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Saurabh Mukherjea on valuations, quality bets, GST & Tariffs - in conversation with N Mahalakshmi

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  Published in Stocks and Investing on Monday, September 1st 2025 at 3:44 GMT by

Saurabh Mukherjea on Indian Market Valuations, Quality Bets & the GST Tariff Landscape

In a candid conversation with N. Mahalakshmi for Moneycontrol, former Chief Economist of The Economic Times Saurabh Mukherjea dives deep into the current pulse of Indian equities, the logic behind “quality bets” and how the Goods and Services Tax (GST) tariff framework is reshaping corporate strategy. The full discussion can be watched here: [ Mukherjea on Valuations, Quality Bets & GST Tariffs ].

1. The Current Valuation Landscape

Mukherjea opens by framing the present valuation picture as “comfortably elevated but still sensible.” He notes that the Indian equity market’s trailing twelve‑month (TTM) earnings yield sits around 12 %—a figure that sits in the mid‑range of global peers. Compared to pre‑pandemic highs, where the yield dipped to 9‑10 %, the current level reflects a market that has recovered from the COVID shock while also absorbing recent macro‑policy shifts.

Key Takeaway: Indian valuations are high, but they’re not at historic extremes. Investors should be comfortable with a modest earnings‑yield premium over the U.S. benchmark, given India’s growth potential.

The conversation also touches on sector‑specific valuations. Pharma and FMCG remain the “safe‑haven” baskets, with earnings yields of 8‑10 % owing to their defensive nature and resilient cash flows. In contrast, technology and infrastructure show higher multiples—14‑16 %—reflecting their growth expectations but also a heightened sensitivity to interest‑rate hikes.

Link for deeper insight: [ Sectoral Valuations in India ]

2. What Makes a “Quality Bet”?

When the topic shifts to quality bets, Mukherjea outlines a three‑fold framework:

Mukherjea stresses that investors should look beyond headline ROE and scrutinise the quality of earnings—i.e., the proportion that is “core” versus “non‑core.” Companies with a high “core earnings” ratio are less exposed to one‑off events and therefore offer a safer long‑term play.

Pro Tip: Use the free‑cash‑flow‑to‑equity metric as a quick gauge of a company’s real value‑creation capacity. (See our guide on FCF metrics: [ Understanding Free Cash Flow ])

3. GST Tariffs: From Implementation to Impact

A significant portion of the interview is dedicated to the GST, which has been in force since 2017. Mukherjea explains that GST’s evolution—from a confusing, multi‑circuit system to a streamlined tariff structure—has had a two‑fold impact:

1. Cost of Compliance – The initial rollout increased the administrative burden for small and medium enterprises (SMEs). Over time, the government introduced e‑filing, digitised GSTN, and a lower threshold for compliance.

2. Price Transmission – While the overall tax rate on most goods remains around 18 %, certain consumer staples and essential goods have been given reduced rates (5 % or 12 %) to ease inflationary pressures.

The conversation references a recent GST Tariff Review conducted in 2023, which lowered the tax on key food items—milk, dairy, and fresh produce—by 2‑4 %. This change was aimed at curbing the cost of living and stimulating domestic consumption.

Further Reading: [ GST Tariff Review 2023 ]

Mukherjea notes that while GST has improved the tax ecosystem’s predictability, it also requires firms to adopt better tax planning and cost‑control mechanisms to stay profitable. “The new normal is to build tax‑efficient operations as part of the core business model,” he says.

4. Macro‑Policy Context and Investor Sentiment

Toward the end, Mukherjea contextualises valuations and quality bets within a broader macro‑policy backdrop:

• Interest‑Rate Sensitivity – With the Reserve Bank of India tightening the repo rate to curb inflation, the cost of capital has risen. This tends to compress valuations, especially for high‑growth, high‑multiple sectors.
• Fiscal Deficit & Growth – India’s fiscal deficit sits around 5 % of GDP, and the government’s push for public‑sector investments (e.g., infrastructure, renewable energy) could boost growth prospects.
• Global Outlook – Rising global rates and potential supply‑chain disruptions are external risks that can affect Indian exports.

“Investors need to keep a close eye on both domestic policy moves and global macro‑economic shifts,” Mukherjea advises. “A quality bet today could become a risk tomorrow if the macro environment changes.”

5. Bottom Line for Investors

Mukherjea wraps up with a succinct investment mantra:

1. Assess Valuation – Compare earnings yields to global benchmarks; a 12‑13 % yield is reasonable for a high‑growth economy.
2. Identify Quality – Look for strong balance sheets, consistent earnings, and transparent governance.
3. Understand GST Impact – Companies with robust tax planning and lower compliance costs will outperform in the long run.
4. Stay Macro‑Aware – Monitor interest‑rate trajectories, fiscal policy, and global trade dynamics.

Pro Tip: Use the Moneycontrol “Company Profile” tool to quickly scan a company’s debt structure, earnings growth, and GST compliance metrics. (Link: [ Company Profile ])

In Summary

Saurabh Mukherjea’s conversation offers a multi‑dimensional view of the Indian equity market. Valuations are higher than a few years ago but still within a sensible range when benchmarked against global peers. Quality bets hinge on fundamental strength rather than headline numbers, and the GST tariff framework, while complex, has matured enough to influence corporate strategy significantly. For investors, the key is to weave valuation, quality, and macro‑policy analysis into a cohesive thesis that can weather both domestic and global turbulence.

The full interview provides deeper insights and data points for those wishing to dive into the specifics. Watch it here: [ Mukherjea on Valuations, Quality Bets & GST Tariffs ].