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From Our CIO’s Desk

RBI’s Report Flags Indian Consumer’s Debt Trap

For the past year, we have warned that the Indian middle class is financing its lifestyle through a precarious reliance on debt. The RBI’s latest Financial Stability Report (FSR) has now validated these concerns, signalling that the “consumption story” is hitting a wall of systemic risk.

Saurabh Mukherjea

Founder & CIO

Three red flags from the report demand your attention:

Unsustainable Growth: Non-housing retail credit has tripled in just five years, an unprecedented surge in India’s financial history.
Credit Decay: 45% of borrowers are now “near prime” or “subprime,” with credit scores trending downward.
Widespread Stress: Even Tier-1 private banks and NBFCs are reporting rising slippages and write-offs.

These red flags are symptoms of a deeper structural imbalance. A growing friction between stagnant wages and soaring aspirations.

The Aspirational Gap

This surge in debt is fueled by a fundamental imbalance and the math simply doesn’t add up. White-collar job growth has collapsed from 11% to 3%, leaving salaries unable to keep pace with the rising costs of healthcare, education, and food.

Disturbingly, this shortfall isn’t leading to frugality, but to further leverage. Nearly 30% of personal loans are now taken for vacations. We are seeing a generation borrow to maintain an “influencer” lifestyle on a stagnating income base. This shift from necessity-based borrowing to vanity-based debt signals a precarious tipping point for the economy.

The Path Forward

Sustainable growth cannot be built on unsecured consumption. We believe the only viable path forward involves a return to disciplined financial planning and higher household savings. The RBI’s report is a systemic wake-up call and now the question is whether we will pay heed.

To understand the deeper economic implications of this credit surge, watch Saurabh’s full discussion with our economist, Nandita, here: https://youtu.be/vX4g_uTPrrw

Click here if you would like to read Saurabh’s blog.

Tej Shah
Portfolio Manager

Multi Asset Portfolio

Rules based portfolio with a basket of different asset classes built on your financial goals providing risk-adjusted returns.

Portfolio Outlook

We continue to keep a defensive posture with overweight in cash (through arbitrage funds) and underweight in Indian small cap equity allocation. We increased allocation to large cap equities in January.

What worked and what didn’t?

Strategy’s diversified positioning across five major asset classes chiefly, global equities, Cash, REITs/INVITs, Gold along with Indian equities, continues to work well. Gold, REIT/INVIT’s, cash and global equities outperformed domestic equities in January driving the relative outperformance.

Performance of the scheme (Figures in %)

Omkar Sawant
Portfolio Manager

MeritorQ Portfolio

Rules based Multicap strategy investing in relatively undervalued quality companies.

Portfolio Outlook

Post the portfolio rebalancing in December, weighted average free cash flow yield has increased to 2.2% while average return on capital of portfolio stocks remains higher than that of the benchmark. Portfolio remains positioned to weather uncertainty and benefit from possible earnings upgrades, with defensive allocation to large caps and REITs balanced by meaningful allocation in good quality small and midcap companies.

What worked and what didn’t?

Increased allocation to large caps has helped over last 12 months. Allocation to the three office REITs in the portfolio (effected in September-2025 rebalance) was a positive as well, even as overweight in small and midcaps and underweight in cyclical sectors like Metals and PSU banks detracted on relative performance.

Performance of the scheme (Figures in %)

Arindam Mandal
Head of Global Equities at Marcellus LLC

Global Compounders Portfolio

A gateway to investing in some of the best global companies from the Developed World.

Portfolio Outlook

January saw the GCP Portfolio return ~1.8% vs the S&P 500’s ~3.8% (in INR). Reported NAV performance was lower due to technical factors, including cash drag from the transition of select PMS accounts into the fund structure and the crystallisation of annual performance fees for variable fee clients. Adjusted for these, underlying portfolio performance was modestly stronger than headline numbers suggest.

January also marked early signs of market broadening, with large caps underperforming mid and small caps. As highlighted in our previous update, this remains our base case. In such an environment, cyclical segments could outperform the broader large cap index. While a few stock specific factors weighed on relative returns during the month, overall portfolio positioning remains aligned to a broadening market backdrop, and we continue to stay watchful as this rotation evolves.

What worked and what didn’t?

Semiconductor exposure through TSMC and ASML supported performance on the back of strong AI and memory sentiment. Cyclicals such as AMETEK and Caterpillar also did well as markets began pricing a trough in the industrial cycle. Whereas, S&P Global, Topicus, LVMH and UnitedHealth were the key detractors. Software and data names faced AI-related pressure, luxury demand remained soft, and managed care stocks reacted to Medicaid rate headwinds. Exposure here is being managed through position sizing.

Performance of the scheme (Figures in %)

Rakshit Ranjan
Founder & Portfolio Manager

Consistent Compounders Portfolio

Concentrated portfolio of heavily moated companies that can drive healthy earnings growth.

Portfolio Outlook

Over the longer term, we expect portfolio performance to be supported by healthy earnings growth driven by deeply moated businesses with prudent capital allocation run by good quality management teams. In the near term, we see two tailwinds for CCP constituents. Firstly, the recently announced GST rate cuts are likely to help the fundamentals of our holdings with high exposure to autos and B2C consumption. Secondly, We remain convinced that healthcare services are in the early innings of a 10-15 year structural rise in penetration. Our portfolio is heavily weighted towards organized players in hospitals, diagnostics, and insurance who are best positioned to capture this shift from unorganized to organized care. We expect “Quality” as a style factor to do well over the next few years. As broader economic growth moderates (from Nifty50’s 24% EPS CAGR over FY21-24 to mid-single digit growth over the last seven quarters), the gap between average companies and exceptional ones is likely to widen. We remain vigilant regarding one key risk – given the elevated valuations of the broader indices combined with weak earnings growth, sustained weakness of the broader market remains a possibility.

