India's banking and financial sector emerged from the Q4FY26 earnings season with improving asset quality, stable credit growth and moderating credit costs, prompting brokerages to turn increasingly optimistic on select lenders and NBFCs for the medium term. According to a report by Axis Securities, the overall outlook for the BFSI space remains constructive despite external risks linked to geopolitical tensions and elevated global uncertainty. The brokerage believes improving operational efficiency, stable asset quality and steady loan growth could continue supporting earnings momentum across several banking and financial names over the next two years. As per EQMint, the market is slowly moving back toward financial stocks after spending months chasing defence, railways and PSU momentum plays, with investors returning to companies where earnings visibility actually looks stable.
ICICI Bank remains one of Axis Securities' top private banking picks with a 'Buy' rating and target price of ₹1,700, offering up to 36% upside potential. The brokerage highlighted the bank's improving credit growth momentum, stable margins and benign credit cost outlook as key positives. Axis Securities expects ICICI Bank to deliver nearly 16% CAGR credit growth over FY26-FY28 while maintaining stable asset quality trends. Among PSU lenders, State Bank of India remains the preferred pick with a 'Buy' rating and target price of ₹1,285, expecting nearly 14% CAGR advances growth over FY26-FY28. Kotak Mahindra Bank received a 'Buy' recommendation with target price of ₹500, with the brokerage believing the worst of unsecured loan stress cycle is behind the bank.
Bajaj Finance remained one of Axis Securities' top NBFC picks with a target price of ₹1,160, expecting improving asset quality, lower credit costs and strong customer additions to support earnings growth. The brokerage also highlighted Ujjivan Small Finance Bank with a target price of ₹78, noting the lender's focus on diversifying its loan book and increasing secured loans could support stronger growth. Axis Securities also remains constructive on select NBFCs such as Shriram Finance and CreditAccess Grameen, citing improving asset quality trends and stable margins as key investment drivers. As per EQMint, Bajaj Finance benefits from its scale advantage, still gaining market share faster than many smaller competitors even after becoming one of India's largest NBFCs.
The sector's improving asset quality trends remain one of the biggest positives emerging from the March quarter earnings season, according to Axis Securities. The brokerage believes most banks are entering a more stable asset quality cycle after stress in unsecured retail segments moderated sharply during recent quarters. Banks witnessed recovery in corporate demand along with steady performance, supporting the positive outlook for the sector. Mid-sized private banks and small finance banks may continue to outperform larger peers in terms of loan growth and margin improvement over the medium term, while PSU banks are expected to benefit from improving operating efficiency and lower stress formation. For most of 2025, investors stayed cautious on banks due to unsecured retail lending stress and elevated NBFC funding costs, but that pressure now appears to be easing.
Despite the positive outlook, Axis Securities warns that risks haven't disappeared completely, with high oil prices, geopolitical tensions and slower deposit growth still potentially pressuring margins later this year. However, the brokerage maintains its bullish stance, noting that for the first time in months, the Street looks willing to believe that Indian financial stocks may be entering another steady earnings phase instead of preparing for a slowdown. The improving credit demand in India, combined with easing asset quality fears, makes banks and NBFCs suddenly attractive to investors after months of speculative moves in momentum-driven sectors.
