Markets continue to ignore impending risks: Pramod Gubbi of Marcellus

Markets have been anything but discerning, ignoring even the actual earnings slowdown, which is now well into its sixth quarter, says Pramod Gubbi, cofounder at Marcellus Investment Managers, in an email interview with Puneet Wadhwa. Edited excerpts: 

How are the markets interpreting recent policy developments, especially on the tariff front? 

S&P Global Ratings’ upgrade reflects long-term stability, but investors had already priced it in, given the narrow India-US yield gap. Tariffs are negative, though India is less export-reliant than other emerging markets. Hopes of India emerging as a manufacturing hub are therefore tempered. Goods and services tax cuts are positive, offering a boost to consumption — our key growth driver that has slowed recently. 

That said, the markets have been anything but discerning, ignoring even the actual earnings slowdown, which is now well into its sixth quarter. The argument that markets are forward-looking falls short, as they continue to ignore impending risks. 

The incremental buyer in the market is primarily the retail investor — either directly or via mutual funds (MFs) — which makes the market even less reflective of these events in reality. 

Can tough market conditions trigger a consolidation phase for the broking and wealth management industry? 

Setting aside the impact of futures and options regulatory changes for brokers, the environment remains buoyant for all capital market players. Wealth management, in particular, is enjoying structural tailwinds, with promoters selling into these valuations and creating more wealth to be managed.

 

An inevitable consolidation phase will likely be triggered by a meaningful market correction, when promoter stake sales abate. Along with the mark-to-market drag on assets under management, fees will come under pressure. The survivors will likely be those who have built unique propositions for their clients, with revenue models and RM incentives aligned to client interests.

 

Do you think the days of buying stocks and holding them long-term are over?

 

Yes, attention spans are shortening. But instant gratification isn’t new — it has always been a common trait. Patience and delayed gratification remain rare virtues. Some are born with it. Some learn the hard way. Most don’t. So, I don’t think buying great businesses at reasonable valuations and holding them long-term will ever go out of favour, as long as the underlying greatness persists, regardless of the environment.

 

Market uncertainties are nothing new. By definition, the future is always uncertain. Yes, some long-held rules of engagement from a geopolitical perspective have been broken, making it feel more uncertain than ever. But investors will demand a higher premium, and thus lower valuations. The paradox: despite these uncertainties, the Indian market has held up thanks to strong inflows into domestic MFs.

 

Most of Marcellus’ offerings — Little Champs, Consistent Compounders, and Kings of Capital — have failed to beat the S&P BSE 500 TR and Nifty 50 TR since inception. What went wrong, and what steps are being taken to course-correct?

 

As Marcellus completes seven years, we’ve seen three phases in our journey. The first phase lasted a little over three years, during which our funds outperformed their respective benchmarks by over 10 percentage points. The second phase was triggered by the Russia-Ukraine war, resulting inflation, and rate hikes, which caused massive underperformance.

 

While a rising rate environment isn’t ideal for quality investing, it is expected over a market cycle. Where we went wrong was in not recognising the regime change in the markets, and thus staying invested in what, in hindsight, were richly valued — even if quality — businesses.

 

New talent joining the firm to launch our Global Compounders and MeritorQ PMS (our factor-based fund) has performed exceptionally well over the past three years. Importantly, they have added value to our existing offerings by introducing capabilities that address past shortcomings. With these enhancements, our funds have begun to recover.

 

Kings of Capital and Little Champs have outperformed their benchmarks over the past year. Consistent Compounders is also on a recovery path. Indeed, we believe the current environment is increasingly conducive to quality investing. 

Steady hands in shaky markets

 

Wealth management still thrives: Promoter sales and structural tailwinds keep money moving

  Consolidation ahead: Market corrections favour firms with unique client offerings and aligned RM incentives

  Long-term investing isn’t dead: Great businesses at fair valuations still pay off

  Market uncertainty is the norm: Higher premiums, lower valuations — but domestic fund inflows keep the market afloat