Portfolio Performance and Update on Fundamentals – April 2025

Note: For all strategies except GCP, Performance data shown is net of fixed fees and expenses charged till March 31^st, 2025 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. Since, 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. Performance data is not verified either by Securities and Exchange Board of India, IFSCA or U.S. Securities and Exchange Commission.
For GCP, performance data is shown gross of taxes and net of fees & expenses charged till end of last month on client account. Returns more than 1 year are annualized. Performance is the combined performance of our RI and NRI strategies. GCP USD returns are converted into INR using exchange rate published by RBI. Source:  https://www.rbi.org.in/scripts/ReferenceRateArchive.aspx
*For relative performance of particular Investment Approach to other Portfolio Managers within the selected strategy, please refer https://www.apmiindia.org/apmi/WSIAConsolidateReport.htm?action=showReportMenu Under PMS Provider Name please select Marcellus Investment Managers Private Limited and select your Investment Approach Name for viewing the stated disclosure.
Note: APMI provides performance data of Portfolio Managers managing domestic strategies only. Hence, GCP is excluded.

Consistent Compounders Portfolio (CCP)

Businesses and equity markets are going through a period of heightened volatility due to the uncertainty around the implication of ongoing global tariff wars and domestic macro factors like weakening consumption demand, slowing government capex and no significant rise in private capex. Here is our perspective on how CCP portfolio is positioned in the current environment:

1. Limited direct exposure to global trade in CCP : On a weighted average basis, CCP portfolio has approx..20% of its profits coming from businesses carried out outside India – including export led businesses such as Divis and HCL Tech, and Cayman Islands based business of Narayana Hrudayalaya. Of this exposure to businesses carried outside India, less than half is carried out with the US, hence only a small direct exposure to US exports at a portfolio level. Moreover, there are several offsetting factors at play while considering the implications on this non-India business exposure of our portfolio companies, such as: a) pricing power of companies such as Divis in their API and CDMO exports that are inputs for essential drugs globally, including the US; and b) lack of any direct exposure to tariff wars for healthcare offered by Narayana to the population of Cayman Islands (NH is one of the largest allocations in CCP and half of its consolidated profits are generated in Cayman Islands).
2. ‘Quality’ is likely to outperform vs the broader market in a difficult external environment : Nifty50’s EPS CAGR over FY21-24 was a staggering 24.3% (Source: Avendus Spark) – a cyclically high period for the market. This supported Nifty50’s Index performance of 15.0% over the same period. With India’s nominal GDP growth rate hovering around the 10-12% mark, fundamentals of the broader stock market (and hence of the Nifty50 Index as a benchmark) are not likely to be more than 2-3% points higher than the economic growth rate over the long term. Hence, after delivering an EPS CAGR of 24.3% over FY21-24, we expect mean reversion for the Nifty50’s EPS growth in future. Moreover, unlike FY21-24 which was marked by cyclical tailwinds such as strong government capex driving a broad-based and healthy economic growth, over the next 12-24 months, businesses in general will face macro headwinds, both from global as well as domestic factors. In this backdrop, we expect fundamental moats and capital allocation of high quality businesses to drive resilience, superior earnings growth and capital allocation opportunities. We continue to remain quality oriented and absolute return oriented – hence we will continue to avoid exposures to certain sectors which don’t meet our stock selection criteria, even if they are a meaningful part of the broader benchmark indices and/or might generate healthy share price returns in the short term for the index. This approach we believe is best placed to navigate well through the ongoing difficult external environment.
3. CCP has delivered mid-teens earnings growth in the first nine months of FY25 and the changes made the portfolio in 2024 have helped further enhance the portfolio’s expected EPS CAGR: The table below highlights how the EPS growth of our current portfolio has been in FY25 so far – healthy and consistent despite a weak external macro environment (reflected in the Nifty50’s weak EPS growth during FY25).

Global Compounders (GCP)

March proved to be a highly eventful month. The continuous stream of headlines, which had started to taper off by the third week of February, returned in full force. Speculation around tariff measures involving Mexico, Canada, Europe, and China dominated discussions. Adding to market anxiety, major companies like Walmart issued weak forward guidance, triggering some panic. As a result, the S&P 500 ended March in the red, retracting approximately 6% from its peak. However, the beginning of April brought even more turbulence. On April 2, dubbed “Liberation Day,” initial “reciprocal” tariffs were announced. These tariffs were far harsher than anticipated, leading to a sharp negative market reaction.

1. Tariffs could increase raw material costs, negatively impacting the earnings per share (EPS) estimates of many companies and reflecting broadly at the S&P 500 index level.
2. Rising inflation could hurt demand and increase the cost of capital.
3. The interplay of these factors could potentially lead to a recession—though this is not our base case scenario. While we recognize that consumer sentiment remains subdued, the data surrounding leverage levels for both consumers and large corporations suggests a more stable backdrop, mitigating the risk of a downward spiral. While consumption may not be surging, there is no compelling evidence to indicate that it is collapsing either.

Little Champs portfolio (LCP) and Rising Giants portfolio (RGP)

For 3QFY25, the Little Champs PMS portfolio recorded allocation weighted earnings growth of 17% YoY. This is in addition to the 22% YoY growth witnessed in 2QFY25 earnings. The key drivers of the double-digit earnings growth in the LCP portfolio in the recent quarters have been:

1. Most Exports oriented companies in LCP portfolio has recorded double-digit growth in 3QFY25; and
2. Rural oriented stocks (such as Dodla Dairy, Godrej Agrovet) have done well in terms of earnings growth.

The above factors have also contributed to the Rising Giants PMS portfolio recorded allocation weighted earnings growth of 12% YoY. This is in addition to the 18% YoY growth witnessed in 2QFY25 earnings.

In contrast, there has been a decisive slowdown in the broader corporate earnings with average YoY PAT growth for BSE500 companies moderating to single digits from 1QFY25. Infact the deceleration in the earnings growth has been much sharper for the smaller cap stocks within BSE 500 – with average double digit YoY PAT declines in 251^st to 500^thranked market cap companies within BSE500.

Given this persistent weakness in the index constituents’ earnings over the last few quarters, we have seen consensus downgrading their estimates for many of the BSE500 companies. Here too, the estimates downgrades have been sharper for the smaller cap stocks (251^st – 500^thmarket cap) within the BSE 500. We believe the corporate earnings slowdown cycles which seem to have kicked off in the last 2 quarters are likely to last for some time now. In this context, the 30% YoY earnings growth (Source: Bloomberg consensus estimates)for the smaller cap companies for FY26E built in by consensus look clearly at risk amidst the slowdown in domestic consumption and uncertainties around the global trade.