Daily Voice: "Without a major collapse in the US economy, a 75 basis point reduction in the fed funds rate in 2024 seems unlikely."

Daily Voice: "Without a major collapse in the US economy, a 75 basis point reduction in the fed funds rate in 2024 seems unlikely."

Although Marcellus Investment Managers is generally still upbeat about the market, Arindam Mandal notes that certain market segments—particularly those in the small- and mid-cap sectors—may come under more scrutiny for their valuations.

Marcellus Investment Managers' portfolio manager is Arindam Mandal.

According to Arindam Mandal, the portfolio manager at Marcellus Investment Managers, "the current market sentiment indicates a expectation of less than two rate cuts by US Federal Reserve," as she said to Moneycontrol.

But he believes there is little chance of a 75 basis point rate decrease unless there is a major collapse in the US economy.

With over 14 years of expertise in investment management, Arindam believes that the current inflationary forecast poses a serious short-term danger to the equities market. "The expectation of prolonged higher inflation appears to be materialising, particularly in the immediate future," according to him.

Revised passages:

While concentrating on the plan for international markets, are you concerned about the situation in the Middle East?

We maintain our vigilance as we negotiate any situation. Although not our main area of interest, we pay great attention to reputable macroeconomists such as Viktor Shvets, author of "The Great Rupture: Three Empires, Four Turning Points, and the Future of Humanity." Particularly insightful are Shvets' observations on inflation, geopolitical factors, and the direction of equities market investment.

I concur with Viktor's observations here, realizing that the early 2010s marked the end of the Peace Dividend period and the beginning of a volatile geopolitical environment that will probably last for years. This shift in conflict dynamics is known as the Cold War vs Hot War conundrum. The US, China, and less liberal Eurasia's economic might and social cohesiveness—both at home and abroad—will determine how quickly a Cold War develops.

Rising dangers are a result of factors including national introversion, weakening economies, and slow development, which keep the Cold War as the default situation. Predicting the geopolitical course is still unclear, however.

Against this environment, we consider the US and India as important locations for long-term investment plans. Because of this, the main emphasis of our global portfolio strategy is US stocks. We adopt a bottom-up company selection process and maintain a balanced allocation between cyclical and high-quality growth firms that can help us hedge against inflation.

Which nations now seem appealing to investors?

Due to worries about valuation, especially high price-to-earnings ratios, investors are becoming more interested in established markets like China, Japan, and Europe as they believe these regions offer more affordable options. Although there may be opportunities for short-term trading in these markets, a longer view reveals the US and India's persistent attractiveness, which has been steady over the previous several decades.

Given that the US Federal Reserve has not provided any indications about the start of a rate-cutting cycle, do you believe that inflation poses a serious threat to the bank?

Without a doubt, the prevailing inflationary trend poses a serious short-term danger to the equities market. It seems that the long-expected rising inflation is finally coming to pass, at least for the near future. In spite of this, the US economy has shown surprisingly resilient, especially when it comes to creating jobs. As investors move toward firms that provide earnings certainty, this tendency is expected to aggravate market polarization.

In the medium to long term, we believe that disinflationary forces from demographic differences, increasing financialization, technical improvements, and dependence on asset prices will continue to hold down inflation to more manageable levels. Furthermore, any indications of weakness in the US economy are likely to provoke prompt and strong measures, particularly in light of the approaching election year.

Do you still think the Fed will decrease interest rates by 75 basis points in 2024?

There are now fewer than two rate decreases anticipated, according to market perception. But the chance of a 75 basis point rate decrease looks unlikely unless there is a major collapse in the US economy. More important is the possible difference in monetary policy strategies; the ECB and other developed countries may choose to lower interest rates ahead of the US.

What is your plan for India, and do you think FY25 will see continued robust economic growth and earnings?

It is encouraging to see that FY24 may prove to be the most advantageous year for Nifty EPS revisions since FY08. But maintaining premium market valuations requires EPS adjustments in order to achieve widespread stock market performance similar to last year's. Even if our overall outlook for the market is still optimistic, several market segments—particularly those in the small- and mid-cap sectors—may come under more scrutiny for their valuations.

We remain more comfortably positioned in the largecap area. Although there are certain gaps on the mass-consumption side, overall, we have good feelings about the following themes:

>> Boom in Services and Premium/Aspirational Consumption: While the growth in aspirational and luxury spending is not totally new, the growing influence of services, such wealth management, is anticipated to have a significant impact on consumer behavior.

>> Industrial Renaissance: With a wave of industrial mergers that encouraged specialization, we find ourselves at a crossroads similar to the US in the 1980s. In the past, this industry has offered profitable chances for capital allocation worldwide. Our goal is to find and seize such opportunities in India, with the goal of achieving long-term, steady development.

China + 1: As China's economy changes and presents India with an annual potential of US$300 billion, the idea of diversifying supply chains away from China is gaining steam.

Do you still have concerns about China's economic expansion? For the remainder of the year, do you anticipate a strong rise in the Chinese equities markets?

I think there are a lot of obstacles in the way of China's economic development, especially when it comes to maintaining its narrative of consumption. There are obstacles to creating sustainable development because of the power the governing party has over the country's population and economy. State and municipal governments may sometimes implement policies, but they are not likely to create long-term demand. Furthermore, industrial investments could not have a return-oriented emphasis, which might impede value generation and result in a liquidity trap.

There is financial potential associated with the "China's Japanification" notion that became popular in the 2010s. Like Japan in the 1990s, China could provide a lot of chances for short-term trade in the next years, but it's not likely to be a sustainable one.

What investment philosophy behind the Global Compounder fund, which mostly holds large- and mid-cap stocks?

Listed in the US and developed Europe, the Global Compounders portfolio invests in top-tier firms managed by outstanding capital allocators. The majority of these businesses operate in sectors that are less vulnerable to upheaval, which strengthens their moat over time. Although our method avoids the flashier areas of the stock market, it has allowed us to find constantly undiscovered markets with plenty of space to grow.

It will need extensive industry interviews, site visits both domestically and abroad, and complete analysis to achieve this via rigorous research efforts.

We purposefully kept it a little heavier on mid-cap stocks (or smaller market-cap stocks) since there is more room for discovery and the valuation metrics are more agreeable.