Expert view: Arindam Mandal, Head of Global Equities, Marcellus Investment Managers, believes the US stock market may not be in a bubble zone; it’s just a very uneven market. For the Indian stock market, he believes the worst may be behind and large-cap companies should see earnings recovery as margins improve and domestic demand steadies. In an interview with Mint, Mandal shared his views on stock markets, FII trends and the US Federal Reserve. Here are edited excerpts of the interview:
There is growing chatter about the lofty valuation of the US stock market. Is Wall Street in bubble territory?
What we are seeing is a market of extremes. A few large tech and AI names continue to dominate returns, while the rest of the market looks much more reasonably priced.
If you strip out those big names, the equal-weighted S&P 500 has trailed the headline index by more than 10 percentage points over the past year.
That tells you the rally has been narrow, not universal. Earnings, though, are still holding up. About 80 per cent of companies beat expectations last quarter, and earnings estimates for 2025 have actually been revised up in recent months.
The equal-weighted S&P 500 or S&P 400 midcap trades around 16-17 times forward earnings, roughly in line with the long-term average if you ignore the pandemic distortion.
If you look at the more cyclical areas like consumer and transport, they’re trading closer to the mid-teens in terms of multiples. Those parts of the market already reflect some slowdown in spending and shipping.
Similarly, less cyclical sectors such as healthcare, insurance, staples, or even the bulk of software are now trading at very attractive multiples.
So yes, the high-growth end looks pricey, but a lot of the real economy is priced quite sensibly. Calling it a broad-based bubble is likely a bit far-fetched; it’s just a very uneven market.
Do you think global markets still have not fully discounted the impact of US tariffs on major economies such as China and India?
Pretty much. When the new tariff cycle started, analysts cut earnings forecasts across several regions. But that phase seems to have passed.
Over the last few months, revisions have turned positive again in the US, Europe, and even Japan. Emerging markets are flat to slightly higher.
That tells you investors are settling into a scenario where the tariffs are more of a manageable headwind than a crisis.
In simple terms, the market seems to be pricing in a truce rather than a trade war. Companies are adjusting supply chains, and governments are finding a middle ground.
So, while some uncertainty remains, the fear that tariffs would significantly derail global trade or growth has eased considerably.
What is your medium-term outlook for the Indian stock market? Is the worst behind?
It probably is. Even though the SMID valuations still look a bit stretched, large-cap valuations are back near long-term averages, and earnings revisions seem to have bottomed out.
India has actually been one of the weaker performers in the emerging market pack this year, which has reset expectations and taken some heat out of valuations.
The narrative around India has become quite negative lately, citing high valuations, limited job creation, and weak earnings momentum.
But that pessimism is likely reflecting at least in some part of the market.
Large-cap companies are expected to see earnings recover as margins improve and domestic demand stabilises.
Balance sheets are healthy, credit growth is consistent, and policy clarity is decent. From here, the heavy lifting will come from earnings rather than re-rating, especially.
Expectations of another US Fed rate cut this year have waned significantly. What does it mean for the emerging markets like India?
A slower Fed doesn’t hurt India as much as it does some other markets. Historically, when the Fed holds steady and the dollar stays firm, the stronger emerging economies stand out.
India’s current account, fiscal position, and domestic savings give it a good cushion. It just means flows may not rush in, but they’re also unlikely to rush out.
Growth will depend more on corporate earnings and less on global liquidity. The rupee should stay relatively stable, and that’s a good setup for long-term investors.
What is keeping FIIs away from the Indian stock market despite healthy growth-inflation dynamics?
It’s a mix of high valuations, soft earnings momentum, and shifting global narratives. Over the last 12 months, India’s earnings revisions have been tepid.
That, combined with a valuation premium that remains among the highest in emerging markets, has made foreign investors more selective. There’s also a perception issue.
Global portfolios are increasingly positioned around the AI and productivity boom that is driving sentiment in the US. India, by contrast, is seen as something of an “anti-AI trade” – it benefits from demographics and consumption, not automation or digital leverage.
So when money is flowing into tech and innovation plays globally, India doesn’t naturally capture that excitement.
At the same time, issues like uneven job creation and rising urban costs make investors question how sustainable domestic demand growth will be.
None of this is likely to change the long-term story, but it does explain why foreign investors are waiting for earnings revisions to turn decisively positive before leaning back in.
What have been the key drivers of Global Compounders Portfolio’s success, and what challenges have you encountered along the way?
It has been an interesting three years. Global markets have been very concentrated, with a small group of large companies contributing most of the returns.
That made it a challenging period for active managers because, unless you were overweight in those few names, it was hard to keep pace with the benchmark.
Even so, we have managed to do reasonably well, ahead of both the benchmark and the broader market.
Our style has always been slightly more conservative and valuation-focused, which was not the easiest stance in a cycle driven by momentum and growth.
But staying consistent with our process helped. We focused on business quality, cash flow compounding, and sensible position sizing, and that discipline worked over time.
Another encouraging aspect was the portfolio’s behaviour during market corrections. In the few drawdowns over the last three years, it fell meaningfully less than the market.
That has always been the goal – to deliver healthy long-term returns with lower risk and shallower drawdowns. It was good to see that discipline reflected in real outcomes.
Running one of the first actively managed global equity portfolios out of GIFT City brought its own set of challenges. In the beginning, there were some uncertainties around regulation and taxation simply because there was no prior template.
But the regulators and the policy makers have been very constructive and responsive, and the framework has evolved steadily in the right direction. Overall, it has been a demanding but rewarding phase.
We have strengthened our research and investment process, learned a lot from this period, and built the foundation for something that can compound steadily over time.
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Disclaimer: This story is for educational purposes only. 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.