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DAILY VOICE | Pramod Gubbi of Marcellus explains why India has become attractive among FIIs

The recent spate of reforms from the govt on the farm sector, as well as labour reforms also seem to have given confidence to the foreign investors on India’s long-term growth potential.

November 27, 2020 / 10:25 AM IST

Emerging markets have lagged the developed markets for some time and there seems to be a view building that the time has come for EMs to catch up. That is driving a lot of flows into EMs, like India, Pramod Gubbi, co-founder of Marcellus Investment Managers said in an interview with Moneycontrol’s Kshitij Anand.

Edited excerpts:

Q) What a year it has been for Indian markets. An absolute roller coaster ride for investors amid the outbreak of COVID-19. But, things are looking much stable from markets and economic point of view which is a positive sign. How do you see the markets in 2021?



A) If COVID-19 has taught one thing, it is that the markets are unpredictable. In fact, markets have been increasingly unpredictable even before the pandemic, especially in the short-term.

Surprising, as it may seem to many, earnings of specific companies over the long run are far more predictable than stock prices in the short run.

With that caveat, we can still attempt to understand the factors that are driving the market, still may not exhaustive though.

Liquidity from central banks, vaccine availability, and hence expectations of a return of normal economic activity are key factors currently and from the looks of it, they seem to remain being going into 2021.

However, the recent rally suggests that the market is already pricing in these and now would look for the same to reflect in corporate earnings. Besides the return to normalcy in economic activity, low-interest rates, low crude prices and effect of the stimulus, and some structural reforms over the recent years should support a strong economic cycle over the next 3-5yrs.

This should augur well for companies that have managed to come out stronger out of the crisis, thanks to their balance sheet strengths and competitive advantages and therefore should see a meaningful pick up in earnings growth and therefore support healthy returns over this cycle.

Q) FIIs have bought aggressively in Indian markets especially in November. So, what seems to be driving the optimism?

A) Given low-interest rates across the developed world, there seems to be a move to chase risk assets, especially emerging markets.

Emerging markets have lagged the developed markets for some time and there seems to be a view building that the time has come for EM’s to catch up. That is driving a lot of flows into EM’s.

Within EM’s, India has lagged, partly because of the rising Covid cases until recently. Now that the overall numbers seem to be in control suggesting a return to normalcy of economic activity, India is getting a disproportionate share of incremental flows.

The recent spate of reforms from the govt on the farm sector, as well as labour reforms also seem to have given confidence to the foreign investors on India’s long-term growth potential.

Q) September quarter earnings were a delight for D-Street and analysts. How are you picking businesses now given the fact that management of most companies have hinted that they are back to pre-COVID levels?A) Nothing much has changed for us in the way we pick stocks. In fact, our portfolios have also seen barely any churn through the pandemic, simply because our investment philosophy has always been one that attempts to minimise risks and picks companies which are relatively better positioned to tide through adversity.

In fact, what we are seeing is that not only have they managed to hold their own during the pandemic, they are coming out stronger out of the crisis, taking market share from those that couldn’t survive or those that have seen their capital erode taking away their ability to fund future growth.

In fact, not just back to pre-Covid levels, most of our portfolio companies are already reporting healthy YoY growth rates in topline and bottom line, clearly suggesting significant market share gains.

So our approach to picking companies remains unchanged – 1) Clean accounting and governance; 2) Strong capital allocation track record; 3) Sustainable competitive advantages; which drives resilience in our portfolios, should yet another adversity hit the markets

Q) Despite all the negatives of lockdown – one good thing which has happened is more retail investors have joined the party on D-Street which is a healthy sign. Not just Indian markets investors are exploring opportunities in international markets as well. Can we say that retail investors have come off age?

A) I am not sure of that. Increased retail participation is healthy if investors are making informed decisions on their investments following a disciplined approach.

If retail participation has increased because of a feeling of missing out on the short-term performance of the market, the worry is that it might lead to disappointment and discourage them in the future.

I believe only those investors who can afford the time and effort to research and make well-informed decisions should put their hard-earned savings directly into stocks.

Everyone else should take the help of professional advisors or fund managers, having evaluated the capabilities of such advisors thoroughly.

Q) In the past 3-4 funds we are seeing selloff in equity mutual funds, but the market seems to be heading only in one direction and that is up. It looks like investors are giving up on professional managers – how do you see that as a trend?

A) Yes, data shows that majority of fund managers have failed to beat the market. That might be driving a lot of these redemptions. However, having picked a fund manager based on their diligence, investors shouldn’t then try to time their entry and exit from funds based on market movements, especially savings meant for long term goals.

Data show that has proven futile as investors miss out on the fund manager’s long term performance.

Q) Your key mantras for readers on investing in a market that is in unchartered territories?

A) I don’t think market highs or stock price highs should worry investors as long as they are accompanied by a commensurate increase in fundamentals.

Stocks tend to go up in the long run driven by growing profits and therefore you are bound to see new highs, albeit not in a straight line.

Given predicting these short term ups and downs is hard enough for professionals, I would recommend investors stay the course, staying true to your investment philosophy, and continuously assess if your investment thesis remains intact and intrinsic values are significantly ahead of stock prices.

Disclaimer: The views and investment tips expressed by experts on are their own and not those of the website or its management. advises users to check with certified experts before taking any investment decisions.

Kshitij Anand is the Editor Markets at Moneycontrol.
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