BFSI Stock Picks: ICICI Bank, SBI among Mirae Asset’s top 10 picks for investors after mixed Q2; Should you buy or hold?
- BFSI Stock Picks: Mirae Asset said the near-term outlook seems challenging for the banks and NBFCs due to pressure on NIM, likely increase in credit cost and contained growth.
Indian banks and non-banking financial companies (NBFCs) reported a mixed performance for the July-September quarter of current fiscal (Q2FY25) on margin compression, an increased credit cost and a slowdown in credit growth. Analysts say banking majors are raising deposit rates and shoring liability franchises to ensure guided loan growth. Q2 was challenging for banks as margin moderation and higher costs weighed on core profitability.
According to brokerage Mirae Asset Capital Markets India Pvt Ltd, banks may face challenges to credit growth amidst higher competition for deposit accumulation and rising stress in some unsecured retail segments. The near-term outlook is challenging for banks and NBFCs due to pressure on net interest margin (NIM) a likely increase in credit costs, and contained growth.
Also Read: Q2FY25 results review: PNB, BoB to Canara Bank — Profit of PSBs jumps 35.4% to ₹45,550 crore
BFSI Q2FY25 Review
The bank’s credit growth figure eased to 14.8 per cent year-on-year (YoY) in Q2FY25, compared to 15.4 per cent YoY in Q1FY25 and 14.9 per cent YoY in the year-ago quarter. Banks faced higher competition, which resulted in higher deposits and margin moderation costs. Lenders witnessed higher slippage from the retail unsecured/micro-finance segments, which increased credit costs.
Loan growth for the industry moderated in Q2 yearly due to slowed growth in segments like retail unsecured, micro-finance, and NBFC due to regulatory concerns and rising delinquencies. Public sector banks (PSBs) reported loan growth of 13 per cent YoY in Q2 compared to 14 per cent in Q1. Private banks reported loan growth of 11.5 per cent compared to 29 per cent YoY.
Considering the prevailing scenario, the brokerage advised investors to adopt a stock-specific approach to investing in the banking, financial services, and insurance (BFSI) sector. According to Mirae Asset, larger banks with deeper liability franchises and granular deposit books are currently better placed.
Top BFSI Stock Picks by Mirae Asset Capital Markets
According to the brokerage, the BFSI sector is a cornerstone of India’s economy, showing resilience amid global challenges. The BFSI sector offers a mix of stability and growth opportunities. "While large banks like ICICI Bank, HDFC Bank, and State Bank of India (SBI) remain market leaders, growth-oriented banks/NBFCs like Bajaj Finance, Cholamandalam, and Shriram Finance provide strong prospects for diversification," said Mirae Asset.
Analysts advise investors to adopt a stock-specific approach, focusing on companies with robust fundamentals, strong liability franchises, and scalable business models for long-term gains. Mirae Asset Capital Markets India highlights the top 10 BFSI stocks with strong growth potential and stability.
Also Read: Q2 Results Review: 66% companies see EPS cut, small and midcaps hit hard; PSBs, pharma shine
The brokerage evaluated the key BFSI players based on their performance metrics and target prices (TP) to make investment decisions. ICICI Bank, SBI, and Aadhar Housing Finance Ltd. are the top picks among BFSI stocks.
Here are the top 10 BFSI stock picks for investors:
1) ICICI Bank (CMP: ₹1,301.85, TP: ₹1,505)
The brokerage said ICICI Bank remains a top pick, consistently outperforming peers with its diversified portfolio and strong operational metrics. The bank’s credit growth of 18 per cent YoY and gross non-performing asset at 2.6 per cent reflect sound risk management and sustained profitability, making it a must-have for long-term investors.
ICICI Bank's margin will likely be broadly stable in H2 relative to H1 until a rate cut cycle starts. CoD is largely peeked out. The bank's management is confident it will contain a credit cost of 40-50 bps this fiscal year.
