India’s mid- and smallcap rally is showing no signs of losing steam, with investors continuing to chase themes such as artificial intelligence, defence, power, data centres and manufacturing. But beneath the headline gains, the market is becoming increasingly polarised, with valuations in several new-age and emerging segments turning expensive.
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 investors should remain focused on fundamentals, reasonable valuations and the long-term economics of businesses rather than simply following the latest market narrative.
