Expert view: Arindam Mandal, Head of Global Equities at Marcellus Investment Managers, believes the US stock market may see some correction as parts of the AI ecosystem are showing bubble-like behaviour. In an interview with Mint, Mandal said the US stock market is rewarding a narrow set of winners, even as consumers remain cautious. Edited excerpts:
Why is there a contrasting picture in the US stock market? The market is at a record high despite low consumer sentiment due to increased macroeconomic concerns.
The contrast is because the US stock market has diverged from being a proxy for the economy.
Consumer sentiment is weak because households are still worried about inflation, rates and affordability. But actual spending indicators are not as weak as sentiment suggests.
Real wage growth is still positive, retail sales are holding up reasonably well, and the consumer is spending, though more selectively rather than splurging across categories.
At the same time, the S&P 500 is dominated by large global companies, especially AI and technology-linked names, where earnings momentum remains strong. So the market is rewarding a narrow set of winners, even as consumers remain cautious.
Is the US market ripe for a correction?
A correction is possible, but margin pressure outside tech is not necessarily a negative from a long-term investing perspective.
In fact, we see it as an opportunity. If AI has to prove its economic value, the benefits eventually need to show up outside technology, through productivity gains, better margins and improved cash flows across industries.
That is where the real opportunity may lie. The index is vulnerable because current profit growth is concentrated in a handful of very profitable AI and tech companies, but many non-tech businesses with strong franchises are now trading at more reasonable valuations.
The debate of a tech bubble has been on since last year. Is it overblown, or is the risk imminent now?
It is not a clean 2000-style bubble because many of today’s leaders have real earnings, cash flows and balance sheets. But parts of the AI ecosystem are clearly showing bubble-like behaviour.
When semiconductor proxies, unprofitable technology and speculative baskets move 20% to 30% in a month, the market is not just discounting fundamentals.
It is also discounting a lot of future perfection. The risk is not that AI is fake.
The risk is that expectations and valuations might have moved ahead of what even a good outcome can justify.
Which segments still have value? Is it time to shift focus to non-tech sectors?
Yes, selectively. We would not abandon technology, but we would be careful about chasing the most crowded AI names.
Value is better in high-quality industrials, aerospace, select financials, healthcare distribution, exchanges, infrastructure and other non-tech compounders where earnings are still growing but valuations have not expanded in the same way.
The opportunity is in businesses with predictable cash flows, pricing power and long runway growth, not in low-quality cyclicals just because they are cheap.
What are your assessments of the current macroeconomic setup in the US? We have a new Fed Chairman now. Can we see rate hikes this year?
The US macro setup is resilient but complicated. Growth has held up better than expected, real wages are still positive, and the labour market is not weak.
At the same time, inflation remains sticky, which makes the Fed’s job difficult. With now taking over as Fed Chair, the market has started pricing a real chance of rate hikes later this year, especially after the strong May jobs report.
Our base case is not aggressive hikes, but the bar for rate cuts is now much higher. If inflation does not cool, one hike this year is clearly possible.
When the next global meltdown hits and diversification temporarily disappears, what is the specific mechanism inside the Marcellus Global Equities Fund that can protect an Indian retail investor?
When global markets melt down, correlations usually rise and diversification temporarily fails. The protection mechanism in the Marcellus Global Equities Fund is portfolio construction.
We focus on high-quality global businesses with strong balance sheets, recurring cash flows, pricing power and predictable earnings.
Today, low-volatility, quality and predictable-earnings businesses appear to be trading at a historical discount to momentum-led parts of the market. That is important.
Even if the broader index corrects, the damage may not spread equally to companies that have already lagged and where expectations are not stretched.
It may be acceptable to lag headline indexes temporarily if the portfolio is positioned in a part of the market where downside protection is better and long-term compounding remains intact.
Historically, such phases have often created attractive entry points for quality investors.
For an Indian investor, the fund also provides structural diversification away from a single country, single currency and single economic cycle.
The fund may still fall in a global selloff, but the objective is to own businesses that can protect earnings power and recover faster when the panic passes.
Disclaimer: This story is for educational purposes only and does not constitute investment advice. The views and recommendations expressed are those of the expert, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.