2) HDFC Bank (CMP: ₹1,811, TP: ₹1,950)
India’s largest private-sector bank, post-merger with HDFC Ltd., boasts a strong CASA ratio and a well-balanced loan book. According to the brokerage, HDFC Bank's ability to maintain robust growth in retail and wholesale lending segments solidifies its position as a market leader.
3) SBI (CMP: ₹834.20, TP: ₹1,010)
The largest PSB continues to deliver strong performance, improving asset quality and consistent deposit growth. SBI's gross non-performing asset ratio of 2.5 per cent and well-managed loan book underlines its resilience in challenging market conditions. SBI reiterated its credit growth guidance of 14-16 per cent in FY25E. 'The bank maintains credit cost guidance at ~50 basis points; the slippage ratio is guided to maintain below 60 bps," said Mirae.
4) Bank of Baroda (CMP: ₹246.55, TP: ₹300)
Bank of Baroda stands out with its improved operational efficiency and healthy NIM of 3.1 per cent. Its focus on maintaining a balanced asset-liability mix ensures sustainable growth, making it an attractive option for investors. The bank's management cut loan/deposits guidance marginally by one per cent each to 11-13 per cent/9-11 per cent for FY25E.
5) Bajaj Finance (CMP: ₹6,704.15, TP: ₹9,100)
Bajaj Finance remains a leader in the consumer finance space, supported by its diversified product portfolio and strong digital transformation initiatives. According to the brokerage, the company’s focus on customer acquisition and retention provides significant growth potential.
6) Federal Bank (CMP: ₹212.80, TP: ₹240)
"Federal Bank continues to excel, with 18 per cent YoY credit growth and a low gross non-performing asset ratio of 2.4 per cent," said Mirae Asset. The bank's strategic focus on expanding its retail loan book and improving operational metrics ensures steady returns for investors. The private bank's management cut loan/deposits guidance marginally by one per cent each to 11-13 per cent/9-11 per cent for FY25E.
7) Kotak Mahindra Bank (CMP: ₹1,782.40, TP: ₹2,250)
Kotak Mahindra Bank is known for its high CASA ratio (53 per cent) and prudent risk management. “With a balanced loan book and a focus on profitability, it remains a stable choice for long-term growth,” said Mirae Asset.
8) Cholamandalam Investment and Finance Company (CMP: ₹1,279.10, TP: ₹1,530)
"This is a strong vehicle and SME financing player, supported by consistent profitability and effective capital utilization. The ROA of 3.6 per cent underscores its efficient operational model," said the brokerage.
Management expects an improvement in H2 and maintains full fiscal AUM guidance at 25 per cent. The margin remained stable at 6.8 per cent, with sustained improvement in yield (+14 bps sequentially) in line with guidance. The used vehicle industry is poised to grow due to the increased price of new vehicles over the years and the increased organised financing options.
9) Shriram Finance (CMP: ₹3,018.65, TP: ₹3,675)
Shriram Finance continues to grow with its diversified lending portfolio in vehicle and SME finance. Its focus on maintaining a low GNPA ratio of 3.3 per cent and expanding its non-CV product lines ensures long-term stability.
Management expects the margin to sustain at the current level. It also guided that strong growth traction will continue in H2. Shriram Finance is well-placed to deliver sustainable growth as it focuses on diversifying the AUM mix and exploring cross-sell opportunities.
10) Home First Finance (CMP: ₹1,094.90, TP: ₹1,280)
Home First Finance leverages its niche in affordable housing loans to drive robust growth. “With stable asset quality and a strong ROA of 3.8 per cent, it is a compelling choice for investors looking for consistent returns in the housing finance segment,” said Mirae Asset.
Management retained 30 percent+ AUM growth guidance and expects 20-30 bps credit cost for FY25E. It expects leverage to increase to 5.0x. The company continues expanding its distribution footprint, opening 9 branches in Q2, bringing the total count to 142.
Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.
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