More Stories

Informist, Monday, Oct. 6, 2025

 

Please click here to read all liners published on this story

--HDFC Sec Sharma: Long-term returns at risk due to high stock valuations
--HDFC Sec Sharma:Won't make great returns if investing at 22 times earnings
--HDFC Sec Sharma: Strong domestic flows have kept market from falling
--HDFC Sec Sharma: Difficult for whole MF industry to give 5% alpha now
--HDFC Sec Sharma:Nifty 50 net profit to grow 10-12%/annum over next few yrs
--HDFC Sec Sharma:Early to say if GST cuts will drive consumption after a yr
--HDFC Sec Sharma: Lack of innovation may become an issue after a decade
--HDFC Sec Sharma: India cos borrow ideas from West, lack real innovation
--HDFC Sec Sharma: India needs innovation to come out of middle class trap
--HDFC Sec Sharma: Benefits from capex in India are partly going to China
--HDFC Sec Sharma: Need cultural shift in India to kickstart innovation
--HDFC Sec Sharma: Need land and labour reforms for innovation
 

 

By Anshul Choudhary and Anjana Therese Antony

 

MUMBAI – Investing at current market valuations may put long-term returns at risk even if one is putting in money through systematic investment plans, Unmesh Sharma, head of institutional equities at HDFC Securities, said in an interview with Informist. Equity investors have still not registered the fact that investing at two standard deviations above the long-term average could hit their returns over a decade, he said.

 

"If you are putting money in SIP at 22 times earnings (of Nifty 50)...and think I will still get 12-13?GR if I keep my money till the time I am 45 (years old), that is going to fall flat on the face," Sharma said. The Nifty 50 is currently at nearly 23 times the earnings per share for 2025-26 (Apr-Mar), according to estimates by Motilal Oswal Financial Services. On Monday, the index closed at 25077.65 points.

 

Sharma said investors may soon come to realise that they have not made "serious" returns in the last three years. As of September-end, the Nifty 50 has given returns of 13% per annum over the past three years, which includes a dismal performance in the past 52 weeks with no returns.

 

He said the market has not fallen despite a slowdown in earnings and poor returns over a year mainly due to domestic flows. The mutual fund industry, he said, has grown at a fast pace in the past few years, but it will become difficult to maintain that growth as the industry has reached a scale.

 

"I think sense will prevail once people realise they are not making returns. Mutual fund industry is no longer small and at this scale, it is not possible for the whole mutual fund industry to generate 5% alpha," Sharma said.

 

EARNINGS GROWTH

Sharma is confident that Nifty 50 companies will manage to grow their net profit by 10-12% annually in the next few years. He expects the cut in goods and services tax rates to boost consumption to an extent, banks to report better earnings ahead, and companies to benefit from the government front-loading its spending on capital expenditure.

 

Having said that, he is not yet sold on the idea that GST cuts will be a game changer for consumption. GST cuts are likely to have a positive impact on demand over two quarters, but it is too early to say if this will keep driving consumption beyond a year, he said.

 

"We'll need to see how much of this extra money goes into cutting middle class debt, creating corpus for bad days as compared to actual spending," he said. "The overwhelming mood in the nation at this point doesn't seem to be to spend a lot of money. It doesn't feel like we are in a very positive (or) optimistic kind of scenario, otherwise it would have shown up in various companies' results."  

 

LACK OF INNOVATION

Sharma said he is not concerned about economic growth for now, but is seeing signs that lack of innovation, quality jobs, and professionalism among employees may become an issue later. "For example, the GST cuts are not really a reform but a simple rationalisation. How will that spurt the next leg of innovation? We are taking small things and considering it very big."

 

He said when it comes to competitiveness, India's model of capitalism is closer to that of the US rather than Japan. Following the ways of the US is not the issue but the problem is the ideas of Indian companies are borrowed from the West and lack real innovation, he said. 

 

"When did you last see an Indian product which is not available anywhere globally? Why is America not afraid of putting 50% tariff on us? They can get this stuff from anywhere else," Sharma said. He even questioned Indian companies' diffidence towards investing in new technologies. "Infosys is spending INR 180 billion on buyback...why can't they buy an AI company with the money? They won't do it because there is no culture or push from the top."

 

This lack of innovation inadvertently leads to poor quality of jobs, he said. Several jobs are being created as delivery guys for retail platforms and while this may keep the young busy, it is not the best use of their time, he said.

 

"Free internet, delivery jobs are simply occupying young people's time, there won't be a revolution because of this," Sharma said. "I don't think there was a need to save 10 minutes of a country where the per capita income is $2,500."

 

Sharma sees a big risk that lack of innovation is likely to prevent India from breaking out of the middle class trap over the next two-three decades at least. "We are creating a generation which doesn't want to work and that is happening at all levels of society. Someday, it will catch up with us and when things turn, they won't have the skill to deal with it. We will have to see how sustainable this will be in 10 years from now," Sharma said.

 

CHINA INFLUENCE ON CAPEX

During the interview, Sharma spoke at length about China's influence on global supply and how it has changed the nature of capital expenditure in India. He said that in the past, projects used to largely benefit the domestic economy but now, with most manufacturing concentrated in China, a big part of the benefit is going to China.

 

He explained the influence of China using the example of the power sector. "Earlier, when companies invested in (a) thermal plant, it used to lead to several other investments like housing for people working at plants, locals setting up shops around the plant and so much more," he said. "Now if you look at capex in solar energy, it does not have the same effect on the economy. You can make a solar plant quicker, say in six months, because the whole panel comes from China...you don't have to even employ highly skilled labourers." And, of course, there is no ecosystem being built and there is no trickle-down effect, he said.

 

China is learning fast, he said. "They have beaten Tesla, created products at lower price points...and built DeepSeek," Sharma said.

 

CULTURAL SHIFT NEEDED

The culture in India needs to change for innovation and if it wants to replace China in the global supply chain, Sharma said. The government needs to make reforms in land and labour and improve the quality of education to push people to learn something different.

 

He said China realised in the 1970s that it needs to build its economy for the world to take it seriously. It took them decades to reach here and India, at this point, might be 50 years behind China on this, Sharma said.

 

"If we compare ourselves from 2001, we don't have much to show apart from 7% growth but China is a completely different country," Sharma said. He pointed out that China was the only economy that was able to deal with US tariff due to its manufacturing prowess, while India continues to face 50% tariff.

 

He acknowledged that the Indian government has realised the problem and has increased capital expenditure over the past few years. "But what is happening is that you are competing against somebody who has been creating a product at scale...India is tightening the screws on use of local things but it is a bit slower...," he said.  End

 

Edited by Avishek Dutta

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

 

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2025. All rights reserved.