Expert view: Arindam Mandal, the head of global equities at Marcellus, remains confident about India’s long-term structural growth story. He also believes the ‘China+1’ strategy will likely gain additional momentum under Donald Trump’s policies. In an interview with Mint, Mandal shares his views on the Indian stock market, the US Fed’s rate reduction cycle and explains what key factors Indian investors should consider before investing in developed market equities.

Edited excerpts:

How do you assess the Indian stock market’s performance compared to some of its top global peers in 2024?

The Indian stock market was among the standout performers globally in the calendar year 2024.

The Nifty 50 delivered strong returns, surpassing most major country and regional indices, with only the US, China, and Taiwan outpacing it.

China’s performance was primarily driven by a rebound in valuations, supported by aggressive policy measures to stabilise the property and stock markets.

However, the effectiveness of these actions remains limited, and further significant policy interventions are required to sustain momentum.

Taiwan’s gains were primarily centred around TSMC, which continued to deliver strong results and reinforce its position as a key market driver.

The US market, meanwhile, was predominantly driven by big tech for most of the year, although cyclical sectors saw a late boost toward the end.

In comparison, the Indian market distinguished itself through broad-based participation across sectors and market capitalisation.

Unlike many global peers, India saw significant contributions from small and mid-cap stocks, which emerged as the best-performing segment among major indices.

This widespread and balanced performance underscores India’s resilience and positions its market favourably among global peers in 2024.

What key factors will shape the Indian market in the coming year?

After a prolonged hiatus, the Indian market has seen positive earnings revisions over the past couple of years, reflecting a combination of cyclical recovery and structural tailwinds.

However, in recent quarters, earnings forecasts have started to trend downward, presenting a clear risk that warrants close monitoring.

This challenge appears more pronounced in specific segments of the market, particularly among certain consumer sectors and lending institutions, where stress seems to be gradually building.

For now, these issues remain contained, but they underscore the need for caution.

Given this backdrop, we are focusing on opportunities where earnings delivery is more predictable and resilient.

Despite these near-term risks, we remain confident in India’s long-term structural growth story, acknowledging that periodic cyclical disruptions are a natural part of its upward trajectory.

What is your view of the US Fed’s rate reduction cycle? Could there be a 200 bps cut overall?

If the US economy maintains the resilience it has displayed throughout and after the current tightening cycle, the prospect of an aggressive 200 bps rate cut seems unlikely.

In such a scenario, any rate reductions are expected to be measured and gradual.

However, under a Republican-led administration—traditionally favouring pro-growth policies—fiscal stimulus could lead to higher deficits.

If these measures generate inflationary pressures that dampen economic momentum, the Federal Reserve may have to accelerate rate cuts.

Ultimately, the trajectory of rate adjustments will hinge on the delicate balance between fiscal stimulus, deficit expansion, and inflationary risks.

How could the Trump factor affect global trade? What is your assessment of it?

From a global trade perspective, Trump’s renewed emphasis on ‘Make America Great Again’ signals a continuation of his first-term agenda: encouraging American companies to bolster domestic manufacturing while reducing reliance on outsourcing. 

This was evident during his earlier term when tariffs were imposed not only on China but also on the European Union and longstanding allies like Canada and Mexico. 

Targeted tariffs may not have a profoundly negative impact, but the prospect of blanket tariffs—something Trump has hinted at—could be more disruptive. 

A broad-based tariff increase of 4–5 percentage points could have significant ripple effects. 

Historically, every 1 percentage point increase in broad tariffs tends to add 10–20 basis points to inflation. 

Such measures risk disrupting global supply chains, inflating costs for businesses and consumers, and potentially slowing economic growth. 

While Trump’s trade policies are aimed at strengthening the US economy and could benefit certain industrial companies, including some in our portfolios, they are likely to cause significant shifts in global trade dynamics. 

These shifts could have uneven effects across sectors and geographies, creating both risks and opportunities in the evolving landscape.

Can we expect further strengthening of the ‘China plus one’ theme under Trump’s regime?

Yes, the ‘China+1’ strategy is likely to gain additional momentum under Trump’s policies, and India stands to benefit significantly. 

Exporters, particularly in sectors like electronics manufacturing services (EMS), are poised to benefit from this shift directly. 

Contract development and manufacturing organisations (CDMOs) also represent a meaningful opportunity for select Indian companies to capitalise on this trend. 

However, rather than adopting a blanket approach, balancing this secular growth driver with the cyclical challenges is crucial, particularly in commoditised industries where margins can be under pressure.

What are the key factors Indian investors should consider before investing in developed market equities?

When considering investments beyond India’s borders, the market choice often hinges on an individual’s risk appetite and financial goals. 

A historical analysis of global stock market returns over the past 10, 20, or even 30 years highlights two standout performers: India and the United States. 

Despite their impressive track records, these markets have maintained a relatively low correlation, averaging around 40 per cent when global crises like the financial crash in 2008 and the COVID-19 pandemic are excluded.

Given this context, developed market equities—particularly in the US—should be considered a strategic addition to an Indian investor’s portfolio. Here’s why:

(i) Diversification for portfolio stability: Investing in a low-correlated market like the US helps diversify beyond India, bringing greater stability to an overall portfolio. This diversification can significantly reduce portfolio volatility and enhance long-term risk-adjusted returns, creating a more resilient investment strategy.

(ii) Building dollar assets for dollar liabilities: With affluent Indians increasingly spending in US dollars—whether for international travel, overseas education, or accessing global technology and media—it is prudent to align investments with future dollar-denominated liabilities. Holding a portion of wealth in USD assets helps hedge against INR volatility and ensures better financial preparedness for these expenditures.

(iii) Access to global leaders and unique opportunities: The US equity market exposes some of the world’s most innovative and influential companies, particularly in technology, healthcare, and consumer goods. Many global leaders are not represented in India’s stock markets, making US equities an excellent avenue to access unparalleled growth opportunities and sectoral diversity.

By approaching developed market equities with these considerations in mind, Indian investors can build a well-rounded portfolio that reduces risk and aligns with their global aspirations and financial needs.

Could you provide insights into the performance of the Global Compounders Portfolio and what sets it apart from similar offerings?

The Global Compounders Portfolio has demonstrated robust outperformance against the S&P 500 benchmark since its launch. 

While the portfolio’s track record is still in its early stages, we attribute this to the strength of our investment process and philosophy. 

At Marcellus, we have built world-class capabilities in global equities investing, backed by a disciplined approach that emphasises quality, a rigorous bottom-up stock selection process, and a focus on acquiring these high-quality companies at reasonable valuations.

This blend of quality, diligence, and valuation discipline truly differentiates our offering. 

While many investors tend to gravitate toward big tech mega-caps—undoubtedly exceptional businesses—we believe there’s a wealth of opportunities beyond these popular names, which we call “golden nuggets.” 

These companies often exhibit lower volatility, are available at more reasonable valuations and have the potential to compound at similar or even better rates over the long term. 

This differentiation is especially relevant in today’s market environment, where the valuation gap between big tech mega-caps and the broader market has reached extreme levels. 

As a result, we see compelling opportunities in small- and mid-cap (SMID) stocks that are currently out of favour but offer strong potential for long-term growth. 

Our portfolio is intentionally tilted toward such opportunities, providing a balanced approach that maximises returns while managing risk. 

In summary, the Global Compounders Portfolio stands out for its holistic approach—focusing not just on popular names but also on identifying undervalued gems that align with our philosophy of quality, reasonable valuations, and long-term compounding potential.

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Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.