Why The Services Theme Could Be A Compelling Investment Opportunity In India

By Jitendra Sriram, Senior Fund Manager Equity, Baroda BNP Paribas Asset Management India Pvt Ltd.

India’s growth story is often associated with its manufacturing ambitions. Over the past few years, government initiatives such as the Production Linked Incentive (PLI) schemes have hogged headlines.

Yet, beneath this transformation lies another equally powerful trend that is reshaping India’s economy—and perhaps offers one of the most compelling long-term investment opportunities. That trend is the rapid rise of the services sector.

The services economy is now India’s growth engine

Over the last two decades, India’s services sector has consistently grown faster than both industry and agriculture in terms of Gross Value Added (GVA). India has largely leapfrogged the heavy manufacturing phase, evolving directly into a technology and services-driven economy.

The numbers tell the story. In FY26, the services sector is projected to contribute 65 per cent of India’s Gross Value Added, compared with 21 per cent for industry and 14 per cent for agriculture*.

This shift reflects a broader structural transformation as countries become wealthier and services become an increasingly larger share of economic activity.

Five structural drivers powering the services boom

India’s services sector is being propelled by several long-term structural drivers that are likely to remain relevant for years to come.

1. Formalisation of the economy

The migration of workers from the cash-based informal economy to the formal sector is creating stable payrolls, better credit profiles and verifiable digital financial footprints. This formalisation fuels consumption and expands the customer base for a wide range of service businesses.

2. India’s digital transformation

With nearly 70 per cent of Indians now connected to the internet, India has become one of the world’s largest digital economies. This digital infrastructure is creating a multi-decade opportunity for businesses across financial services, healthcare, education, entertainment, travel and commerce, amongst others.

3. Digital public infrastructure

Platforms such as UPI have dramatically reduced customer acquisition costs for service providers while making digital payments seamless. This has accelerated adoption, improved operational efficiency and enhanced profitability across multiple service industries.

4. Premiumisation of Services

As incomes grow, populations urbanise, and aspirations boom, we will see Indian consumers demanding more, better and luxurious / higher-end services. We are witnessing a strong growth in hospitality-related industries as well as a clamour for better and more accessible services in healthcare, education, etc.

5. Strong policy support

The Union Budget 2026–27 has outlined an ambitious vision of positioning India as a global services leader, targeting a 10% share of global services exports by 2047#. This policy focus is expected to further strengthen several service sectors.

Why thematic services funds deserve investor attention

For investors seeking to benefit from this structural trend, thematic mutual funds focused on the services sector offer a differentiated opportunity.

Unlike narrowly focused sector funds, a well-designed services fund can invest across multiple industries that collectively represent India’s expanding services economy. These industries span the gamut from Banking and other Financial Services to industries leveraging the new digital economy, like Telecom, Retail, E-commerce, Logistics, to services consumption firms in areas like hospitality, healthcare, media and entertainment. This broad investment universe allows investors to participate in multiple growth drivers through investment in a single fund.

Four reasons the services theme stands out

There are four compelling reasons why the services theme merits consideration for long-term investors:

• It provides targeted exposure to the largest and one of the fastest-growing segments of the Indian economy.

• It focuses on sectors such as BFSI, Information Technology, Healthcare, Hospitality and Digital Infrastructure that have historically delivered strong growth as economies mature.

• These businesses typically see their profit pools and GDP contribution expand as per capita income rises, reinforcing the long-term investment case.

• The services theme is inherently diversified. It spans multiple industries, business models and market-cap segments, helping mitigate concentration risk.

Diversification matters in thematic investing

Not all thematic funds are created equal. Investors should evaluate whether a theme is broad enough to provide meaningful diversification across sectors, market capitalisations, and business models.

Research by Baroda BNP Paribas Mutual Fund highlights the depth of India’s service opportunity. Of the 500 companies that comprise the Nifty 500 Index, approximately 195 belong to the services theme$. These companies span seven sectors and include a healthy mix of large-cap, mid-cap and small-cap businesses, providing fund managers with a rich opportunity set to build a diversified portfolio of durable and growth-oriented companies.

A long-term opportunity

India’s services economy is the backbone of the country’s economic growth. Rising incomes, rapid digitalisation, formalisation, supportive government policies and changing consumer behaviour are creating a powerful multi-year investment opportunity.

For investors with an investment horizon of at least 3 to 5 years, a diversified thematic services fund can offer a compelling way to participate in India’s structural growth story.

Source:

* DBIE, RBI - Data as on June 12, 2026

# Source: IBEF, February 2026

$ Source: Nifty Indices, Data as on May 31, 2026

Disclaimers:

The material contained herein has been obtained from publicly available information, internally developed data and other sources believed to be reliable, but Baroda BNP Paribas Asset Management India Private Limited (BBNPP), makes no representation that it is accurate or complete. BBNPP has no obligation to tell the recipient when opinions or information given herein change. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. This information is meant for general reading purposes only and is not meant to serve as a professional guide for the readers. Except for the historical information contained herein, statements in this publication, which contain words or phrases such as ‘will’, ‘would’, etc., and similar expressions or variations of such expressions may constitute forward-looking statements. These forward-looking statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those suggested by the forward-looking statements. BBNPP undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date thereof. Words like believe/belief are independent perception of the Fund Manager and do not construe as opinion or advice. This information is not intended to be an offer to see or a solicitation for the purchase or sale of any financial product or instrument. The investment strategy stated above is for illustration purposes only and may or may not be suitable for all investors. The information should not be construed as investment advice and investors are requested to consult their investment advisor and arrive at an informed decision before making any investments. The Trustee, AMC, Mutual Fund, their directors, officers, or their employees shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages arising out of the information contained in this document.

The sector(s)/stock(s) mentioned in this document do not constitute any recommendation of the same and Baroda BNP Paribas Mutual Fund may or may not have any future position in these sector(s)/stock(s).

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