Marcellus' Portfolio Updates & Insights - October 2025

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From Our CIO’s Desk

India’s 5-layered Consumer Stimulus; More Needed

After a five-year flirtation with boosting public capex, the Government of India is now focusing on the main engine of India’s economic growth: Consumption. The last 6 months have seen the announcement of a 5-layered boost for domestic consumption including the keenly awaited GST cuts. Cumulatively, these stimuli added up to 1.8% of GDP and, in effect, they unwind the excess load imposed on the consumer since FY19. However, given the record levels of household debt and weak job creation (for white collar jobs) more rounds of stimulus are required to get consumption back on track.

Saurabh Mukherjea

Founder & CIO

After a bout of frenzied public capex, which hit Rs. 10 tn in FY24, the government is now shifting focus to boost consumption. This is a needed response to a slowdown caused by an increased tax burden, which cost households an extra 1.6% of GDP by FY25 as Income Tax collections rose to 3.8% of GDP and GST to 2.8%.

A 5-layered stimulus totaling Rs. 6.3 trillion (1.8% of GDP) has been announced to counter this. This includes Rs. 1 tn from income tax relief (for those earning <Rs. 12 lakhs), Rs. 2 tn from GST cuts, Rs. 0.7 tn from the gaming ban, Rs. 1 tn from F&O trading curbs, and Rs. 1.6 tn from repo rate cuts.

While this 1.8% stimulus offsets the recent 1.6% tax load, more is required. Specifically, given weak white-collar job creation and record household debt (now ~42% of GDP), another 100bps rate cut is needed to provide further relief.

Here’s Saurabh’s blog if you would like a deeper dive.

Arindam Mandal

Head of Global Equities

Global Compounders Portfolio

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

Portfolio Outlook

The portfolio rose ~1% in September vs ~3.6% for the S&P 500 and ~0.9% for the equal-weight index. Leadership was narrow, led by a few mega-caps and pockets of speculative, often unprofitable names at extreme valuations. We stayed valuation-disciplined and avoided the froth. We also refreshed our risk-management framework by removing the macro overlay, increasing the cadence of our style signals, and simplifying the process to be data first. The aim is faster adaptation and better outcomes through volatility.

We remain diversified across durable compounders rather than a single theme. Recent actions included trims in select software, exits and like-for-like swaps where visibility was stronger, and adds in aerospace (Safran, Airbus), healthcare distribution (McKesson), and high-return financials (JPMorgan). We will protect capital by avoiding stretched valuations, even if that means occasional lag. The goal is steady, through-cycle better compounding with lower drawdowns.

What worked and what didn’t?

What worked: TSMC and ASML, supported by resilient AI-related demand; our AI exposure via neutral ecosystem suppliers (TSMC, Amphenol) proved more balanced than owning the highest-beta beneficiaries.
What did not: Constellation Software and Topicus on leadership retirement headlines (health issues) and broader worries about software business models amid the AI narrative; Not owning a handful of mega-caps (e.g., Nvidia, Tesla, Oracle) were relative drags.

Performance of the scheme

Rakshit Ranjan

Founder & Portfolio Manager

Consistent Compounders Portfolio

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

Portfolio Outlook

From a macro-perspective, we see incremental tailwinds to our portfolio companies from the recently announced GST rate changes (high exposure to auto sector and B2C consumption-oriented businesses) and risks of incremental headwinds for IT services (small exposure in CCP). We expect healthcare services to see a structural rise in penetration over the next 10-15 years, and hence benefit businesses such as hospitals, diagnostics and insurance. Our recent position sizing changes reflect expected acceleration in EPS growth of companies such as Asian Paints and Astral and moderation in growth of lenders in our portfolio. Key risks to some of these changes: weakness in consumption and household incomes. Overall, we expect quality as a style factor to do well over the next few years, as few companies use their strengths to tide over an otherwise moderate growth in the broader economy. Key risk to these expectations remains a significant drawdown in the broader market due to elevated valuations and weak earnings growth of the benchmark indices. CCP’s approach towards portfolio concentration and absolute return orientation is well suited to such an environment.

What worked and what didn’t?

Over the last 12 months, top 3 detractors in CCP have been Tube, Trent and Asian Paints. We have increased allocations in two of these stocks recently – an attempt to benefit from peak pessimism in consensus expectations. The top 3 contributors to the portfolio over the last 12 months have been Narayana, HDFC Bank and Eicher. We have trimmed exposures in these recently to benefit from rebalancing opportunities elsewhere in the portfolio.

