PMS Bazaar recently organised a webinar titled “Seizing Opportunities across Sectors & Market Caps,” featuring Arindam Mandal, Fund Manager at Marcellus Investment Managers. This blog captures the key points shared during the insightful session.

Here are the key points of discussion during the webinar: 

• Current market scenario
• Portfolio performance and strategy 
• Navigating elections and global risks 
• Portfolio Construction
• Managing Currency Risks and Liquidity
• Decoding Investment Strategy
• Insights into Stock Selection and Market Trends

Current Market Scenario

Arindam Mandal commenced the webinar by analysing the market dynamics of 2023, focusing on the significant influence exerted by a select group of stocks in the US market. He highlighted that seven prominent stocks—Meta, Google, Amazon, Apple, Microsoft, Nvidia, and Tesla—dominated market returns. This concentration has substantial implications for portfolio management, particularly concerning diversification and risk management. The dominance of these stocks poses challenges for asset managers, necessitating a reevaluation of portfolio construction methodologies and risk mitigation strategies.

Portfolio Performance and Strategy

Reflecting on market concentration, Mandal emphasised the success of their mid-cap-focused portfolio. Despite the dominance of mega-cap stocks, their portfolio remained resilient due to strategic diversification across a broader spectrum of companies. This approach mitigates risks associated with over-reliance on any single stock or sector, ensuring a more balanced and robust portfolio. The portfolio's performance, when compared to the S&P 500 index, underscores the effectiveness of their strategy. By prioritising quality and growth potential through meticulous stock selection, they have positioned themselves for long-term success. 

Navigating Elections and Global Risks

Addressing the upcoming elections and global economic challenges, Mandal discussed their approach to asset allocation with a focus on risk management. He stressed avoiding troubled economies while maintaining a globally diversified portfolio. This strategy mitigates country-specific risks and capitalises on opportunities arising from varied market conditions. Strategic reallocation is crucial, particularly in the context of potential return divergence between India and the US. By dynamically adjusting asset allocation, they aim to capitalise on emerging opportunities and optimise portfolio performance.

Evaluating Broad Themes: EVs and Reindustrialisation

Mandal highlighted the rapid adoption of electric vehicles (EVs) as a significant global investment theme. However, he advised caution, drawing parallels with past technology waves. The key is identifying long-term winners rather than chasing early-stage hype. Additionally, Mandal discussed the reindustrialisation trend, emphasising opportunities for companies benefiting from the shift away from China and the resurgence of industrial production in India. Investing in firms with strong operational presence and global exposure is crucial to capitalise on this trend effectively.

• India-Specific Investment Themes

In the Indian market, Mandal identified the premiumisation of consumption and the revival of the capital expenditure (CapEx) cycle as promising themes. The shift towards premium products and services cites examples of the growth of brands like Royal Enfield. The resurgence of CapEx activities, driven by the removal of excess capacity and efficient capital allocation in India's industrial sector, also presents significant investment opportunities.

Portfolio Construction

Mandal addressed concerns about commodity investments, explaining his preference for industrial companies over direct commodity exposure. He highlighted the inherent risks associated with commodity investments, such as volatility and lack of competitive moats. Focusing on industrial firms that benefit from commodity price movements without direct exposure allows for risk mitigation while participating in the broader economic recovery.

Managing Currency Risks and Liquidity

Discussing currency risks, Mandal emphasised the natural hedge provided by investments in global markets. While the fund does not hedge currency exposure directly, many portfolio companies hedge currency risks at the operational level. He also assured investors about liquidity, stating that portfolio investments maintain sufficient liquidity to facilitate trading without constraints.

Decoding Investment Strategy

Mandal discussed Marcellus' investment strategy, emphasising three key factors: staying attuned to global equities, covering emerging markets alongside developed ones, and focusing on native Indian and Asian markets. His expertise in global and emerging markets allowed him to discern trends and capitalise on opportunities. He also highlighted the creation of an innovative investment product focused on US and European markets, despite challenges in researching international stocks from India.

The research framework involves extensive interactions, site visits, and global outreach to ensure no blind spots in the companies they invest in. They meticulously analyse a pool of 80 to 90 stocks, tracking 40 to 45 in detail and narrowing it down to 25 to 30 for their portfolio. This rigorous process includes back-testing, qualitative assessments, and considerations of valuation and cyclical factors.

Insights into Stock Selection and Market Trends

Mandal shared success stories, such as Intuitive Surgical Machines gaining popularity through word-of-mouth referrals, addressing physical challenges faced by ageing surgeons, and generating recurring revenue from consumable parts. He also discussed premium consumption trends, exemplified by Hermès, and the importance of systematic stock selection and prudent valuation in navigating market fluctuations. His insights offer a blueprint for long-term investment success based on discovery, maturity, and growth.

The webinar covered a wide range of topics, providing valuable insights into market dynamics, portfolio performance, global and India-specific investment themes, and strategic approaches to portfolio construction. For more detailed insights, you can watch the full webinar video from the link.

Get access to rich data and analytics of PMS & AIF by subscribing to us. Join the 65000+ investors & experts: Subscribe NOW