Invesco's Aditya Khemani Bets Big on Power Stocks Amid Valuation Concerns

Aditya Khemani Remains Bullish on Power Sector Value Chain

Aditya Khemani, Fund Manager at Invesco Mutual Fund, continues to express optimism about the power sector value chain, despite stretched valuations in certain segments. In a recent assessment, Khemani highlighted the importance of adopting a bottom-up approach when evaluating the sector.

Optimistic on Transmission and Distribution

Khemani prefers to position investments in the transmission and distribution segments rather than the generation side. On the transmission side, he favors companies operating in the high-voltage space, particularly those offering high-tech equipment such as STATCOM, HVDC equipment, circuit breakers, etc. On the distribution side, he likes companies involved in software and systems integration.

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Assessing March Quarter Earnings Season

The March quarter earnings season has concluded, with more companies performing better than expected. Commodity producers performed well, while commodity users faced challenges. The lending space, including banks and NBFCs, also saw strong growth and improved asset quality. On the consumption side, trends were mixed, but more companies performed well than those that did not. The industrials sector, particularly the power ecosystem and its ancillaries, performed strongly on the back of robust growth.

Concerns about Earnings Growth in June Quarter

Khemani expressed concerns about earnings growth in the June quarter, citing the impact of the West Asia conflict on global commodity prices. This has distorted supply chains and led to elevated prices. Companies may struggle to pass on these increased costs to consumers, and demand elasticity will be tested. However, markets are forward-looking and may already be pricing in these concerns.

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FY27 Outlook

The trajectory of the West Asia conflict will largely determine how FY27 shapes up. Earnings growth is expected to recover from around August onwards, with the first half of the year potentially being weaker due to elevated commodity prices and the negative impact of the conflict. The second half of the year could see stronger earnings growth as conditions improve.

Market Outlook

Khemani remains optimistic about the market, citing the favorable risk-reward balance. He expects a sharp decline in commodity prices once the West Asia conflict is resolved, which could lead to an improvement in macroeconomic variables. Investors should construct a diversified portfolio across sectors rather than focusing on short-term performers.

Recommended Sectors

Khemani recommends including certain sectors and themes in investors' portfolios, such as healthcare services, financialization, retailing, premiumisation, electrification, convenience, electronic manufacturing, and aviation. Evergreen sectors such as financials, healthcare, consumption, and manufacturing are also attractive.