Nasdaq likely to deliver higher EPS growth than Nifty in 2025: Arindam Mandal

It’s fair to say that the chances of Nasdaq delivering higher EPS growth in CY 2025 compared to Nifty50 are on the higher side, assuming both economies avoid major shocks, says Arindam Mandal, Head of Global Equities, Marcellus Investment Managers.

For Indian investors, he recommends allocating 15-30% of their equity portfolio to the international arena. Edited excerpts from a chat:

Nasdaq has outperformed Nifty with a wide margin. As Trump takes over in January, do you think Wall Street's lead over Dalal Street will only widen in 2025?

It’s fair to say that the chances of Nasdaq delivering higher EPS growth in CY 2025 compared to Nifty50 are on the higher side, assuming both economies avoid major shocks. However, the key question is how much of that growth is already priced in. Nasdaq's valuations undeniably appear pricey, suggesting that a significant portion of the expected EPS growth may already be baked into its valuations.

Take us through the performance of your Global Compounders fund in 2024 and what has been the strategy so far?

The Global Compounders Portfolio has delivered a robust outperformance against the S&P 500 benchmark since its inception, achieving a mid-single-digit excess return over the benchmark and a 30%+ CAGR in absolute terms. While it’s still early days for the portfolio, this performance reflects the strength of our investment philosophy and process.

At Marcellus, we focus on quality through a rigorous, bottom-up stock selection approach. Our emphasis is on acquiring high-quality companies at reasonable valuations.

What sets our portfolio apart is its focus on "golden nuggets"—companies outside the Big Tech megacaps that often trade at lower valuations, exhibit lower volatility, and have strong compounding potential over the long term. These overlooked opportunities are especially relevant in today’s market, where the valuation gap between Big Tech and the broader market has widened significantly.

In this environment, we’ve intentionally tilted the portfolio toward small- and mid-cap (SMID) stocks that offer compelling long-term growth potential but are currently out of favor. This balanced approach allows us to maximize returns while managing risk.

In summary, the Global Compounders Portfolio focuses not just on popular names but on uncovering undervalued gems that align with our philosophy of quality, reasonable valuations, and long-term growth potential.

Indian investors who have been betting on the AI rush as well as other Wall Street stocks have made outsized returns in 2024. What is your prediction on what one can expect from the US market in 2025?

The key themes we’re focusing on include Technological Disruption, Industrial Revival (or Re-industrialization), and Aging but Affluent Demographics. These are structural trends with long-term relevance.

For 2025, our approach is to remain selective and valuation-conscious while identifying companies poised to benefit from these megatrends. Looking beyond a one-year horizon, we believe businesses aligned with the Re-industrialization theme or advanced medtech innovations tied to aging demographics offer compelling opportunities. Valuations in these areas are more attractive compared to Big Tech, making them our preferred picks for the medium term.

Given that the US market is already at record high levels, do you think it is late for a newcomer to enter Wall Street at this stage?

It’s never too late to start investing. However, newcomers would benefit from a systematic, staggered investment approach to manage the risks of market timing. Timing the market is extremely challenging, and a disciplined approach ensures better long-term outcomes.

How worried are you about valuations when it comes to megacaps?

Valuations in megacaps are a genuine concern. Their high multiples reflect their above-average growth, but the valuation gap between Big Tech megacaps and the broader market has reached extreme levels.

This creates compelling opportunities in small- and mid-cap (SMID) stocks, which are currently trading at attractive valuations. These companies offer strong long-term growth potential and help balance portfolios, reducing dependency on megacaps.

For someone who is building a portfolio by buying international ETFs, what should be the asset allocation (across India and outside) if you have a moderate risk profile?
Globally, investors allocate approximately 70-80% of their equity investments domestically, with the remainder in international markets. For Indian investors, we recommend allocating 15-30% of their equity portfolio to international exposure.

U.S. markets, in particular, offer lower volatility compared to emerging markets, making them an excellent choice for diversification and reducing overall portfolio risk.

Trump's presidency, rate cut cycle, and geopolitical tensions are three major global factors likely to move asset prices in 2025. What do you think would be the impact of Trump 2.0 for Indian investors?

If the U.S. economy maintains its current resilience, an aggressive rate cut cycle under Trump 2.0 seems unlikely. Any reductions are likely to be measured and gradual. However, a Republican-led administration could introduce pro-growth fiscal stimulus, potentially leading to higher deficits.

If these measures stoke inflation, the Federal Reserve may be compelled to accelerate rate cuts. Much will depend on the balance between fiscal stimulus, deficit expansion, and inflationary risks.

Should the U.S. economy remain strong, higher-for-longer interest rates could lead to near-term dollar strengthening, which Indian investors should consider when planning their allocations