ICICI Prudential Asset Management Company is maintaining a strong preference for manufacturing companies over consumption-focused businesses, with Chief Investment Officer for PMS and AIF Anand Shah citing currency depreciation, competitive advantages and earnings prospects as key factors shaping the investment strategy.

Shah views the rupee's depreciation as a potential support for domestic manufacturing rather than solely as an economic concern. India continues to consume more than it produces and maintains a substantial trade deficit with China despite lower labour costs. Higher logistics and power expenses also affect the competitiveness of Indian manufacturers. According to Shah, a weaker rupee can provide domestic producers with temporary relief by improving their relative cost competitiveness.

The investment approach emphasizes companies capable of generating sustainable wealth rather than those with large market capitalizations alone. Shah highlighted business quality, management capabilities and valuations as the primary considerations when selecting stocks. While several large-cap companies remain attractive, he believes a greater proportion of mid and small-cap stocks are trading at expensive valuations.

The fund house continues to favour mid and small-cap companies across its flexicap strategies, supported by a broader universe of potential investments and greater exposure to manufacturing businesses. However, the strategy remains focused on selecting individual companies rather than making investment decisions solely on the basis of market capitalization. Shah also indicated that the dedicated small-cap strategy has been the strongest performer within the firm's portfolio of strategies.

Metals and textiles have remained areas of investment interest for the past three to four years, including periods when investor sentiment toward these sectors was weak. Shah noted that since the broader market's September 2024 peak, the wider market has declined by approximately 5%, while the metals sector has gained around 8%. The firm's metals exposure stands at approximately 15%, below its internal sector allocation limit of 20%.

The investment team has also begun selectively increasing its exposure to information technology stocks after maintaining no exposure at the beginning of the year. Valuation corrections and moderated market expectations have created opportunities to reconsider the sector. However, the team remains underweight on IT, as the initial effects of artificial intelligence on the industry's business models and earnings are becoming more visible. Shah believes meaningful AI-driven benefits for Indian IT services companies could take time to materialize.

Looking ahead, Shah expects earnings performance to increasingly favour manufacturing businesses over consumption-oriented companies. Metals, textiles and chemicals are showing encouraging business traction, and the firm expects manufacturing companies to deliver comparatively stronger earnings growth as the year progresses.

Market sentiment also reflects this divergence. Several textile stocks have gained approximately 30% to 50% year to date, despite subdued performance across the broader equity market. Export-oriented manufacturing companies have experienced improving sentiment, while consumption businesses continue to face pressure from elevated food and fuel inflation. The investment strategy therefore remains focused on identifying companies with stronger earnings prospects, competitive advantages and reasonable valuations rather than following prevailing market preferences.