Much of the market downside may be behind us, says Carnelian’s Vikas Khemani

“We have had two years of a difficult environment—Operation Sindoor, tariff-related issues and this war in West Asia. But I think much of the downside is behind us. Yes, the US macro picture looks bad and yields are very high. But I think it is very much like the Ukraine war we saw in 2022. High oil prices, supply-chain issues and all those kinds of events were also there. The good news is that India is doing well. Corporate profits are growing, auto numbers are good, credit growth is good, and there is no leverage at the corporate level,” Khemani told Business Today.

He stressed that the biggest investment opportunities emerge when the environment is challenging.
“If you look at it, GDP is growing, tax collections are strong and valuations have come down. It is possible that the next three months may not be good. But if you look three years ahead, I think this vintage will be very rewarding,” Khemani pointed out.

Khemani spent 17 years at Edelweiss Securities before striking out on his own with Carnelian Asset Management & Advisors in 2019. Carnelian offers portfolio management services (PMS) and alternative investment funds (AIFs), and its assets under management have risen from around Rs 135 crore in 2019-20 to around Rs 20,550 crore today.

Carnelian has entered the mutual fund space and is launching its first fund in the small-cap segment. What gives Khemani the confidence to launch a small-cap fund at such a volatile time?

“If you look at the last 10 years, small-caps have delivered a CAGR of almost 23%, compared with large-cap returns of 12-13%. There is a lot of opportunity outside the mainstream because India is emerging very quickly. Every day, we see new businesses coming through. It is a very broad space, spanning healthcare, CDMO (contract development and manufacturing organisation), manufacturing and consumer businesses. We are beginning to see many interesting segments emerge. Even within small-caps, value is available,” Khemani noted.

While uncertainty persists and it may be difficult to predict what will happen over the next few months, Khemani remains confident about the broader 10-20-year trajectory. As India’s corporate profits rise over the next decade, its market capitalisation will also increase significantly, he said.

Carnelian will be selective with its initial launches. “We will launch only those products that either serve a specific need in a customer’s portfolio or allow us to deliver value,” Khemani said.

Over the next two to three years, Carnelian may launch only four or five schemes, potentially including a flexi-cap, mid-cap or balanced advantage fund (BAF). The asset manager is also unlikely to launch sectoral funds.

“We are not in this for AUM (assets under management). You can launch more NFOs, introduce a defence fund and raise Rs 1,000 crore. But that is not how we operate. If you remember, a lot of infrastructure funds were launched during 2005-07. Where are they now? If I am bullish on infrastructure, I would go overweight on that sector in an existing scheme rather than raise money through a separate fund,” he said.

India’s mutual fund industry has grown rapidly over the past decade, with several new players entering the market to tap rising retail investor participation. At the end of September 2026, the country had 57 fund houses, while the industry’s net AUM stood at Rs 82.64 lakh crore.