Markets may consolidate; micro, small and mid-caps could lead alpha generation, says Quant Mutual Fund

While large-cap oriented indices are expected to participate in the country’s long-term economic expansion, the fund house believes micro-, small- and mid-cap stocks could be better positioned to deliver excess returns during the next phase of the market cycle, the fund house said in its monthly factsheet.

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“The markets are expected to consolidate over a period of time, and the large-cap oriented indices will do well to grow along with the macro-economic expansion of the country. Thus, it will be the micro, small and mid-caps spaces, which will drive alpha generation,” the fund house said.

Sandeep Tandon led Quant Mutual Fund further said that in its portfolio capital remains nearly fully allocated to capitalize on appealing valuations across diverse market sectors. Further its portfolio construction strategy is to focus on under-owned, under-researched, under-valued and neglected territory stocks.

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Over the last couple of years, the main concern of the fund house has been over-ownership by foreign institutions. Now, our concern is shifting towards over-ownership by domestic institutions.

As part of its sectoral positioning, Quant Mutual Fund remains underweight on manufacturing companies, citing uncertainty around input costs and supply-chain dynamics. The fund house continues to maintain a positive outlook on sectors such as energy, large-scale infrastructure, select non-banking financial companies (NBFCs), asset management companies (AMCs), select private sector banks, hotels, pharmaceuticals, telecom and data-centre-related businesses.

In its monthly report, the fund house said India will be a big beneficiary of improved trade terms with the US following the trade agreement, which is expected to be finalized soon, because India’s productivity is maximized (Export services) and financial costs are optimized (Forex reserves) better than with any other nation or region in the world.

However, the fund house cautioned that higher crude oil prices, rising input costs and logistics-related challenges could weigh on corporate earnings in the near term.

It further said that we believe that the era of easy money and seemingly perpetual operations of a nebulous ‘Plunge protection team’ is drawing to a close. The new Federal Reserve Chair is setting out to dismantle Wall Street’s expectation of this Fed Put on the markets.

On performance, Quant Mutual Fund said its investment framework has delivered consistent results across market cycles. As of May 31, 2026, the fund house said that nine of 10 equity and hybrid schemes with a 10-year track record outperformed their benchmarks, with all nine ranked in the first quartile.

Around 10 schemes of 12 schemes with a five-year track record outperformed their benchmarks, including eight ranked in first-quartile. Nearly 14 schemes of 16 schemes outperformed their benchmarks over three years, with 13 ranking in Quartile 1 and lastly, 15 schemes of 16 schemes with a one-year track record beat their benchmarks, while 12 ranked in Quartile 1.

It added that instead of relying on traditional buy-and-hold or quasi-passive strategies, investors should focus on adaptive asset allocation and active portfolio management to navigate changing market conditions.

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The fund house also highlighted the growth of its proprietary VLRT (Valuation, Liquidity, Risk Appetite and Timing) framework, which recently completed six years. During this period, Quant Mutual Fund’s assets under management have grown from around Rs 135 crore to over Rs 1 lakh crore, while its investor base has crossed one crore folios. It currently offers 34 mutual fund schemes and specialised investment products.

According to the fund house, its investment philosophy centres on generating superior risk-adjusted returns by maintaining a high active share and avoiding benchmark-hugging portfolios. It said the objective is to actively manage risk rather than simply replicate benchmark indices, with returns viewed as an outcome of effective risk management.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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