Mean Reversion: Universal Truth or Human Delusion?
The concept of ‘mean reversion’ is part of both, our everyday life as well as investing. However, inadequate understanding of the ‘mean’ leads to several mistakes in the application of this concept. When it comes to equities, over the long run share prices revert to their fundamentals and hence, clarity of thought around fundamental strengths […]
Risk Minimisation is Central to Making Returns in Small Caps
An analysis of BSE Smallcap’s performance over CY10-19 indicates that sharper falls (drawdowns) during market downturns and higher frequency of such falls are key reasons for its relative underperformance vs Nifty and BSE500. Therefore, the need to protect capital in a downturn is equally, if not more, important than chasing returns. Put simply, compounding from […]
CCPs avoid price hikes to strengthen pricing power
Most firms hike product prices to offset the impact of inflation in raw material costs and operating expenses. However, several firms in Marcellus’ CCP Portfolio – e.g. Asian Paints, Relaxo Footwears, Abbott India, Dr. Lal Pathlabs – have historically avoided hiking product prices meaningfully. These companies focus on deriving incremental operating efficiencies, thereby negating the […]
Little Champs Punch Hard When It Matters
The historical underperformance over extended periods (2005-19 and 2005-17) of the BSE SmallCap index relative to the Nifty/BSE500 despite higher volatility/drawdowns highlights that the odds are stacked against small cap investors unless they invest in clean well-run small cap companies. We follow a robust investment process combining our quantitative frameworks and qualitative diligence to shortlist […]
Enduring Greatness in a Disrupted World
The frequency of disruptions faced by businesses has been rising over the past three decades. While most of these disruptions have been around technology, an event like Covid-19 will also be added to this list. While such events can potentially topple market leaders, Consistent Compounders use these events to disrupt their competitors. Key characteristics which […]
Strength & Resilience in Difficult Times
We see limited impact of COVID-19 on Little Champs’ fundamentals beyond the short-term business disruptions given: (i) their strong balance sheets will help them navigate the near-term stress much better than leveraged peers; and (ii) export oriented portfolio companies’ exposure is mostly in essential products (pharma, agro, food) or replacement markets rendering immunity from a […]
Consistent Compounders fall less and recover sooner and sharper
In FY20, Marcellus’ CCP PMS has delivered healthy absolute returns (+7.6% vs -25.0% for Nifty50 Total Return Index) alongside resilience during the recent stock market correction (since 1st Jan 2020: -12.9% for Marcellus CCP vs -29.1% for Nifty50 TRI). Beyond the period of business disruption from the ongoing lockdown, fundamentals of Marcellus’ CCP companies are […]
The Trinity of Higher ROCE, High Reinvestment and High Growth
In our February 2020 newsletter we had highlighted the 22% rally in the BSE Smallcap index from August 2019-end to early February 2020. Since then the BSE Smallcap Index is down 10%. As in February 2020 when investors seemed to be turning euphoric and today when they are turning bearish, we advocate buying clean & dominant franchises […]
CCP’s performance in FY20 fully supported by earnings growth
The performance of Marcellus’ CCP portfolio over the past 12 months has been fully supported by fundamentals. The CCP stocks have seen more than 30% YoY growth in profits during 3QFY20 and 9MFY20 vs 28% portfolio performance since 1st April 2019. In fact, CCP stocks have seen more than 20% annualized growth in profits over […]
Quality Trumps “Cheap” Valuations Comprehensively
After falling by about 39% from its January 2018 peak to its August 2019 trough, the BSE Smallcap index has since returned 22%. This rebound has been fairly broad-based with >70% of the BSE Smallcap stocks giving positive returns. However, this rally does not seem to be backed by any meaningful improvement in the underlying macros and […]
Prudent Capital Allocation is Critical for Consistent Compounding
The most sustainable way for a firm to compound profits over the longer term, is to sustain high ROCE alongside a high rate of capital reinvestment. However, such businesses face the challenge of consistently finding avenues for incremental capital redeployment in areas which deliver high ROCE. Some of the most common capital allocation mistakes made […]
Introducing Little Champs – Marcellus’ Small Cap PMS
Given that each year 60 companies enter the BSE500, there are indeed strong economic drivers which help well run small firms explode into prominence. From an investors’ viewpoint, in the three-year run-up to entering the BSE500, new entrants outperform the index by a CAGR of 40%, indicating significant return opportunity before these stocks are discovered […]
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