Fund Manager Talk | Rally in rail, defence stocks at execution risk: Krishnan VR

economictimes.indiatimes.com:

Extended valuations in some sectors like railways, defence, renewables and other capex driven plays could be at risk especially if any delay in execution and resultant earnings disappointments, says Krishnan VR, Chief of Quantitative Research team at Marcellus Investment Managers. Edited excerpts from a chat:

Take us through the performance of MeritorQ PMS in May. What worked?
The portfolio was up 1.7% in May compared to 0.8% for the benchmark BSE 500 total return index. Because many portfolio companies reported their fourth quarter (and full year) results last month, the performance was partly driven by positive earnings surprises. Performance was fairly broad-based with roughly half of the portfolio stocks outperforming the benchmark. Our analysis also shows that MeritorQ’s strategy of buying undervalued yet fundamentally strong companies, typically delivers positive excess returns around earnings dates, because the relative mispricing has higher chance of correcting as new positive information is released at earnings announcement.

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You've had significant allocation towards small and midcaps. Do you think that the equation will change in favour of largecaps given the underperformance?
We have consistently reduced our allocation towards small and midcaps in MeritorQ