Diversification in a Concentrated Portfolio of Compounders

Portfolio construct: Marcellus' Consistent Compounders Portfolio stays concentrated (19 stocks, top-5 above 40%) but the top-5 is now spread across uncorrelated areas: power transmission & distribution, pharma exports/APIs, auto OEMs, auto ancillaries, healthcare and fast fashion retail. Large-cap weight has fallen from 80%+ three years ago to 51%. IT services exit: CCP has fully exited IT services over two years (previously held TCS and HCL Tech), citing a maturing outsourcing market and AI substituting human labour. Marcellus sees export-led manufacturing as "India's next growth engine." New internet positions: After share price corrections in the past two months, Marcellus added two internet businesses (high-ticket used cars; recruitment). The stated key risk: LLM platforms vertically integrating and capturing discovery, selection and transaction directly. Domestic consumption caution: Stagnant white-collar hiring and falling real wages make consumption a sustained earnings risk; Marcellus has trimmed urban middle-class consumption, raised healthcare to roughly 25%, and non-IT export exposure to 17–20%. "Enterprising compounders": Now over 70% of allocation: companies reinvesting 80–100% of cash flow into core moats plus new ventures. Acknowledged risks: Zero exposure to metals, oil & gas, PSU banks and underweight lenders/IT means underperformance if those lead, plus de-rating risk if "Quality" stays out of favour. Bottom line: Marcellus is staying concentrated in quality but deliberately rotating away from IT services and urban consumption toward healthcare, exporters and aggressive reinvestors, with added value/growth-surprise orientation.