ETMarkets Smart Talk | AI, defence, power: Investors need to be selective as valuations turn expensive, says Aditya Khemani
Aditya Khemani, Head of Equities at Invesco Mutual Fund, believes investors need to be particularly selective at this stage. He cautions against confusing strong earnings momentum with business quality, especially when red flags such as weak cash flows or stretched valuations are overlooked. While India’s growing domestic liquidity provides a cushion against sustained FII selling, Khemani says…
India’s mid- and smallcap rally continues unabated, with investors gravitating towards themes such as artificial intelligence, defence, power, data centres, and manufacturing. However, beneath the headline gains, valuations are becoming increasingly expensive in several new-age and emerging segments. Aditya Khemani, Head of Equities at Invesco Mutual Fund, warns investors to exercise caution and selective investment during this phase.
He emphasizes the need to differentiate between strong earnings momentum and genuine business quality, especially when red flags like weak cash flows or stretched valuations are ignored. While India's growing domestic liquidity offers some protection against sustained Foreign Institutional Investor (FII) selling, Khemani stresses that investors should focus on fundamentals, reasonable valuations, and long-term business economics rather than simply following market trends.
In an interview with Kshitij Anand of ETMarkets, Khemani delves into the outlook for mid- and smallcaps, the AI and defence sectors, the impact of higher US yields, and the growing importance of valuation discipline for investors. He notes that while broader market participation is a healthy sign, the market is becoming increasingly polarized, with traditional sectors lagging behind emerging areas.
Valuations have become stretched in certain pockets due to strong narratives and earnings momentum, suggesting that complacency may be setting in.
Khemani acknowledges that buying into sectors linked to capital expenditure, defence, manufacturing, power, or AI is not unique to India. However, he points out that sectors such as power transmission and distribution, data centres, and related infrastructure have emerged as key players in India's AI strategy, leading to expensive valuations.
In the defence sector, private companies are outperforming public firms, driven by indigenisation efforts and increased private sector participation. Despite the attractive short-term returns, Khemani advises investors to be selective and prudent, focusing on the long-term economic viability of businesses and avoiding overreliance on growth narratives.
Written by urgent.news from The Economic Times - Top News's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
