Prefer largecaps over small, avoid 'vaporware'; ICICI Pru AMC’s Anish Tawakley urges caution at market’s cyclical peak

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Amid a market at a cyclical high, investors should exercise caution, particularly in the small and mid-cap spaces, and focus on companies with proven profitability rather than speculative narratives. This was the view of Anish Tawakley, Co-CIO (Equity), ICICI Prudential AMC. In an interview with CNBC TV18, he shared his investment strategy for 2026, warning against 'vaporware' companies where the story far exceeds the reality.

Tawakley expressed a preference for large-cap stocks over a three-year horizon, viewing them as offering a more reasonable risk-return trade-off. He noted that investors must be watchful of significant selling by promoters and private equity firms in the small and mid-cap segments. "I distinguish between hardware companies, software companies, and vaporware companies… where the narrative is way in excess of the reality. And I think those narratives are being exposed and I expect that to continue," he stated.

Delving into sector-specific views, Tawakley remains positive on the financial services space but with clear preferences. He favours large, scaled banks, arguing that banking is an industry driven by scale and customer franchise, not just capital. "I'm not of the view that capital will help solve some of the problems of the smaller banks because capital has never been the problem. The problem has been distribution and customer franchise," he explained. Within financials, however, he advises avoiding the unsecured consumer lending space.

Regarding other financial plays, Tawakley sees asset management companies (AMCs) as less cyclical than brokerages, which are highly transaction-driven. He pointed out that AMCs are less capital-intensive than banks or insurance, which should allow them to pay out a higher proportion of their earnings. On the insurance sector, he prefers life insurance over general and health. He views health insurance as a particularly challenging industry due to the complexities of managing fraud from hospitals, patients, and doctors, and he is not confident about sustainable business models in that space yet.

Tawakley issued a strong critique of the investment rush into Electronics Manufacturing Services (EMS) sector, particularly the way the market values companies based on the Production Linked Incentive (PLI) scheme. He argued that the market is making a mistake by applying a valuation multiple to PLI earnings, which he considers non-recurring. "The way you should look at EMS spaces, you should exclude the PLI income from the profits and value it," he advised. He finds it absurd that a company receiving a ₹1,000 crore PLI grant could see its market capitalisation increase by ₹10,000-15,000 crore, questioning why private capital didn't see this value creation opportunity before government intervention.

On the technology front, Tawakley distinguishes between traditional IT services and new-age tech firms. He is currently avoiding mature software services businesses, anticipating a cyclical weakening of the US economy. Regarding new-age tech companies, especially those operating at a loss, he urged caution. He requires a demonstrated track record of profitability before investing and questions the true market size for these businesses once they aim for profitability. "You might find that the companies have to shrink to improve profitability rather than scale up to improve profitability," he warned.

Looking ahead to 2026, Tawakley is optimistic about the domestic economy's momentum. Consequently, ICICI Prudential AMC favours sectors poised to benefit from domestic growth, including financials, industrials, capital goods, automobiles, and cement.