Invesco’s ₹16,000 crore midcap fund delivered 426% return in 10 years. Aditya Khemani reveals the strategy

Invesco India Midcap Fund has emerged as the best-performing midcap fund over the past decade, delivering a 426% return while building assets under management of about ₹16,000 crore. Its performance has been driven by a long-term, earnings-focused approach that looks beyond near-term valuation multiples and market noise.

Aditya Khemani, head of equities at Invesco, told ET Markets in an interview that the fund’s investment process is built around identifying businesses with strong earnings power, capable management teams and a long runway for reinvestment. The fund runs a reasonably concentrated portfolio where the top 10 stocks contribute to nearly half of the portfolio. In June, the scheme had 41 stocks with Prestige Estates, Federal Bank, Max Healthcare, Meesho and Global Health being the 5 largest holdings.

The portfolio has a churn ratio of about 31%, translating into an average holding period of roughly three-and-a-half years. Khemani, however, says churn is not a target in itself.


“For any fund, churn isn't a targeted number — as a fund manager you don't decide in advance what your churn will be; it's always an output,” he said.

According to Khemani, the intention is to hold a company for five years when it is initially purchased. That holding period can change if the investment thesis weakens or if the stock becomes expensive much faster than expected.

“If a stock you bought moves up 100% in a year and you decide to exit, that can still be a healthy churn,” he said. “But if you keep buying a company, then exit three months later because it isn't playing out as expected, and repeat that pattern, that's unhealthy churn — more of a trader's mindset.”

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Earnings power over near-term valuations

Khemani says the fund does not automatically sell a stock merely because its price has risen sharply. The more important question is whether the company’s earnings outlook has strengthened.

“Stock price going up is one thing, but what's happening to the earnings is far more important,” he said.

He cited CDMO as an example. Invesco participated in an IPO with certain expectations about the business. As execution improved and the business strengthened over the following two to three years, the fund increased its exposure despite the stock more than doubling.

“Is the business getting stronger than we thought? Is execution improving? Is the company winning customers it wasn't able to before?” Khemani said. “There are a lot of factors to weigh.”

The approach means that price-to-earnings multiples are not viewed in isolation. Khemani says the fund focuses more closely on how earnings can compound over a three-to-five-year period than on a single year’s projected earnings.

“Earnings matter, but a qualitative judgment of what's happening to earnings power matters even more, because that's what ultimately determines whether something is cheap or expensive,” he said.

Absolute market capitalisation is another factor. A company may appear expensive on a near-term PE basis but still have a large growth runway if its market value remains relatively small, according to Khemani.

Business, management and price

Khemani says Invesco evaluates every company through a framework that considers the business and its management or promoter before looking at price.

“As investors, we need companies that combine a good business with good management — the first two are non-negotiable. Price comes third, and that's where relative valuation comes in,” he said. “At the end of the day, a good investment is a marriage of all three.”

The fund manager also places significant emphasis on capital allocation. A company that appears to be high quality can still face a long-term earnings problem if it fails to reinvest adequately in future growth.

“The biggest risk in a ‘quality’ investment is that a company that looks like quality doesn't reinvest enough, and ends up with a longer-term earnings problem,” he said.

This is particularly relevant in sectors such as hospitals, CDMO, electronic manufacturing, aerospace and precision engineering, where the growth opportunity depends on continued investment and execution.

Khemani said hospitals still have significant reinvestment potential because quality tertiary healthcare remains concentrated in a limited number of Indian cities. Expansion into tier-2 and tier-3 markets could provide corporate hospital chains with a longer growth runway.

A blend of growth and value

Although Invesco’s mid-cap and small-cap mandates naturally lean toward growth, Khemani says his portfolios use a blend of growth, value and GARP-style investing.

Across the portfolios he manages, roughly 50–60% is oriented toward growth-style investing, while 40–50% is allocated to value or GARP-style opportunities.

The challenge, he said, is that fast-growing companies have become expensive while slower-growing companies are being largely ignored. That makes it difficult to concentrate entirely in either category.

“You don't want to be overly concentrated in expensive growth names, but you also don't want to be overly concentrated in value names where the earnings outlook is uncertain,” he said.

Time arbitrage in an efficient market

Khemani believes markets have become significantly more efficient over the past decade. The expansion of mutual funds, PMS structures, AIFs and investor-relations functions has reduced information asymmetry across companies.

As a result, the fund manager says reacting to short-term news is unlikely to provide a sustainable edge. Instead, Invesco focuses on “time arbitrage”—owning companies that may remain under pressure over the next three to six months but have the potential to recover over a two-to-three-year period.

“The real edge available to a mutual fund manager today comes mainly from time arbitrage,” he said.

Khemani says quarterly results should be treated as facts that help investors test their investment thesis, rather than as triggers for knee-jerk decisions. A weak quarter may reflect temporary industry conditions, while a sustained loss of market share could indicate that the original thesis is failing.

“In some businesses that are inherently lumpy, a result that looks weak and causes a 10–15% fall can actually be a buying opportunity,” he said.

Where institutional investors retain an edge

Khemani admits that retail investors face a structural disadvantage in highly technical sectors such as CDMO, specialty pharma and electronic manufacturing.

Institutional investors have greater access to company managements, plant visits and sector specialists. That allows them to build a deeper understanding of complex business models, although Khemani acknowledged that even professional investors are still learning in newer segments.

“Honestly, even we are still evolving our understanding,” he said.

The same learning process applies to fund managers. Khemani said Invesco has missed companies and occasionally backed businesses that later proved less attractive than newer competitors.

“Investing is a field that will always leave you a little dissatisfied — there's always some regret,” he said.

For the ₹16,000-crore mid-cap fund, the strategy remains centred on identifying businesses where management quality, reinvestment opportunities and long-term earnings power can combine to create sustained value.

Disclaimer: This article has been written by Nikhil Agarwal, who is not a SEBI-registered Research Analyst or an Investment Adviser. Nikhil Agarwal and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimershere