At a time when uncertainty often pushes investors to the sidelines, Swati Khemani, founder and chief executive officer of Carnelian Asset Management and Advisors, has been closely engaging with clients amid heightened market volatility.
She believes the next big shift could come from global capital flows. If money exits developed markets, especially as US interest rates ease, some may flow into long-term growth markets like India.
“In a volatile world, investors look for economies that offer stability and growth, and India fits that profile.”
Edited excerpts:
First of all, I’ve come across only a handful of women at the senior level in the fund management industry. So how has your role evolved over the years?
I think the move into this role happened quite naturally for me. When you understand the product deeply, it becomes much easier to sell or convince people because you know exactly what you’re talking about. My investment banking and research background helped a lot in that sense. I also always enjoyed public speaking, debates and meeting people, so connecting with clients came very naturally.
At our firm, we strongly believe sales should be authentic. Don’t sell something you wouldn’t buy yourself. Performance can go up and down, operations can have issues, but honesty with clients is non-negotiable.
We also place heavy emphasis on training and development. Weekly, we have internal sessions where fund managers discuss portfolios, market trends and product updates, while teams share changes around onboarding, compliance and regulations.
When we started the firm, the three co-founders were clear about one thing: we wouldn’t do to clients what we wouldn’t do ourselves. Even if that means slower growth or not aggressively chasing AUM targets, we’re comfortable with that.
How have your discussions with investors evolved over time—say, from five months ago to now—given the heightened volatility and rapid developments?
Two things have changed. First, client conversations have matured over time. Investors today are far more informed, largely because of social media and easy access to information. Earlier, any geopolitical event could trigger panic—markets would fall sharply, and investors would rush to redeem. Today, that reaction is far less common. In fact, even during recent volatility, we haven’t seen panic calls or redemptions like we would have pre-covid. Conversations are now more structured. People want to understand where markets are headed rather than reacting emotionally to every event.
The second change is in investor behaviour. After covid, many believed they could manage money themselves because returns were strong. But the volatility over the last couple of years has reminded people that markets aren’t a one-way journey. Now we are again seeing investors come back for professional advice, whether through mutual funds or PMS, because managing money consistently isn’t as easy as it seems.
And specifically on the US-Iran conflict, do you see it turning into a prolonged episode or something that could ease relatively soon?
As for the US-Iran situation, it’s very hard to predict how long it may last. It could ease eventually, especially given the leadership uncertainty, but conflicts today are far more complex. Conflicts like Russia-Ukraine show how issues can drag on and flare up depending on global power interests. In West Asia, too, tensions have been building since the Israel-Gaza conflict in October. There are also strong religious sentiments involved, so it’s not simply about one leader being removed and the situation ending. These conflicts run deeper than that.
At the same time, we must remember that there were conversations and warnings before the escalation, so countries would have also considered possible contingencies.
Could it potentially impact investor sentiment in India?
So, while we will keep watching how things evolve, the immediate impact on India may not be very significant. A lot of credit goes to Prime Minister Narendra Modi, as over the last 10 years, India has handled many delicate situations diplomatically. The government has generally taken a balanced and responsible approach. For instance, on tariffs last year, it would have been easy to give in, but India held its ground and eventually negotiated a better outcome. So I believe the leadership understands these dynamics well, and that reduces the risk of any direct fallout for India.
More importantly, India’s structural story remains strong. This is something we’ve been discussing with clients as well. Despite the current events, fundamentals haven’t changed. Corporate earnings, especially from the December quarter, were broadly healthy. Autos are improving, the capex cycle is picking up, and policy steps like GST (goods and services tax) cuts will start showing benefits over the next three to six months. Any policy move takes time—three, six or even nine months—to reflect in the economy.
Whether you look at fiscal health, corporate balance sheets or household leverage, things are far more stable than before. Regulatory changes and cleaner systems have also reduced risks, such as excessive leverage and sudden margin funding crises. So even if global events cause temporary disruptions, they don’t derail the broader trajectory.
We’ve seen this before, during the Russia–Ukraine war or even covid. Initially, there were supply shocks and uncertainty, but the economy adjusted and markets eventually recovered. India has strong demographics, a large domestic market and a government that continues to push long-term reforms. Because of that, these periods of volatility are often opportunities to build portfolios rather than reasons to panic.
Even on oil, which is the biggest concern if the Strait of Hormuz were disrupted, India has diversified its sourcing. As seen during the Russia-Ukraine conflict, the country has managed energy supplies pragmatically. So overall, India is far better positioned to absorb such shocks.
Do you think capital could start gravitating back toward India now?
In fact, if global capital starts moving out of developed markets, especially once US interest rates begin to fall, some of that money could flow into stable, long-term growth markets like India. In a volatile world, investors look for economies that offer stability and growth, and India fits that profile.
At this point, there’s no need to make any significant shifts in portfolios despite these global disturbances.
So in times like these, what are the key factors you usually monitor?
Staying focused on domestically driven businesses and import substitution also serves as a natural hedge against these disruptions.
See, as long-term investors, we have to be mindful of what a business model depends on. For example, if we invest in aviation, we must remember that oil is a very big variable. And in today’s environment, disruptions can easily push oil prices off track. That’s why we generally avoid such stories unless there is a clear short-term opportunity based on valuations or positioning.
Our portfolios typically hold about 25–30 stocks. We prefer a focused approach rather than excessive diversification. The idea is to do deep homework and invest in businesses with long-term potential, while also stress-testing key variables that could impact them.
In a market as large as ours, even within the top 500 companies, it’s not difficult to find 25–30 strong businesses that fit this approach.
But you also have a big exposure to defence stocks?
No, as much as we’d love to, we have a very small exposure to defence.
It fits the bill, right? With the import-substitution and domestic themes.
It absolutely fits the bill. But the challenge has always been that there are very few listed defence players. And over the last two–three years, despite all the excitement around defence, we haven’t really seen numbers that justify the valuations. We are extremely cautious about our entry price—the risk-reward has to be compelling.
In a sector where everyone wants exposure, we still haven’t found an opportunity where the management, business model, and valuations all align for us. We did have a small exposure to BEL (Bharat Electronics Ltd) and HAL (Hindustan Aeronautics Ltd), but nothing sustained because valuations ran ahead.
Hasn't generating alpha become more difficult lately?
Generating alpha has always not been easy. Currently the bigger challenge post covid, has been the reset of investor expectations on the higher side, returns of 15-17% no longer seem good, which, but I think, is the most likely outcome.
Yes, markets have become far more dynamic. Events unfold rapidly—tariffs, court rulings, geopolitical tensions—often within days, and markets react instantly. Everyone in the world gets the news at the same time. Rumours or misinformation are easy to float and, at times, hard to distinguish from information and noise. As a result, sentiment and narratives tend to drive markets more than fundamentals in the short run.