1,00,000 to ₹1,20,000. You can't sell premium goods there. That's why local brands—offering lower price points—are eating into the sales and margins of larger companies. They understand the price sensitivity of these markets better and are delivering accordingly.
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