Marcellus cuts smallcap cash from 40% to 13%; here’s where Pramod Gubbi is hunting for quality buys now – News Air Insight

After months of sitting on elevated cash, Marcellus Investment Managers is beginning to put money to work. Co-founder Pramod Gubbi told ET Now the current correction, turbocharged by West Asia geopolitical risk, is doing exactly what the quality-focused fund house had been waiting for: bringing stretched valuations back to earth.

“We have been concerned about elevated valuations, so any sort of correction is more than welcome,” Gubbi said. The firm’s smallcap portfolio was carrying nearly 40% cash at its peak in August 2024. That has since fallen to around 13% as Marcellus selectively deploys into names it considers structurally sound but temporarily mispriced.

Gubbi was careful to flag the key risk: if the West Asia conflict prolongs into a full-blown energy crisis, India’s macro fundamentals, currently looking solid, could deteriorate quickly through inflation, a wider fiscal deficit, a weaker rupee, and softer consumption. “You do not want to jump into this and say this is a great buying opportunity should that scenario play out,” he cautioned.

But barring that, Gubbi’s view is constructive. “Often the best buying opportunities come during crisis,” he said, adding that the market is transitioning from a theme-driven era into one that rewards genuine stock-picking ability.

Three pockets Marcellus is watching

The HDFC Bank question

With HDFC Bank down 15–18% from recent highs, Gubbi offered a detailed diagnosis of what went wrong — and why Marcellus still sees it as a long-term buy.

Marcellus View on HDFC Bank

Between 2010 and 2020, HDFC Bank benefited from a scarcity premium — most peer banks were wrestling with asset quality crises, leaving capital to pile into a handful of investable names. Post-2020 recapitalisation of PSU banks and rivals like ICICI and Axis removed that scarcity, triggering a derating. More recently, PSU banks have grown loan books at nearly double the pace of private peers, driving their outperformance. Gubbi’s call: this trade will reverse. In times of stress, markets historically rotate toward quality — and HDFC Bank’s long record of low NPAs and consistent earnings makes it a strong entry point at current levels.On the broader PSU versus private bank debate, Gubbi acknowledged the multi-year PSU outperformance but held firm on his quality-first framework. “It is easy to grow loan books. The harder piece is to collect the money back,” he said. Until PSU banks demonstrate a prolonged track record on asset quality, Marcellus sees them as cyclical bets rather than structural long-term holds.