Even upper-arm of the K-shaped recovery slowing down, says Saurabh Mukherjea of Marcellus

Saurabh Mukherjea of Marcellus Investment Managers

There are signs that even India's premium consumption segment is slowing down due to weakness in formal job creation while the rural end of the economy has started to play out,  Saurabh Mukherjea of Marcellus Investment Managers said in a conversation with Moneycontrol.

Mukherjea said that a few months ago, the consensus was that in India’s K-shaped recovery, the upper arm of the K — the more resilient, higher-income segment — was more insulated. However, now signs of pressure have begun to show here too, driven by weakness in formal sector job creation, especially in IT services, he said. The expert added that across the board, consumption is feeling the squeeze and the strain is evident in declining passenger vehicle sales and softer consumer discretionary demand.

Recognizing early signs of this shift, he said that Marcellus has began preparing nearly eight months ago, anticipating a political shift toward rural support, particularly through increased subsidies and higher minimum support prices (MSPs).  Because of this, the PMS added Godrej Agrovet and Tata Consumer Products (TCPL) to its portfolio, he said. He also added that Marcellus was among the first institutional investors to recognize Godrej Agrovet as a strong play on rural recovery, entering at relatively low valuations of around 20x earnings. Since then, the stock has pushed closer to 30x earnings.

Watch full interview here

On digital companies

Mukherjea said that Marcellus has been a long-term shareholder in InfoEdge, which holds a significant stake in Zomato, benefiting from the latter’s recent success. A key factor in Zomato’s rise has been the drying up of venture capital funding, which left the food delivery market dominated by just two players: Zomato and Swiggy. By expanding into quick commerce, Zomato has positioned itself to meet the demands of affluent Indians who value fast delivery, enabled by an abundant low-cost labor force, Mukherjea says.

On banks 

With the central bank ordering four lenders to halt lending, Marcellus sees this as part of a broader effort to rein in risky practices in the financial system. During economic booms, strong asset quality can obscure differences between institutions. However, as the economy slows, the disparity in asset quality becomes apparent, and HDFC Bank stands out as having exceptionally strong asset quality, unlike any other private sector bank, said Mukherjea.

While HDFC Bank remains a major holding, other investments in lending include Axis Bank and, in smaller amounts, Bajaj Finance and Mas Financials.

Marcellus has reduced its position in Bajaj Finance due to higher exposure to unsecured loans than traditional banks. However, Mas Financials is anticipated to weather the environment well, given its expertise in smaller ticket loans with high interest rates, he said.

On chemicals 

Marcellus continues to maintain significant holdings in Divi’s Laboratories, which is seen as a key play in the China-plus-one strategy. He said that Divi’s possesses strong pricing power, making it resilient to price competition from Chinese counterparts.

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