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From Our CIO’s Desk

Is Quality Investing Making a Comeback in India?

Over the last five years (FY21–25), high-quality businesses—companies with clean accounting, strong management, and high returns on capital—lagged the broader market. The reason was simple: a post-COVID surge in household “revenge spending” and government infrastructure capex created a rising tide that lifted all boats.

Saurabh Mukherjea

Founder & CIO

Investors stopped paying a premium for market leaders and chased cheaper, lower-quality “Value” stocks instead. In FY26, this distortion hit an extreme: Value stocks jumped 14%, while Quality stocks fell 3%.

Today, that temporary tide has turned.

Why Quality is Back in Favor

Exhausted Household Savings: Post-COVID savings buffers are spent, with net financial savings near 50-year lows (~5% of GDP) and debt per borrower up 23%. Households can no longer rely on leverage to fund lifestyle spending.

Slowing Government Capex: Central infrastructure spending growth is halving from >20% to ~10%. Orders for lower-quality construction contractors and state-owned enterprises are drying up, deflating their stock prices.

Historic Valuation Discount: Five years ago, top Quality stocks traded at double the valuation multiples of average stocks. That premium has now compressed to multi-year lows, offering world-class compounders at bargain prices.

Exhibit 1: The Valuation Gap Between High and Low Quality Has Compressed

Source: Marcellus Investment Managers using data from Bloomberg

Foreign Investor Capital Return: Global capital avoids debt-heavy or governance-weak firms in favor of transparent Quality franchises. Last year triggered a classic “double-whammy”—a weakening rupee combined with Indian equities trailing Emerging Markets. In all 5 previous instances over the past 25 years (including 2008 and 2020), India outperformed EM the following year by an average of +19% as foreign flows returned to Quality.

What Could Delay This Revival?

Three developments could temporarily slow this rotation:
• An unexpected, broad-based economic boom lifting weak companies again.
• A global liquidity flood driving speculative momentum trading.
• Domestic funds continuing to chase cheap cyclical stocks.

We believe the odds are heavily stacked against these risks persisting.

What This Means for Your Capital

Quality fell out of favor not because fundamentals deteriorated, but because a temporary economic wave masked weaker businesses. As overall growth becomes scarce, true business quality is scarce and valuable again.

Consistent Compounders Portfolio (CCP): Rebounding strongly as broader economic growth slows, highlighting the scarcity value of steady compounding.

Kings of Capital Portfolio (KCP): Our financial portfolio continues posting strong earnings (18% EPS growth in Q4FY26) while trading at very attractive multiples (18x P/E).
With the multi-year headwind against Quality now broken, we are starting to see a sustained performance recovery.

For a detailed breakdown read my full analysis by clicking here.

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

The strategy’s diversified positioning across five major asset classes chiefly, global equities, Cash, REITs, INVITs, Gold along with Indian equities, is expected to help investors navigate through period of heightened uncertainty going ahead.

What worked and what didn’t?

Allocation to Global funds and domestic Value style drove most of the relative underperformance during the month partially offset by allocations to Indian Small-midcap and Quality style.

Performance of the scheme (Figures in %)

Source: Marcellus Investment Managers; Marcellus Performance Data shown is net of fixed fees and expenses charged till 30th June 2026 and is net of Performance fees charged for client accounts, whose account anniversary / performance calculation date falls upto the last date of this performance period; Returns more than 1-Year are annualized; other time period returns are absolute. For relative performance of particular Investment Approach to other Portfolio Managers within the selected strategy, please refer to https://www.apmiindia.org/apmi/welcomeiaperformance.htm?action=PMSmenu. The calculation or presentation of performance results in this publication has NOT been approved or reviewed by the SEC, SEBI or any other regulatory authority.

Vansh Gandhi
Portfolio Manager

MeritorQ Portfolio

Rules based Multicap strategy investing in relatively undervalued quality companies.

Portfolio Outlook

Portfolio remains positioned to weather uncertainty and benefit from possible earnings upgrades, with defensive allocation to large caps balanced by meaningful allocation in good quality small and midcap companies.

What worked and what didn’t?

Relative to the benchmark, the strategy’s higher allocation to small cap and healthcare sector and underweight in PSU and oil and gas stocks contributed to relative outperformance in June.

Performance of the scheme (Figures in %)

Source: Marcellus Investment Managers; Marcellus Performance Data shown is net of fixed fees and expenses charged till 31st March 2026 and is net of Performance fees charged for client accounts, whose account anniversary / performance calculation date falls upto the last date of this performance period; Returns more than 1-Year are annualized; other time period returns are absolute. For relative performance of particular Investment Approach to other Portfolio Managers within the selected strategy, please refer to https://www.apmiindia.org/apmi/welcomeiaperformance.htm?action=PMSmenu. The calculation or presentation of performance results in this publication has NOT been approved or reviewed by the SEC, SEBI or any other regulatory authority.

