DFC, Bandhan among top bank and financial stocks showing strong growth signalsFinancial services stocks are expected to see selective gains in the coming months as underlying fundamentals across banks, NBFCs, insurance firms, and asset management companies show signs of improvement.
The sector is supported by macroeconomic growth, with credit and fee income expected to expand faster than GDP, making it attractive for institutional investors. Banks’ sector margins are likely to recover from the December 2025 quarter and remain steady through FY28, underpinned by stable credit costs and improving asset quality.
Strong retail deposit bases and fee generation are driving potential rerating, with Bandhan Bank, HDFC Bank, ICICI Bank, and Axis Bank emerging as prominent beneficiaries.
Loan losses across banks remained low at around 0.5 percent in FY25, while system gross NPAs fell to 1.9 percent from 2.3 percent, and slippages were primarily from unsecured retail credit.
Among lenders, HDFC Bank continues to lead in deposit strength and broad branch coverage, with projected return on equity of 14 percent and return on assets of 1.7 percent for FY27.
ICICI Bank’s diversified loan book and low credit costs support steady earnings, while Axis Bank’s retail deposit and fee growth remain key to potential rerating.
Kotak Mahindra Bank, IndusInd Bank, IDFC First Bank, Bandhan Bank, AU Small Finance Bank, and SBI are also positioned to benefit from deposit traction, improving asset quality, and selective fee income expansion. Bank of Baroda is likely to see limited rerating due to slower growth and international exposure.
The appeal lies in India’s combination of scale and stability. With a large under-banked population, accelerating formal credit penetration, and robust supervisory oversight by the Reserve Bank of India, the sector offers a unique blend of growth and safety rarely found in other major economies.
The NBFC segment has been undergoing a structural clean-up at both consumer and regulatory levels. Fintech lenders have pushed large NBFCs to adopt technology-driven lending solutions, while RBI oversight has strengthened balance sheets and reduced systemic risk. Well-managed NBFCs with strong promoters and prudent risk management are expected to gain from lower funding costs and improved spreads. Firms focused on gold loans or owned by established industrial houses are positioned to see sharper growth as credit demand recovers.
Insurance companies and asset management firms are also set for selective gains. HDFC Life Insurance and SBI Life Insurance have strong upside potential, supported by improving margins and steady premium growth, while HDFC Asset Management and ICICI Prudential Life Insurance are expected to benefit from fee income growth and stable operating metrics.
Muthoot Finance, Shriram Finance, PB Fintech, and Max Financial Services are among other financial services firms with attractive upside potential.
Market watchers suggest adopting a basket approach within the financial services sector, given the diversity in business models, regulatory frameworks, and margin structures.
Smart contracts dominate applications within BFSI, automating loan processing, claims management, and compliance tasks, enabling banks to achieve 45% faster transaction settlements while maintaining transparency and regulatory compliance.
Banks, NBFCs, insurance companies, and asset managers all operate under different matrices, with performance closely tied to macroeconomic growth, regulatory developments, and deposit and fee trends. Selective exposure is likely to deliver superior returns compared with concentrated bets on individual stocks.
What brokerages say
Jefferies’ Navigator 3.25 report notes that banking sector margins are expected to recover from the December 2025 quarter and remain firm through FY28, supported by steady credit costs and improving asset quality. HDFC Bank leads in deposit strength and merger synergies, with a target price of Rs 1,240 and a Buy rating, indicating roughly 24 percent upside, according to reports. ICICI Bank, with a diversified loan mix and low credit costs, carries a target of Rs 1,760 and a Buy rating, offering 23 percent potential gains.
Axis Bank, needing improvement in retail deposit traction, is valued at Rs 1,430 with a Buy recommendation, reflecting 19 percent upside.
Kotak Mahindra Bank, with strong asset quality, has a target of Rs 2,550 and a Buy rating, while Bandhan Bank, showing stabilised asset quality and growth in retail deposits, is projected to rise to Rs 215, offering the highest potential gain of 34 percent.
YES Securities’ latest Q2 FY26 recommendations also highlight selective opportunities. Axis Bank is recommended as Buy with a target of Rs 1,500, implying 29 percent upside, while HDFC Life Insurance is rated Add with a target of Rs 870 and a potential gain of 14 percent.
HDFC Life expects a reduction of about 0.5 per cent, or roughly Rs 260 crore, while ICICI Prudential Life estimates a 1 per cent hit. Both insurers are undertaking efficiency initiatives to offset the margin pressure over the coming quarters.
HDFC Asset Management receives an Add rating with a target of Rs 6,350, suggesting 10 percent upside. Mirae’s analysis further reinforces bullish prospects for HDFC Bank (~Rs 1,950 target), SBI (~Rs 1,010), and ICICI Bank (~Rs 1,505), driven by strong retail and wholesale growth, improved asset quality, and balanced loan books.
Chola Finance is also identified by Axis with a target of Rs 1,710, reflecting diversified lending growth and an approximate 27 percent upside.
- Published On Oct 27, 2025 at 08:00 AM IST
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