Performance of the scheme

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

Given the year long time correction for the broader markets, we are gradually seeing growth companies being available at more reasonable valuations. While our approach continues to be bottom-up, we have reflected our view on stretched mid and small cap valuations by allocating nearly two-thirds of the portfolio to large cap names. In pockets, we are now seeing stock prices baking in more realistic expectations of the future and we are therefore tilting the portfolio towards more growth names vs being more defensive so far. We have a positive outlook on healthcare, private sector financials and select industrial names – we believe our investee companies in these sectors are well positioned to deliver market share gains and profitable growth. We expect fundamentals and growth prospects for our investee companies in the financial services and consumption sector to improve in the second half of the year as the effect of GST cuts, CRR cuts and income tax rate reduction starts to become visible. The risk to our above thesis could be adverse regulation which can curb supernormal profitability of well-run players. On the other hand, we have consciously avoided exposure to energy, utilities, and real estate, given the difficulty in identifying businesses within these sectors that can consistently generate healthy RoCEs. While valuations across the market remain elevated, the moderation seen over the past year is a healthy development. We view this as creating an attractive setup for quality companies.

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 (Tube, Ahluwalia) and building material names such as Asian Paints and Astral have proven to be a drag.

Performance of the scheme

Tej Shah

Portfolio Manager

Keshav Binani

Co-Portfolio Manager

Kings of Capital

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

Portfolio Outlook

The earnings outlook for financial services companies is improving, driven by (a) a strengthening credit cycle, (b) rising demand for auto, gold, and personal loans, and (c) the expected improvement in bank margins from Q3FY26 onwards. In this context, we believe that with the time correction over the past year and the anticipated acceleration in earnings, KCP is well positioned. We are increasingly focusing on companies that have undergone a challenging asset quality cycle or a slowdown in growth due to macro headwinds over the past 12–15 months. We believe several such companies are well poised for normalization in asset quality. Accordingly, we have reflected this view in our position sizing and continue to look for similar opportunities to anchor the portfolio in this direction, provided we gain further confidence in the ongoing recovery. Our earlier decision to raise cash in the portfolio has proven prudent, as consensus estimates for many of our holdings have been revised downward over the past 3-6 months.

What worked and what didn’t?

Over the last 12 months, top 3 detractors in KCP were CMS Info Systems, Info Edge and ICICI Lombard. The top 3 contributors to the portfolio over the last 12 months have been HDFC Bank, Prudent Corporate and Kotak Bank. We have trimmed exposure in Prudent to benefit from rebalancing opportunities elsewhere in the portfolio.

Performance of the scheme

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

We see risks to the 2QFY26 earnings to some of the portfolio stocks particularly the export-oriented companies on account of the additional USA tariffs coming into force. Our strategy of building cash position in both the portfolios have helped limit the impact of drawdowns we have seen in the share prices of export-oriented and IT companies. Post the recent correction, we see opportunities to deploy some part of the cash in names which have seen sharp corrections but where we expect the impact on the fundamentals to be relatively limited.

What worked and what didn’t?

Most of the LCP and RGP portfolio names will report their 2QFY26 results over the coming 4 weeks and hence a clearer picture will emergence at the end of the 2QFY26 earnings season. However as mentioned earlier – we expect some pressure on the earnings of export-oriented companies due to elevated tariffs coming into play since late August 2025. Barring these pockets, we expect most other portfolio companies to continue to report resilient earnings performance. We continue to monitor the economic environment closely to make appropriate adjustments in the portfolios. Significant expansion in our small-mid cap research coverage will also help in this regard.

Performance of the scheme

The above material is neither investment research, nor investment advice. Marcellus Investment Managers Private Limited (“Marcellus”) is regulated by the International Financial Service Centre Authority (Fund Management) Regulations, 2025 (earlier 2022) (“IFSCA”) as Fund Management Entity – Non retail and is also regulated by the Securities and Exchange Board of India (“SEBI”) rendering Portfolio Management Services. Marcellus is also registered with US Securities and Exchange Commission (“US SEC”) as an Investment Advisor. No content of this publication including the performance related information is verified by SEBI, IFSCA or US SEC. If any recipient or reader of this material is based outside India or US, please note that Marcellus may not be regulated in such jurisdiction and this material is not a solicitation to use Marcellus’s services. This communication is confidential and privileged and is directed to and for the use of the addressee only. The recipient, if not the addressee, should not use this material if erroneously received, and access and use of this material in any manner by anyone.

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