Motilal Oswal Financial Services has undertaken a comprehensive portfolio refresh of its BFSI Picks 4.0, introducing six new stocks while exiting 12 positions from previous versions. According to the latest report, the brokerage conducted a disciplined bottom-up review process aimed at adding high-conviction ideas while removing positions where risk-reward dynamics have become less favourable. The refreshed portfolio comprises 16 stocks spanning private banks, PSU banks, small finance banks, NBFCs, insurance, capital markets, asset management and wealth management sectors. The brokerage noted that earlier portfolio versions generated strong returns from AU Small Finance Bank (103%), L&T Finance (106%), Federal Bank (78%), Angel One (66%), and Shriram Finance (57%), but selectively altered allocations where future upside appears more attractive elsewhere.
Motilal Oswal expects the banking system credit to grow at a CAGR of around 14% over FY26-28, supported by robust demand across corporate, retail, and MSME segments. According to the latest report, banking system credit growth remained robust at 17.6%, demonstrating continued momentum in the sector. The brokerage remains constructive on the sector, citing healthy credit growth, stabilising net interest margins, easing stress in unsecured lending, improving asset quality, and a more supportive macro backdrop. Sector earnings are projected to improve significantly, with overall earnings CAGR estimated at ~15%, while private banks are expected to deliver a stronger ~21% CAGR, significantly outpacing PSU banks. The brokerage expects private banks to outperform PSU banks over the next three years, with PSU banks forecasting earnings CAGR of approximately 8% during FY26-FY28.
Among banks, ICICI Bank, HDFC Bank, and State Bank of India remain the preferred large-cap picks, while AU Small Finance Bank remains the preferred mid-sized banking idea. As reported in the latest analysis, the brokerage continues to prefer large-cap banks as valuations appear reasonable in the context of earnings outlook. These banks stand out due to their strong balance sheets, healthy provision coverage ratios, and relatively better growth prospects. The brokerage believes several factors are aligning in favour of banks, including margin pressure easing after prolonged decline, asset quality stress moderating in unsecured retail and MSME lending, and the possibility of rate hikes during the second half of FY27 supporting margins for large private-sector banks.
In the NBFC space, Motilal Oswal continues to maintain a constructive stance, supported by improving asset quality trends and healthy disbursement growth. Shriram Finance Ltd. remains the preferred pick among vehicle financiers, while PNB Housing Finance continues to feature in the model portfolio due to its increasing focus on higher-yielding segments and potential for margin expansion. The brokerage has added Piramal Finance to its preferred list, citing consistent growth, improving asset quality, and steady margin expansion. Within microfinance, CreditAccess Grameen remains the preferred idea as collection trends, portfolio quality, and delinquency metrics continue to improve. In insurance, SBI Life and Canara HSBC Life remain the preferred picks in life insurance, benefiting from improving product mix, growing contribution from protection products, rising rider attachment, and stable value of new business margins. ICICI Lombard remains the preferred general insurer, benefiting from balanced growth-profitability profile, healthy reserve position, underwriting discipline, and improving retail health insurance mix.
Motilal Oswal continues to favour capital-market-linked businesses despite recent market volatility. Within broking and exchange-related businesses, the brokerage prefers Groww (Billionbrains Garage), citing its growing share of retail participation, expanding mutual fund business, and multiple monetisation opportunities. In asset management, HDFC AMC remains a preferred pick after recent correction made valuations more attractive. In wealth management, Nuvama Wealth continues to be the preferred name because of its diversified business model, increasing annuity revenue mix, improving return ratios, and multiple emerging profit pools. The brokerage notes that wealth managers continue to benefit from rising HNI and UHNI wealth creation, while adoption of managed investment products remains strong.
