Marcellus Repositions Portfolio, Exits IT Sector, Places New Healthcare Bets Amid Continued Consumption Slowdown

Marcellus Investment Managers Realigns Flagship Portfolio Amid Shift in Market Trends

In a strategic move, Saurabh Mukherjea's Marcellus Investment Managers has repositioned its flagship Consistent Compounders Portfolio (CCP), drastically altering its composition to better align with the current market landscape. The portfolio, which has been gradually realigned over the last 24 to 30 months, has exited the IT services sector entirely and now focuses on healthcare, pharma exports, auto ancillaries, power transmission and distribution, and fast-fashion retail.

The repositioning reflects a significant shift in market trends, with export-led non-IT manufacturing now accounting for around 20 percent of the portfolio. The allocation to two internet businesses has increased by more than 10 percentage points following their sharp correction in January-February 2026. Healthcare now comprises roughly 25 percent of the portfolio, driven by the accelerating threat of AI to IT jobs, the export boost from rupee depreciation, rising health-insurance penetration, and wellness awareness after Covid.

Key Drivers Behind the Repositioning

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The drivers behind this repositioning were a clear mix of macro signals, including the accelerating threat of AI to IT jobs and its knock-on effect on urban consumption, the export boost from rupee depreciation, rising health-insurance penetration and wellness awareness after Covid, and a welcome jump in ROCE and cash generation at organised hospitals and large-format retail. Mukherjea highlighted that his conviction in healthcare was steadier, driven by both supply side forces and demand side forces coming together to drive a structural rise in penetration.

Portfolio Composition and Performance

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The portfolio is tightly concentrated with 19 stocks and more than 40 percent in the top five. The large-cap weight has come down to 51 percent from over 80 percent three years ago. The research coverage universe has been doubled for greater agility. The holdings delivered weighted-average year-on-year EPS growth of 10 percent in Q1FY26, 14 percent in Q2, and 17 percent in Q3. Over the last 12 months, while Narayana, Eicher, and Chola have been the biggest contributors to portfolio performance, Trent, Tube, and CMS have been the biggest detractors.

Alignment with Market Trends

This recalibration aligns with Mukherjea's year-long warnings on structural weakness in domestic consumption, now validated by the RBI's latest Financial Stability Report. The emphasis has sharpened markedly, with Mukherjea issuing a direct warning that the consumption story was hitting "a wall of systemic risk." He pointed to non-housing retail credit tripling in just five years, 45 percent of borrowers slipping into near-prime or sub-prime categories, rising slippages even at top-tier banks and NBFCs, and a worrying shift toward "vanity" borrowing.

Adapting to Changing Market Conditions

Mukherjea reasoned that quality long-term investing also goes through its cycles of relative outperformance and underperformance. During times of prolonged downcycles in their investing style, fund managers need to adapt the tools they use to measure a business and construct their portfolios. With this repositioning, Marcellus Investment Managers is poised to navigate the changing market landscape and capitalize on emerging opportunities.