MC EXCLUSIVE From fiscal easing to IPO frenzy: SBI MF’s investment head spills all

In an investing world often divided between value and growth, he walks both paths without compromise. The portfolios under his watch reflect a blend of classic value investing discipline with a sharp eye on the future and pragmatic decision-making—a rare balance that this IIT Bombay, MIT, and CFA charterholder brings to the table. Grounded, analytical, and incisive, meet Dinesh Balachandran, Head of Investments at India’s largest fund house, SBI Mutual Fund. In this exclusive conversation, he shares his take on all things markets.

Edited excerpts:

When do you see an earnings recovery over the next two quarters? What kind of recovery do you expect?

For the past four quarters, we’ve been more worried about earnings slowing rather than accelerating. The main reason is fiscal consolidation. India has actively tried to cut its fiscal deficit. GST compensation cess and related measures continued this consolidation. That hit growth, which we saw three to four quarters ago.
External risks still tilt downside. But they woke the government up. Earlier, the stance was “we’ve done our bit, let markets drive growth.” Now, they see the need to step in. The GST reform push probably wouldn’t have happened without external triggers.

I expect the government to shift from strict consolidation to pro-growth measures. If current steps fail, they’ll do more to turbocharge the economy. That makes me more hopeful of earnings recovery than three, six, or 12 months ago. We still need government support—animal spirits alone won’t cut it. Hard to pin it to two or three quarters, but we’re close to the bottom of the cycle.

Everyone seems optimistic about the GST cut. But where does this extra money actually go? Towards repaying debt, saving, or consumption?

No one can know for sure; households can choose differently. But it’s money in their pockets.
Inflation in 2022 hit consumption hard. Post-COVID, consumption rose when government measures helped demand. But inflation, especially in rural areas, hurt, and companies kept prices high to protect margins.
Prices had already stabilized before this GST cut, so this acts like a booster. Rural sentiment is already recovering, helped by decent monsoons. This stimulus should amplify that recovery.

Yes, households could choose to save instead, but probabilistically, given that the drag factors are easing and this comes as an extra push, I’d bet on stronger consumption. If it falls short, government levers like advancing the Pay Commission can support demand. Either way, consumption should improve.

Wouldn’t public spending as a growth driver stand diminished?

Fair. But the key is the government is shifting course. Fiscal consolidation thus far meant it collected more than it spent, pulling growth down. Now, GST cuts reduce collections, making policy supportive, not restrictive. Spending has been decent recently, except in the election year. Consolidation still reduced net spending. By loosening now, the government cuts the drag and adds stimulus. Short-term, less deficit reduces demand. Long-term, it lowers interest rates. Moving away from strict consolidation now boosts growth.

So you expect the government to go easy on consolidation?

Yes. Revenue loss may be ₹1.5–2 lakh crore. Officially, the government may still claim consolidation to prevent rate spikes. But these steps are stimulative.

Where do you see earnings risk right now?

Export sectors, especially IT, face real risk. Near-term hit may be smaller; currency depreciation helps. But competition is intense. Tiering has collapsed; smaller firms chase big deals while growth slows. This mix means sustained earnings risk.

Sector by sector caution is needed. My contra fund carries ~20% cash for 15 months.

IT doesn’t count as a contra bet for you?

Contra just for the sake of it doesn’t work. IT isn’t cheap enough; little else supports it. In consumption, you can make a logical recovery case. In IT, no green shoots.

And the secular threat from AI?

Bigger problem. Five- to ten-year outlook unclear. AI substitutes humans, unlike the internet which enabled IT. Until evidence emerges, I won’t take a strong call.

What about significant buybacks—can they be a driver?

Buybacks support downside by reducing float and signalling premium. True value comes only at very low multiples (12–13x earnings). At current levels, earnings yield < cash yield. So they limit downside, but aren’t earnings accretive.

Fair point. Beyond IT, what are the big risks today?

Rising retail credit costs. Corporate credit looks fine. Defaults can cause a spiral, affecting consumption and economy. IT risks are known and predictable.

Why do you then hover close to the benchmark in financials, especially banks?

I used to be heavily underweight. Now, weaker NBFCs show rising credit costs, but strong private banks and some PSUs underwrite well. Weak players faltering benefits strong banks. Modest credit growth means leaders gain share. That’s why have increased weights selectively.

If we look at your entire suite of equity products, what would be your top three picks for absolute returns?

We’ve championed hybrid products for 12–18 months. Early 2024, our asset allocation flagged caution on equities—earnings slowdown, high valuations, frothy sentiment. Multi-asset funds offer equity, debt, and precious metals – so three assets instead of two. We are very positive on precious metals. Between equity and debt, one of them will do well even if the other drags. Flexibility lets me pivot if and when needed.

But what’s the probability of all doing badly at the same time?

Possible. In stagflation, equities and debt struggle. Money markets can protect debt; precious metals may shine still. Managing debt and relying on metals still yields decent returns. Thus far metals have done well; and equities looked frothy. If consumption recovery sustains, I pivot more into equities.

Equity versus gold—separately, how do you see them today?

Equities: valuation froth receding. Pessimism flushes excess, which improves optimism. If consumption recovery holds, equities rise. Precious metals, especially silver, remain a hedge in the currency race to the bottom. Bull market isn’t over.

What’s your take on IPO valuations right now?

Very high.

Then why are you buying? Almost every large IPO you are in the anchor book.

We say no to many IPOs. CDMOs, renewables—good companies, bad valuations, so declined all. Nothing is buy at any price for us as a fund house. Even IPOs, we don’t go in at strike price - it’s absurd. We give a limit, beyond which, we walk away.

Your take on new-age companies, and their valuations…

Many index heavyweights—IT, generic pharma, consumer—are “tired models.” Index will look different in five–ten years. That’s why the frenzy in new-age companies.

So banking, IT, generics, consumers—you’re saying these are tired models?

Broadly yes. Very mature businesses. Some may reinvent; most won’t. Appeal comes from valuation comfort, not long-term double-digit growth.

And when you look at new-age business models in general—what are your filters?

Clear category dominance which signals sustainability—beauty, insurance platforms have shown winners emerge. But valuation discipline is must here too.

Which upcoming IPOs excite you?

Depends on valuation! Asset management is strong long-term. ‘Moon’ valuations: no.

Groww’s IPO is the most hyped. What’s your view?
Not analysed in detail. Great the way they have leverage tech, but great tech ≠ limitless valuation!

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