Carnelian Compounder

Carnelian PMS | Equity | | PMS

IME's View on Carnelian Compounder

Strategy

Investment Fund

Carnelian Capital Compounder is a recommended fund backed by a highly pedigreed founding team with deep expertise in equity research, institutional investing, and forensic analysis. The strategy is well-articulated investment framework and has demonstrated strong performance since inception.

Fund's Strategy View

A well-defined, fairly concentrated strategy that works well across market conditions as it retains flexibility in investing style. Compounder is a multi-cap portfolio built to capture the “trillion-dollar India opportunity” through high-quality businesses with scalable growth. The strategy focuses on a concentrated set of ~25 stocks, blending large, mid, and small caps with proven execution, governance, and capital efficiency constructed using Carnelian’s QGARP framework. The strategy targets both stable compounders and businesses at inflection points where earnings acceleration and valuation re-rating are likely.

Fund Performance

The fund has outperformed peers in the last 5 year trailing returns. In terms of longer-term annual performance, performance has been consistent, with the fund having outperformed it's benchmark in over 60% of annual calendar years.

IME's View on Carnelian PMS

View on AMC

Carnelian is a young firm in the Indian alternatives space with an impressive founding team from ex-senior investment team members of Edelweiss Securities. Vikas Khemani, the ex-CEO, and Manoj, the head of research, have strong research and investment business-building pedigrees. The investment philosophy and processes are well defined, combining quality growth investing (QGARP) with deep forensic diligence and thematic insights. Performance has been strong.

AMC's Pedigree

The firm is fully founder-owned and led by seasoned capital market professionals with backgrounds in institutional equities, forensic research, and business leadership.

AMC Team

Carnelian is founded by seasoned capital markets professionals with deep institutional experience. Vikas Khemani, former CEO of Edelweiss Securities, brings strategic leadership and decades of market insight. Manoj Bahety, a pioneer in forensic research, developed the acclaimed “Analysis Beyond Consensus” framework. Swati Khemani adds depth across equity research, sales, and business operations. Despite the lack of fund management experience in their prior roles, they have proven their ability to execute the stated investment philosophy well.

Investment Philosophy

Carnelian’s investment philosophy is its QGARP (Quality Growth at Reasonable Price) approach. The framework seeks to identify high-quality businesses with strong cash flows, clean governance, and sustainable moats, while ensuring valuations are reasonable relative to growth prospects. Their research process integrates thematic foresight, bottom-up stock picking, and a proprietary forensic filter called CLEAR—used to evaluate cash flows, liabilities, earnings quality, and corporate governance. Growth is captured through two lenses: “Magic” stocks that are entering accelerated earnings phases due to inflection points like capex completion or leadership change, and “Compounders” that deliver stable, long-duration returns.

Carnelian Compounder- Investment Strategy

Carnelian Capital Compounder is a long-only, multi-cap. and sector agnostic strategy. The fund invests in good growth businesses, managed by great management at a fair valuation.

Strategy Overview Carnelian's fundamentally driven bottom-up stock-picking philosophy is a long-only, multi-cap, sector agnostic strategy.

Investment Framework

Investing in good businesses: with traits such as profitable, robust cost leadership, opportunity and market size, free cash flow generation, the incremental return on capital, time test and easy to understand, and sustainable moat.
Great Management: evaluated based on integrity, modesty and capability, efficient capital allocation and a record of strong governance and risk management culture.
Favourable Risk Reward: upside potential with margin of safety (through business risk, balance sheet risk, and valuations)
Negative Screening: Avoid companies based on Aggressive accounting principles, High financial leverage, Low tax incidence, Management having misaligned objectives, Management with poor governance record and/or Management in hurry to create value.

Forensic Analysis based on CLEAR Framework

Carnelian’s forensic analysis involves a 2 step approach:

Carnelian forensic check: An automated template screening last 10 years of historical data, highlighting potential minesweepers, which get rejected at this stage
Forensic deep dive: CLEAR Framework Their forensic team will deeply analyse the annual reports % financials which will be presented in a prescribed format to the investment committee.

CLEAR Framework CLEAR framework based on: Cash Flows (sustainable cash flows vs reported cash flows), Liability Analysis (True debt vs reported debt, contingent liability & likely impact on future earnings), Earnings Quality (True economic profit vs reported profit, discretionary vs non-discretionary profit), Asset Quality (Core vs non-core assets), and related party transaction & governance issues.Any Stock that does not qualify this framework will be rejected by Investment Committee.

Portfolio Construction

The portfolio is built on their ‘MCO framework‘ – ‘M’agic, ‘C’ompounder, ‘O’pportunistic.

“MAGIC” (50-60%)

Invest in companies during the life cycle in growth & valuation re-rating: Invest in businesses that have a chance in acceleration in growth profile by looking at historic growth trajectory with the aim to capture re-rating that is driven by magic moments that are yet to be recognized by markets.

