Daily Voice: Sustained uncertainty will derate assets, especially in US, says Marcellus’ Pramod Gubbi

Pramod Gubbi is the Co-Founder of Marcellus Investment Managers

Despite headwinds on margins, loan growth, and asset quality, banks remain reasonably valued compared to the broader market, even after their recent outperformance, says Pramod Gubbi of Marcellus Investment Managers.

Commenting on the uncertainty triggered by the Trump tariff factor, Gubbi noted that while the timing of clarity remains unknown, it will eventually emerge, offering long-term investors a valuable window to scout for bargains.

Do you see the emergence of a significant trend or theme following the tariff risk?

Given the back-and-forth nature of global policymaking, the only clear trend emerging is one of sustained uncertainty. As a result, investors are likely to demand a higher risk premium, leading to a derating of assets, particularly in the US across equities, bonds, and currency. The silver lining, however, is that clarity will eventually emerge. And when it does, it presents a valuable opportunity for long-term investors to hunt for bargains, as markets in such phases often punish the good along with the bad.

Do you believe the 90-day deadline is more of a political gesture than a binding timeline?

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Pramod Gubbi

Co-Founder|Marcellus Investment Managers

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I'm no policy expert, but I doubt even the experts can speak on this with any real certainty; at best, it's speculation.

Are you convinced that the equity market has bottomed out in response to the tariff risk, or do you foresee a potential escalation in this risk?

Even in normal circumstances, predicting markets in the short term is challenging. Given the current environment, calling a market bottom is anyone’s guess. As long-term investors, the best we can do is stay grounded and focus on identifying high-quality businesses that are being mispriced, where there's a sufficient margin of safety to account for a range of possible outcomes.

Are you bullish on discretionary consumption?

As we have been highlighting, we are going through a slowdown in middle-class consumption, partly die to the unwind of the post covid spending boo,m fuelled by growth in retail loans, exacerbated by weakness in job creation and income growth as a result of growing automation and AI. This doesn’t augur well for discretionary consumption at large.

Are you optimistic about the pharmaceutical sector despite the potential tariff threats from Trump?

Given the essential nature of the product, one should be a bit sanguine about the threat from tariffs on pharmaceuticals, but one should not forget the need to build in enough margin of safety to cover any eventuality that could come with this fairly chaotic policy-making.

Do you believe the banking sector will take the lead and become a major wealth creator?

Whilst there are headwinds on margins, loan growth and asset quality, banks remain reasonably valued relative to the broader market despite the recent outperformance.

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