What worked and what didn’t?

In Q3 FY26, CCP portfolio constituents delivered weighted average YoY EBITDA growth of 19% and EPS (pre-exceptionals) growth of 17%. The portfolio weighted average ROCE in FY25 was 24%, with a 3-year average reinvestment rate (FY23-25) of 80%. Over the last 12 months, while Narayana, Eicher and Chola have been the biggest contributors to portfolio performance, Trent, Tube and CMS have been the biggest detractors.

Performance of the scheme (Figures in %)

Tej Shah
Portfolio Manager

Marcellus Curation Portfolio

Flexi-cap portfolio focused on investing in quality, well-managed Indian companies positioned to deliver healthy long-term growth.

Portfolio Outlook

In CY2025, MSCI India underperformed the MSCI Emerging Market Index by 31%, its steepest lag in over thirty years. This was driven by slowing corporate earnings and high valuations following the 2023-24 rally. Additionally, five consecutive years of FPI outflows led to a capital account deficit—the first since 2013—causing the Rupee to depreciate 5% against the USD and 19% against the Euro.

The BSE500 Index has now seen a 20-month time correction with zero returns since July 2024. While investors shifted to the safety of large-cap “value” stocks—led by a 53% surge in State Owned Banks—mid and small-caps faced significant pain, with median drawdowns of 33% over the past year. Our Portfolio lagged the index during this value rally. While we remain focused on long-term cash flow predictability, we recognize that the drivers of that predictability in India have evolved significantly in the post-pandemic era.

What worked and what didn’t?

In general, our exposure to healthcare and financials have worked well over the past year while our exposure to industrials have proven to be a drag. The top-5 performers in the last one year were Eicher, Cholamandalam Inv., Narayana Hrudayalaya, HDFC Bank and Bajaj Finserv; top 5 detractors in the same period were Trent, L&T Tech Services, CMS Info Systems, Clean Science and Samhi Hotels.

Performance of the scheme (Figures in %)

Tej Shah
Portfolio Manager

Keshav Binani
Co-Portfolio Manager

Kings of Capital

Our financial sector focused investment strategy with a portfolio of banks, NBFCs, life and general insurers, asset managers and brokers.

Portfolio Outlook

As CY25 ends, it is an appropriate time to reflect on the performance of the BFSI sector. At the start of the year, expectations were anchored around moderating loan growth, declining NIMs and concerns on asset quality. Contrary to these expectations, banks delivered resilient performance, with risks remaining largely manageable and product specific. This resulted in a strong sectoral outperformance during CY25, with Bank Nifty up ~17%, compared to ~7.5% for the BSE 500 and ~11.8% for the Nifty 50. Looking ahead, the earnings outlook for financial services companies appears to be improving, supported by a benign asset-quality environment and a gradual recovery in loan demand. However, risks persist from subdued deposit growth and the possibility of further policy rate cuts, which could pressure bank margins. In this context, we remain selective in our positioning and underweight large private sector banks. While we remain constructive on sector asset quality, growth is expected to be selective rather than broad-based, unlike the FY22–24 cycle. Our focus is on companies that faced asset-quality stress or growth slowdowns over the past 12–15 months and are now positioned for normalization. Additionally, recent corrections in select SMIDs have created pockets of value, which we are gradually incorporating into the portfolio.

What worked and what didn’t?

Over the last 12 months, top detractors in KCP were CMS Info Systems and Info Edge. The top contributors to the portfolio over the last 12 months have been Cholamandalam Finance and City Union Bank.

Performance of the scheme (Figures in %)

Ashvin Shetty
Portfolio Manager

Little Champs & Rising Giants

SMID-cap strategies that invests in companies with good corporate governance, capital allocation track record and strong sustainable competitive advantages.

Portfolio Outlook

The much-awaited removal of the elevated US tariffs on India came through in early February 2026. Furthermore, the tariff is now slated at 18% (lower than the 25% rate before the elevated tariffs came into effect). This, together with the EU India FTA concluded in late January 2026, significantly improves the outlook for our manufacturing exports-oriented portfolio stocks. On the flip side, however, there are emerging global uncertainties around the IT sector. Whilst we expect the impact to be relatively muted on our IT stocks due to reasonable valuations, small size (hence new opportunities outweighing disruptive impacts) and in some cases the nature of work itself (eg: ER&D work less likely to be disrupted), we continue to keep a close watch on the developments here. The portfolio earnings remain on the recovery path with average YoY net earnings growth of 14% in 3QFY26. The research team continues to work actively on expanding the investment coverage – giving us the ability to optimise portfolio earnings/valuation.

What worked and what didn’t?

Basis the last 3 months attribution ending on January 31, 2026 – the key contributors to the portfolio have been City Union Bank, Acutaas Chemicals, and Real Estate Investment Trust (Reit) stocks. On the other hand, the key detractors have been Tarsons (now exited), Clean Science and Galaxy Surfactants. As mentioned above, manufacturing exports-oriented stocks (amongst the underperformers till January 2026) have witnessed recovery since February 2026.

Performance of the scheme (Figures in %)

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Marcellus’ Portfolio Updates & Insights – February 2026

From Our CIO’s Desk

The Path Forward

Multi Asset Portfolio

MeritorQ Portfolio

Global Compounders Portfolio

Consistent Compounders Portfolio

Marcellus Curation Portfolio

Kings of Capital

Little Champs & Rising Giants

Marcellus' Portfolio Updates & Insights - January 2026