Arindam Mandal
Head of Global Equities
Marcellus LLC

Global Compounders Portfolio

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

Portfolio Outlook

July was a volatile month beneath the surface, even if this was less visible at the index level. Parts of the semiconductor complex, particularly memory and other bottleneck trades, sold off sharply as expectations began to reset.

At the same time, strength in larger technology names such as Apple, Nvidia and Broadcom cushioned the broader indices. Oil prices also moved higher during the month, adding another source of volatility.

The portfolio lagged the market modestly, but we have broadly stayed the course. We continue to prefer a balanced portfolio across industrials, aerospace, financials, consumer and defensive businesses, alongside selective exposure to technology and AI. Broader portfolio earnings compounding at mid teens + CAGR. July’s volatility reinforced our view that expectations and positioning matter, even within strong secular themes.

What worked and what didn’t?

What worked

Cintas had another strong earnings print and significantly outperformed during the month. McKesson also performed well, reflecting the resilience of its earnings profile.

What did not work

Caterpillar was among the weaker contributors. While its core exposure remains construction, mining and infrastructure, parts of the business are increasingly linked to the AI ecosystem through power generation and data-center demand, leaving it exposed to the broader unwind in AI-adjacent trades.

Performance of the scheme (Figures in %)

Source: Marcellus performance data is shown is in INR, gross of taxes and net of fees & expenses charged till end of last month on client account. Performance fees are charged annually in December. Since Inception returns are annualized. Marcellus’ GCP USD returns are converted into INR using USD:INR exchange rate from RBI – https://www.rbi.org.in/scripts/ReferenceRateArchive.aspx
Note: * Since Inception performance calculated from 31st Oct 2022. The inception date is 31st October 2022, being the next business day after the account got funded on 28th October 2022. S&P 500 net total return is calculated by considering both capital appreciation and dividend payouts. The calculation or presentation of performance results in this publication has NOT been approved or reviewed by the IFSCA or US SEC. Performance is the combined performance of RI and NRI strategies.

Rakshit Ranjan
Founder & Portfolio Manager

Consistent Compounders Portfolio

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

Portfolio Outlook

In an uncertain macroeconomic environment shaped by AI disruption and shifting global geopolitics, CCP has evolved significantly. While maintaining a concentrated portfolio focused on quality businesses, we have diversified our top holdings across uncorrelated sectors such as healthcare, internet, export-led manufacturing.

This deliberate shift away from our historical reliance on large-cap consumption, financials and IT services helps mitigate AI related risks to jobs and domestic growth. Furthermore, allocations have been increased towards companies with higher earnings growth driven by enterprising capital allocation and valuation re-rating potential. CCP remains a concentrated strategy with over 40% of the portfolio allocated to the top-5 positions. Total number of stocks currently in the portfolio is 20. Stock selection is done basis the quality of the underlying businesses. Expected earnings growth over the next 3-5 years across all portfolio constituents is mid-teens or higher. Portfolio’s weighted average P/E (FY28) is 33x and valuation changes are expected to contribute positively towards portfolio performance. During FY26, the portfolio constituents delivered acceleration in weighted average EPS growth from 10% YoY in Q1FY26 to 14% YoY in 2QFY26, 17% YoY in 3QFY26 and 22% YoY in 4QFY26.

What worked and what didn’t?

Over the last 12 months, while Eicher, CarTrade, Divis Labs, Dr. Lal and Asian Paints have been the biggest contributors to portfolio performance, CMS and HDFC Bank have been the biggest detractors.

Performance of the scheme (Figures in %)

Source: Marcellus Investment Managers; Marcellus Performance Data shown is net of fixed fees and expenses charged till 30th June 2026 and is net of Performance fees charged for client accounts, whose account anniversary / performance calculation date falls upto the last date of this performance period; Returns more than 1-Year are annualized; other time period returns are absolute. For relative performance of particular Investment Approach to other Portfolio Managers within the selected strategy, please refer https://www.apmiindia.org/apmi/welcomeiaperformance.htm?action=PMSmenu. The calculation or presentation of performance results in this publication has NOT been approved or reviewed by the SEC, SEBI or any other regulatory authority.

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

Momentum in the financial sector remains healthy, with non-food credit growth accelerating to ~18% YoY (as of Jun’26) and deposit growth improving to ~13% YoY. [SB4.1][PV4.2]Credit growth has been supported by strong industrial lending (+21% YoY), driven by higher working capital demand and a shift in borrowing from the bond market to banks. The recently launched FCNR(B) deposit scheme has garnered ~US$37bn (as of Jul’26), indicating Street expectations are likely to be met. Meanwhile, cooling crude oil prices and lower 10-year G-Sec yields are supportive of funding costs for NBFCs. Overall, the operating environment for banks and NBFCs has improved materially.

Q1’27 results indicate asset quality continues to improve across most lending segments. However, banks are witnessing margin moderation, driven by competitive intensity and an evolving product mix, with a higher share of lower-yielding corporate loans. Against this backdrop, we have increased allocations to businesses where the softer asset quality cycle has largely played out, and earnings are entering a recovery phase. KCP continues to trade at attractive valuations of ~18x 1-yr forward consensus earnings, near the lower end of its historical range. Key risks include a sharp slowdown in domestic economic activity and a meaningful rise in global interest rates.

