Aditya Khemani’s Invesco Smallcap Fund Outperforms by 10%

The Invesco India Smallcap fund, managed by Aditya Khemani, Head of Equity at Invesco Mutual Fund, delivered an impressive nearly 10% outperformance against its benchmark. This notable achievement occurred during a volatile period when the broader small-cap market experienced a downturn.

Khemani’s approach centers on a disciplined risk management strategy and bottom-up stock picking, crucial for navigating the inherently riskier small-cap segment. His methodology focuses on maintaining a high-quality portfolio while making strategic adjustments to market cap exposure and sector allocation.

Disciplined Portfolio Construction

The fund’s outperformance stems from several deliberate decisions. Khemani purposefully reduced exposure to the very smallest segment of the market to mitigate pain.

• Prioritizing the quality of the portfolio to ensure resilience during market downturns.
• Reducing exposure to stocks with market caps below Rs 7,000–8,000 crore.
• Avoiding overheated sectors, specifically industrials, which were trading at high price-to-earnings ratios and were susceptible to earnings deterioration.

Key Numbers Behind the Strategy

The quantifiable results underscore the effectiveness of this strategic management:

• Benchmark outperformance: nearly 10%.
• Market cap threshold for reduced exposure: below Rs 7,000–8,000 crore.

Rethinking Small-Cap Risk

Khemani actively challenges the traditional notion that high risk in small caps should automatically equate to high return expectations. He emphasizes the importance of consistent risk management in small-cap investing.

Historically, small-cap indices in India have not always outperformed mid-caps significantly over the long term, a point Khemani notes. This perspective informs a more measured, quality-focused approach to the small-cap universe, moving beyond speculative growth to fundamental strength.