Formalisation of consumption and shift from physical assets to financial assets are two epic themes that Saurabh Mukherjea, Founder, Marcellus Investment Managers, talks about in this chat with ET Now: Edited excerpts:

It has been a good year for smallcap investors, midcap investors and for value and quality investors like you. What is in store as we move from 2021 to 2022?
The good news now is that the economic recovery is fairly robust. It is broad based. It is global and therefore the economic uncertainties are quite muted. We might have to focus a little bit more on the geopolitics - Russian-Ukraine situation, Chinese aggression and the situation in Afghanistan. Economy-wise, 2022 looks like a more predictable year than the one that we have just gone through. I think the COVID story is relatively well understood. Now there will be various waves of COVID. Health authorities globally are fairly alert and awake to this and therefore the economic disruptions from COVID will be much-much more muted in 2022 than they have been over the last couple of years. Now if you have a solid economic recovery, the best way to benefit from this is to invest in high quality lenders and high quality financial services companies more generally. If you want to be a little bit more aggressive, look for companies which are plays on the real estate recovery. We are doing that through building materials.

Given that the positioning of the economy will be slightly different as the capex economy comes back, does it prompt you to change your portfolio allocation?
We have found consistently that running concentrated portfolios in India of around 15 stocks gives our clients the best risk-reward balance. As it becomes obvious that we are in for 2-3 years of recovery around the world, plays on economic recovery becomes more attractive. More than conventional capex and putting bricks and mortar into the ground, tech is the capex of our era. Therefore, the big Indian IT services firms become plays on the global economic recovery. TCS and L&T Technology Services belong to our portfolios. These companies are now the engines of global capex because large western companies come to these companies either for conventional IT projects around cloud, mobile, SaaS or in the case of L&T Technology Services, engineering R&D.
We have in our portfolio a company called Grindwell Norton which is a light industrials play and it plugs into the economic recovery quite nicely. We are looking for more such plays - capital goods companies, light industrial companies which can give us a more pronounced play on the economy.

What could be the big hallmark factor in 2022 which you would be monitoring?
Our reckoning is that the coming year will also bring some IPOs which are more classical plays on the Indian consumption where the market is not yet consolidated like paints or adhesives. We basically invest in a company which goes on to consolidate a large market. If you ask me this is a massive opportunity. There are so many more sectors where the consolidation is yet to happen in our country. That it is quite mouth-watering if you look at the Indian economy and see how much wealth will be created in the next 10 years as you consolidate the sector. In the last ten years, the Indian stock market created a trillion dollars of wealth. I reckon that in the next 10 years, Indian stock market could create two trillion dollars of wealth. So from 2000 to 2010, the market created around 0.5 trillion dollars of wealth, from 2010 to 2020 you had a trillion dollars of wealth and the next 10 years could be potentially two trillion dollars. Plays like the formalisation of consumption and shift from physical assets to financial assets are epic themes as so much wealth is waiting to be created there.