Earnings Growth in India: Sliding Nifty vs Rising CCP

Marcellus Investment Managers contends that its Core Conviction Portfolio (CCP) is positioned to outperform as India's broader market faces a structural earnings slowdown. The Nifty50's earnings growth decelerated sharply to 6% year-over-year in FY25, down from a 24% CAGR during FY21–24 when post-Covid revenge spending and government infrastructure capex drove broad-based recovery. By contrast, Marcellus' CCP portfolio delivered 14% earnings growth in FY25, extending a track record of 17%–18% CAGR through FY24. The manager attributes the earnings gap to its focus on deeply moated companies with superior capital allocation and management quality. Portfolio constituents reinvest 80%–90% of operating cash flows at returns on capital employed of 23%–25%, funding market share gains, margin expansion, and new growth drivers. Examples include Narayana Hrudayalaya's investment in technology and new hospital capacity, Divis Labs' expansion into contrast media and GLP-1 peptide building blocks, and Trent's cost savings and store format innovation. Marcellus expects this earnings growth advantage to persist as macro tailwinds fade and fewer firms achieve mid-teens profit growth. Valuation risk remains material. Nifty50 trades at 21.2x FY26 earnings versus a 20-year average of 16.5x, while CCP's 42x forward multiple reflects 2x higher earnings growth and 2x higher returns on capital. Marcellus supplements low-valuation quality names (e.g., Narayana at entry) with underappreciated growth stories where market expectations underestimate earnings potential (e.g., Trent's store expansion and pilot formats). CCP's forward P/E sits 25% below its six-year average and near its lowest since inception.