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Indian financial services remain a strong long-term investment theme, but investors need to be cautious in the near term as parts of the market appear to be at a cyclical peak, says Anish Tawakley, Co-CIO (Equity) at ICICI Prudential AMC, which manages assets worth nearly $3.05 billion as of November 30, 2025.
Tawakley said, “Even if there is a structural story, while we are at a cyclical high, you need to be slightly careful,” he said.
Within banking, Tawakley said scale remains the biggest advantage. He prefers large banks and is cautious on smaller players.
Banking, he explained, is not constrained by capital but by distribution strength and customer franchise. “Capital has never been the problem. The problem has been distribution and customer franchise,” he said, adding that simply raising capital does not solve the structural issues of smaller banks.
As a result, his preference remains firmly with large, well-established banks rather than smaller or mid-sized lenders.
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Tawakley also flagged risks in capital market-linked businesses such as brokerages. With transaction activity already at elevated levels, he believes earnings in this segment are highly cyclical.
He pointed out that the recent weakness in small-cap stocks could put pressure on brokerage revenues, which are heavily dependent on trading volumes. In contrast, asset management companies (AMCs) are relatively more stable.
While constrained in commenting due to his firm’s IPO, Tawakley highlighted that regulatory measures aimed at lowering costs have historically helped the mutual fund industry grow by making products more attractive to investors.
He also noted that AMCs tend to be less cyclical than brokerages because their asset base is more stable. In addition, the AMC business is less capital-intensive than banks or insurance, allowing higher payout ratios over time.
On insurance, Tawakley said he prefers life insurance over health and general insurance. He believes capital is not the key challenge for the sector, especially given the current state of capital markets.
Health insurance, he cautioned, is structurally difficult due to challenges around fraud management. According to him, health insurance is often more about controlling fraud by hospitals, doctors and patients than about delivering healthcare, making sustainable performance harder to achieve.
Life insurance, on the other hand, continues to show better long-term potential.
Commenting on sharp post-listing rallies in some recent IPOs, Tawakley said his investment approach focuses on businesses with a proven track record of profitability.
He warned that IPOs often come to market when business performance is near its peak, as promoters and private equity investors look to dilute holdings. Over longer periods, he said, IPO performance has been less impressive than initial listings might suggest.
He also cautioned investors when there is heavy selling by promoters and private equity funds, particularly in the small- and mid-cap space. According to him, many such companies were driven more by narrative than fundamentals, and those narratives are now being tested.
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On technology, Tawakley said he is avoiding traditional IT services companies as he expects the US economy to weaken cyclically. A slowdown in the US could impact demand for Indian IT services.
He also expressed caution on new-age tech companies that are growing rapidly while making losses. According to him, the real market size of such businesses often becomes clear only when they attempt to turn profitable.
In some cases, he believes companies may need to shrink rather than scale up to improve profitability, challenging the assumption that growth alone will fix business models.
For full interview, watch accompanying video
