BFSI Stock Picks: ICICI Bank, SBI among Mirae Asset’s top 10 picks for investors after mixed Q2; Should you buy or hold?

Indian banks and non-banking financial companies (NBFCs) reported mixed performance for the July-September quarter of the current fiscal (Q2FY25) on margin compression, an increased credit cost and a slowdown in credit growth. Banks are raising deposit rates and shoring liability franchises to ensure guided loan growth. 

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 seems challenging for banks and NBFCs due to pressure on NIM, a likely increase in credit costs, and contained growth.

Considering the prevailing scenario, we advise investors to adopt a stock-specific approach to investing in the BFSI sector. Larger banks with deeper liability franchises and granular deposit books are better placed in this scenario.

The BFSI sector is a cornerstone of India’s economic growth, showing resilience amidst global challenges. Mirae Asset Capital Markets (India) Pvt. Ltd. presents the November 2024 update, highlighting the top 10 BFSI stocks with strong growth potential and stability. The report evaluates key players, their performance metrics, and target prices to guide investment decisions.

1) ICICI Bank (CMP: ₹1,301, TP: ₹1,505) remains a top pick, consistently outperforming peers with its diversified portfolio and strong operational metrics. The bank’s credit growth of 18% YoY and GNPA at just 2.6% reflect sound risk management and sustained profitability, making it a must-have for long-term investors.

2) HDFC Bank (CMP: ₹1,683, 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. Its ability to maintain robust growth in both retail and wholesale lending segments solidifies its position as a market leader.

3) State Bank of India (CMP: ₹844, TP: ₹1,010), the largest public sector bank, continues to deliver strong performance with improving asset quality and consistent deposit growth. Its GNPA ratio of 2.5% and a well-managed loan book underline its resilience in challenging market conditions.

4) Bank of Baroda (CMP: ₹247, TP: ₹300) stands out with its improved operational efficiency and a healthy NIM of 3.1%. Its focus on maintaining a balanced asset-liability mix ensures sustainable growth, making it an attractive option for investors.

5) Bajaj Finance (CMP: ₹7,925, TP: ₹9,100) remains a leader in the consumer finance space, supported by its diversified product portfolio and strong digital transformation initiatives. The company’s focus on customer acquisition and retention provides significant growth potential.

6) Federal Bank (CMP: ₹213, TP: ₹240) continues to excel with an 18% YoY credit growth and a low GNPA ratio of 2.4%. Its strategic focus on expanding its retail loan book and improving operational metrics ensures steady returns for investors.

7) Kotak Mahindra Bank (CMP: ₹2,030, TP: ₹2,250) is known for its high CASA ratio (53%) and prudent risk management. With a balanced loan book and a focus on profitability, it remains a stable choice for long-term growth.

8) Cholamandalam Investment and Finance Company (CMP: ₹1,240, TP: ₹1,530) is a strong player in vehicle and SME financing, supported by consistent profitability and effective capital utilization. Its ROA of 3.6% underscores its efficient operational model.

9) Shriram Finance (CMP: ₹2,948, TP: ₹3,675) continues to grow with its diversified lending portfolio in vehicle and SME finance. Its focus on maintaining a low GNPA ratio of 3.3% and expanding its non-CV product lines ensures long-term stability.

10) Home First Finance (CMP: ₹1,139, TP: ₹1,280) leverages its niche in affordable housing loans to drive robust growth. With stable asset quality and a strong ROA of 3.8%, it is a compelling choice for investors looking for consistent returns in the housing finance segment.

The BFSI sector offers a mix of stability and growth opportunities. While large banks like ICICI Bank, HDFC Bank, and SBI remain market leaders, growth-oriented companies like Bajaj Finance, Cholamandalam, and Shriram Finance provide strong prospects for diversification. 

Investors are advised to adopt a stock-specific approach, focusing on companies with robust fundamentals, strong liability franchises, and scalable business models for long-term gains.

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.