Saurabh Mukherjea of Marcellus Investment Managers has advised investors to be cautious on Indian small and midcap stocks. He expects rising interest rates to keep them under pressure. In an interview, he said large-cap quality stocks look better placed and argued that the next decade of export growth will come from manufacturing rather than IT services.
Rate hikes seen weighing on small and midcaps
Mukherjea said the odds are high that rates will rise by around one percentage point over the next year, in both the US and India. He expects further correction in small and midcaps as that happens. By contrast, he said valuations of large-cap quality stocks are near decadal lows, backed by good earnings from banks, pharma and CDMO companies and export-oriented auto ancillary makers.
IT’s growth era “behind us”
Asked about Infosys lowering its guidance, Mukherjea said the best days of Indian IT are behind it. He said AI is cutting into sales, and that US treatment of Indian IT workers adds to the pressure on older firms. He named Persistent Systems as an example of a company that has repositioned itself for AI. The mantle of structural export growth, he said, now passes to manufacturing, from textiles and auto ancillaries to precision engineering and pharma.
Case for global diversification
Mukherjea said Marcellus’s global portfolio has been underweight in technology hardware since February, with no Nvidia holding. He said that hurt through the summer but is paying off after a recent correction in the hardware sector in the US and East Asia. He said holdings in European and US aerospace, defence, power and industrials are showing dollar earnings per share growth of 15 per cent to 22 per cent, at what he called sensible valuations.
India accounts for only 3 per cent to 3.5 per cent of global market capitalisation, he noted. He credited regulatory changes between 2020 and 2025, including the IFSC Act, the creation of GIFT City, the alignment of long-term capital gains tax for domestic and overseas investing, and RBI circulars, for making global investing cheaper and more tax-efficient.
Consumption outlook weak
Mukherjea cited RBI research showing net household savings near 50-year lows, which he called unsustainable. He expects consumption to moderate as households save more.
He added that rising rates arrive when Indian middle-class households are heavily indebted, and that independent data shows white-collar jobs have stopped growing for about three years. He also said middle-class housing is freezing up in Hyderabad and Gurugram and that auto dealers report rising inventory. Marcellus has cut its consumption exposure over six months and raised its exposure to manufacturing exports, which Mukherjea expects to become the economy’s new engine.