Markets to deliver 7-8%, GST cuts could spark consumption revival: HDFC Sec’s Varun Lohchab

Indian equities are poised for steady but moderate returns over the next year as earnings momentum stabilises and valuations remain elevated, according to Varun Lohchab, Head of Research–Institutional Equities at HDFC Securities.

Speaking to ET Now, Lohchab said the market is better balanced now after a period of caution, though investors should temper expectations. Looking forward, Lohchab thinks that government actions such as GST adjustments and tax reductions might not instantly increase earnings, but they will support the recovery of consumption in the medium term

“The last quarter delivered around 10% YoY earnings growth, the best in the last three quarters. We expect this double-digit trend to continue for the next couple of quarters. While we are unlikely to see a sharp V-shaped recovery, things should improve incrementally in BFSI, IT and consumption,” Lohchab noted.


He added that while a return to 15-17% earnings growth is unlikely, achieving a growth rate earnings growth of 10–12% is certainly feasible over the next three to four quarters. But with valuations still on the higher side, some PE contraction is possible and returns from equities are likely to remain in single digits.

Lochab further said that while the market may peak by FY26, this doesn't mean excessive optimism, as gains will be limited. After a year of range-bound markets, valuations have improved slightly. The risk-reward ratio appears more balanced, with an expected return of about 7-8% over the next 6 to 12 months.

Stock-specific rather than sectoral calls

On sectoral preferences, Lohchab said HDFC Securities has turned constructive on financials, consumer discretionary, staples and autos, which have moved from underweight to neutral positions in its model portfolio. Industrials and real estate, which were overweight earlier, are now selectively favoured. “From here on, stock-specific opportunities will matter more than sector calls, given the limited upside at the index level,” he explained.

In healthcare, Lohchab remains positive despite stretched valuations, citing Apollo Hospitals and Max Healthcare as top picks with structural triggers such as value unlocking. In pharma, select names like Torrent, Alkem and Sun Pharma remain attractive.

GST Fallout

If GST rationalisation leads to lower rates, cement stands out as a preferred sector from the next 12- to 18-month perspective. “Price elasticity of demand is not very high, but lower GST will give cement companies headroom to take hikes when raw material pressures rise. Cement looks better placed than paints,” Lohchab said. On paint sector, they are not overly bullish.

Looking ahead, Lohchab believes government measures like GST rationalisation and tax cuts may not immediately boost earnings but will aid consumption recovery over the medium term. “These steps provide visibility of low-teens earnings growth over the next two to three years, which should help sustain market valuations,” he said, adding that investors can expect returns in the range of 7–8% over the next 6–12 months.