What worked and what didn’t?

Over the last 12 months, top detractors in KCP were CMS Info Systems and HDFC Bank. The top contributors to the portfolio over the last 12 months have been Cholamandalam Investment, CreditAccess Grameen and Nuvama Wealth.

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 and competitive advantages.

Portfolio Outlook

About 75% of the LCP and RGP portfolio companies have reported their 1QFY27 results so far. The median revenue and earnings growth of these companies come to about 15-20%.

This is slightly better than our expectations at the beginning of the financial year, due to headwinds (around supply chain, raw material price inflation, etc.) emanating from the Middle East conflict. Generally, companies have managed to offset gross margin headwinds through operating leverage and cost controls. The Middle East situation continues to be volatile, and against this backdrop we continue to adopt a strategy of: (i) being disciplined around valuation; and (ii) assessing the impact on earnings of the portfolio companies. Our disciplined use of cash helps cushion drawdowns and lets us deploy opportunistically into corrections. Beyond the near term, manufacturing exporters — now about 45% of the portfolio — position us for India’s export opportunity, aided by a competitive rupee and the recently concluded FTAs. Reviving earnings, resilient construction, and reasonable valuations leave both the LCP and RGP portfolios well-placed.

What worked and what didn’t?

On a three-month attribution basis (ending July 31, 2026), the key detractors were Go Digit (weak 1QFY27 and concerns around third-party insurance cover), Natco Pharma (weak 4QFY26 results; unwinding of Revlimid sales) and Control Print (weak 1QFY27). The top contributors were textile names Stylam Industries, Pearl Global (driven by healthy 1QFY27 results) and Caplin Point (strong recovery post the fall in the March 2026 quarter).

Performance of the scheme (Figures in %)

Performance data shown is net of fixed fees and expenses charged till 30th June 2026 and is net of annual performance fees (except for Little Champs Portfolio) charged for client accounts whose account anniversary/performance calculation date falls upto the last date of this performance period. For Little Champs Portfolio, performances fees are charged on cumulative gains at the third anniversary of the respective client account, the effect of the same has been incorporated for client accounts whose third account anniversary falls upto the last date of this performance period. Returns more than 1-Year are annualized; other time period returns are absolute. For relative performance of particular Investment Approach to other Portfolio Managers within the selected strategy, please refer to https://www.apmiindia.org/apmi/welcomeiaperformance.htm?action=PMSmenu. The calculation or presentation of performance results in this publication has NOT been approved or reviewed by the SEC, SEBI or any other regulatory authority

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Marcellus Investment Managers Private Limited (“Marcellus”) is regulated by SEBI to act as a Portfolio Manager and Investment Manager to AIF. Marcellus is regulated by the IFSCA as a Fund Management Entity – Retail to render investment management services. Marcellus is also registered with the US Securities and Exchange Commission (“US SEC”) as an Investment Advisor. Marcellus International Investment Managers LLC (“Marcellus LLC”) is a wholly owned subsidiary of Marcellus, based in the USA. No content of this publication, including performance-related information, is verified by SEBI, IFSCA, or the US SEC
Global Compounders Portfolio (GCP) is a scheme launched out of GIFT city
If the recipient is based outside India or the US, Marcellus may not be regulated in such jurisdiction, and this material is not a solicitation to use Marcellus’s services.
This communication is confidential, privileged, and intended solely for the addressee. If you are not the intended recipient, any use or access is prohibited; please notify the sender immediately. This material contains proprietary information and requires prior written consent from Marcellus before reproduction in any form.
Data, examples, and forward‑looking statements are based on publicly available sources and may include assumptions. Past performance is not indicative of future results. Actual results may differ materially due to market risks, economic conditions, uncertainties and inflation; there is no assurance that investment objectives will be achieved.
Recipients are solely responsible for their actions and are urged to read the Disclosure Document, Form ADV, and Form CRS, and consult their own legal/tax advisors before investing. Marcellus, its directors, and employees shall not be liable for any loss or damage (direct, indirect, punitive, or consequential) arising from the use of this material.
Stocks described herein are for illustration purposes only and are not recommendations. As these stocks may form part of the portfolios, Marcellus, its clients, employees, and their immediate relatives may have interests or stakes in them.
As per SEBI Master Circular dated June 07, 2024, clients have an option to be on-boarded directly by the Portfolio Manager without intermediation of persons engaged in distribution services.

Regards, Team Marcellus

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Marcellus Portfolio Updates & Insights – August 2026

From Our CIO’s Desk

Multi Asset Portfolio

MeritorQ Portfolio

Global Compounders Portfolio

Consistent Compounders Portfolio

Kings of Capital

Little Champs & Rising Giants

Global Compounders: Why have we underperformed the S&P500 in 2026?