Returns will be moderate as valuations look stretched, says Varun Lohchab of HDFC Securities

Within IT, TechM and Mphasis were two of the Overweights at HDFC Securities in the last six months, which have now been trimmed and shares of TCS added, which is their top large cap pick.

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26 Aug, 2025 12:21

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India Inc's earnings is expected to grow at a moderate pace compared to previous four years, as valuations are stretched, HDFC Securities' Varun Lohchab has said.

"India Inc earnings will grow at 10-12% CAGR for next couple of years. This is a bit of a moderation from the high teens kind of growth seen in previous 4 years," Lohchab said.

In a conversation with CNBC-TV18, Lohchab talked about a churn in overweight positions in past few months, wherein IT, banking and consumer staples are being added, while industrials and real estate positions are being cut. HDFC Securities has been Overweight on these two spaces - real estate and industrials - for the past 12-18 months, he said, adding that they have now turned Overweight on Consumer Staples for the first time in 4 years.

Within IT, TechM and Mphasis were two of the Overweights at HDFC Securities in the last six months, which have now been trimmed and shares of TCS added, which is their top large cap pick. Shares of IT majors have been on an uptrend since June on anticipation that demand for IT services in US may recover. The June quarter results of the IT companies too show that the demand environment may be stabilizing. During the June quarter, Infosys had raised its annual forecast while Tata Consultancy Services said it hoped for a better financial year.

"US recovery is looking like the base case, but largecap IT looks better placed as against midcaps, given valuation versus growth outlook," Lohchab said.

In banking, the sector's valuation has corrected from commanding a premium five years ago. "In FY19, Nifty P/E was 21-22x (one-year forward), today it is 25x, on trailing basis. In five years, the banking sector valuation has got de-rated by 50%, and is now at 17x, versus 35x in FY19," Lohchab said. He added that earnings here may stay muted for another 6-12 months, and investors may not any outperformance right away, but the risk reward ratio 'looks favourable for both private and PSU banks', from a medium term perspective.

Though the headline P/E has not seen a sizeable change compared to pre-Covid era, a lot of changes have happened within the index with almost 70% stocks in Nifty trading above their long-term valuations, Lohchab said. "At some point of time, returns had to get moderate."

Within banks, he is betting on larger players over NBFCs and his key picks are - ICICI Bank, SBI and Federal Bank, while in NBFCs, he likes Chola Finance and Aavas Financiers.

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