Earnings will take a hit, but it doesn’t change the long-term math
Khemani is candid about the near-term damage. Q1 earnings could come in 20 to 30% below expectations for companies exposed to global trade, supply chain disruptions, and elevated energy prices. But he is quick to add that sectors like BFSI will see little to no meaningful impact, and that the pain will not be evenly distributed across the market.
“If 80-90% of a company’s value comes from terminal value and you are getting a stock cheaper by 20-30% because of one or two quarters of earnings disruption, it is more of an opportunity than a risk,” says Khemani.
His framework is straightforward: short-term disturbances rarely destroy terminal value. Every crisis he has lived through — the Ukraine war, previous tariff shocks — eventually passed, and the companies that survived came out stronger for it.
What he bought during the rally — and why
Rather than making dramatic portfolio shifts, Khemani made targeted additions. He meaningfully increased exposure to banking and financial services, which he says had become “very, very reasonable and attractive” at corrected valuations. He also added to aviation, viewing the sector’s earnings blip as temporary rather than structural. Automobiles remain his largest consumer discretionary exposure — a deliberate choice he says offers better valuations, margins, and return profiles than air conditioning or other durables, without the vulnerability to monsoon or seasonal cycles.
IT: The narrative was exaggerated, the value is now real
Khemani pushes back firmly on the idea that AI spells the end of Indian IT services. His argument: IT companies will be the ones implementing and delivering AI solutions to global clients; the model isn’t dead, it is transforming. With several large IT stocks down 20 to 40% from their peaks and rupee depreciation providing an additional cushion on dollar earnings, he believes the risk-reward in the sector has turned decisively favourable.
He draws a pointed parallel to the last big technology transition: after 2000, it was not Wipro or Infosys that dominated the next decade, but newer names like HCL Tech, Persistent, and LTTS. The same dynamic will play out with AI — and Carnelian has been quietly identifying the likely winners for the past one to two years.
India as a structural winner
On the macro picture, Khemani believes the global disruption tilts in India’s favour over the medium term. The EU free trade agreement is already in place, manufacturing demand — both domestic and international — is set to recover, and oil, the one wildcard he flags, is already showing signs of retreating from elevated levels.