Regular tracking of corporate announcements, open offers to capture change in management, promoters
Periodic meeting with corporates, channel checks & calls with industry experts
Sudden spurt of revenues, operating profits, margins, improvement in working capital-running of screeners with identified parameters post quarterly and six-monthly results
End of capex cycle-running screeners for additions in gross block

Catalyst for 'Magic' Companies Magic moments are either accelerated by: Management/ CEO Change, Change in Industry Structure, New Growth Catalyst, Product Innovation or Completion of capex phase. “COMPOUNDERS” (40-50%)Invest in stable and sustainable growth, capital-efficient businesses

Structural screeners covering Carnelian parameters based on 10 years of historic data such as revenues/EPS, CAGR, ROE, cash flow conversion and debt-equity levels above their threshold
Business should be non-cyclical, non-commoditized with no material regulatory headwinds and not complex either.

Compounders are identified with the aim to capture smooth compounding with these traits (MRFG):

Moat- stable business, large opportunity size & sustainable moat
High ROE- efficient capital allocation
Robust Free Cash Flows Generation- well-established business models tested across cycles
Growth & Governance

“OPPORTUNISTIC” (0-10%)Invest in Special Situations: IPOs, Mergers, Demergers, Open Offer, Buyback, Delisting, Potential takeover target, Valuation dislocations-Deep value with cashflows; all while maintaining risk-reward.

Risk Management

Single stock exposure: 10%
Sector Exposure limit: 40%
Single promoter group exposure: 20%
Liquidity: 70% of portfolio can be liquidated in 5 trading sessions
Re-evaluation: Any portfolio stock falling >20% against benchmark required PM to revisit and re-evaluate investment hypothesis and present to IC within 7 days.
Investment Committee Veto: Any fresh buying of stock is allowed after the approval of IC. Stocks sold if IC not convinced with re-evaluation finding.

Sell Strategy

When there is a material change in the investment hypothesis
Error in initial investment hypothesis
Valuation stretching significantly outside fundamental valuation
Other lucrative investment opportunities offering better risk-reward metrics

Things that are avoided

Aggressive accounting principles
High financial leverage
Low tax incidence
Management having misaligned objective
Management with poor governance record
Management in hurry to create value

Clearly Defined Investment Strategy Carnelian has a very clearly defined investment process, strategy and portfolio construction frameworks in place. The investment philosophy, driven by their MCO framework (seeks to invest in companies that fit within their Magic, Compounder or Opportunistic baskets) provides a fair degree of flexibility for dynamically changing the portfolio as markets conditions evolve.

Trailing Performance

	1yr	3yr	5yr	Since Inception
Carnelian Compounder	5.9	24.3	23.6	19.7
S&P BSE 500	-6.6	14.7	19.2	16.6
Alpha over Broad Mkt BM	12.5	9.6	4.4	3.1

Performance as of: 30-Sep-25 | Inception Date: 15-May-19 | Performance are post-fees, pre-taxes. Global funds denominated in USD or fund currency.

Investment team

Vikas Khemani | 4-star rated FM

Co-Founder | 30 yrs Experience | 8 yrs at current firm

Past Experience: President (Edelweiss Capital), AVP (ICICI Securities)

Vikas Khemani has over 2 decades of experience of which he spent 17 years incubating and building several businesses to leadership positions including Institutional Equities and Equity Research as a CEO at Edelweiss Securities. He is associated with several industry bodies and committees including the CII National Council on Corporate Governance, FICCI Capital Markets Committee, Executive Council of Bombay Management Association. Vikas Khemani comes with strong business acumen and a deep understanding of the capital markets along with strong relationships with Corporate India.

Manoj Bahety | 4-star rated FM

Co-Founder | 28 yrs Experience | 7 yrs at current firm

Past Experience: Managing Partner (Omniscient Capital Advisors), Deputy Head Research (Edelweiss Securities), Sr. Manager (Morgan Stanley), Manager (Reliance Industries)

Manoj Bahety is a CA and CFA Charter holder with 20 years of rich and diverse financial services with marquee institutions. Manoj spent 11 years at Edelweiss Securities as Dy. Head - Institutional Equity Research, Head - forensic, thematic & mid-cap research. He is known for his "Analysis Beyond Consensus" forensic research approach which helped in avoiding pitfalls and identifying several multi-bagger ideas.

Swati Khemani | 4-star rated FM

Partner | 24 yrs Experience | 7 yrs at current firm

Past Experience: Edelweiss

Swati Khemani one of the Partners at Carnelian AMC. She brings over 13 years of experience in the financial services industry, with her previous stints at Edelweiss and her own venture Newedge Consulting. She is a CA and did her graduations in BCom.