Daily Voice: Possible US-India deal along with FTAs with UK, Switzerland and UAE to bring meaningful change in India’s trading landscape, says Marcellus' Saurabh Mukherjea

Overvaluation in small-midcaps is pronounced in the Indian stockmarket. I haven’t seen small-midcap indices in India trading at higher than 30x forward earnings for at least 15 years. The fact that these elevated valuations are co-existing with most small-midcap stocks struggling to grow earnings in double digits worries me. Since August 2024 we have been increasing the amount of cash we hold in Marcellus’ small-midcap portfolios. Now these cash holdings amount to almost 40% of our small-midcap corpus.

Do you think concerns about trade dislocation have now been eased?

Since announcing Liberation Day a month or so ago, the US President has blinked so many times on tariffs that it now seems more likely than not that most of America’s trading partners will be able to hammer out free trade agreements with the United States. Thankfully, we loaded up on American small-midcaps when these tariff related concerns had peaked in April. Hopefully, our clients will profit as the tariff worries abate.

With easing trade tariff risks, controlled inflation, and favourable oil prices, do you see another 100 bps cut in the repo rate in the current financial year to boost economic growth?

I think the Indian economy needs at least 200bps of rate cuts over the next 12 months if we are to relieve that debt burden that middle class households are reeling under. It is hard to see how else consumption growth can be revived in India.

Do you strongly believe that the Indian economy will grow by more than 6 percent in the coming years? Is there any possibility of growth falling below 6 percent in the current financial year?

GDP growth is hard to forecast. A more practical number to forecast is EPS growth for the Nifty companies. That number has been in single digits for the past few quarters and looks likely to be in single digits for the next few quarters.

Do you expect China to grow by 3.5-4 percent this year, down from 5 percent in the previous year?

For many years now I have not been able to make sense of the GDP growth numbers that China publishes. Hence I am not well place to say anything useful on this subject.

Do you expect major changes in supply chains across the world in the coming years?

The US-India Free Trade Agreement that is currently being negotiated is likely to be a big deal. If you combine this with the UK-India, Switzerland-India and UAE-India FTAs, these constitute a very meaningful change in India’s trading landscape. The old tariff and non-tariff barriers behind which industries like auto and spirits made high profit margins in India are likely to crumble. Foreign companies will be able to penetrate deep into the Indian economy which in turn will increase competitive intensity in India. By the same token, efficient Indian manufacturers will be able to make significant inroads to the US, UK and EU markets.

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