Motilal Oswal Financial Services has put out its latest report on the BFSI sector and the changing dynamics there.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.
The latest MOFSL BFSI Picks 4.0 portfolio comprises 16 stocks spanning private banks, PSU banks, small finance banks, NBFCs, insurance, capital markets, asset management and wealth management. This list includes 6 new addition. The brokerage said the refresh follows a disciplined bottom-up review process aimed at adding high-conviction ideas while removing positions where risk-reward has become less favourable.
Portfolio overhaul reflects changing opportunities across BFSI
The biggest takeaway from the report is the extent of portfolio changes.
MOFSL said it has introduced six new stocks in BFSI Picks 4.0 and churned 12 names across the previous three versions of the portfolio. The brokerage said changing earnings trajectories, valuation comfort and improving business momentum prompted the refresh.
The firm noted that earlier portfolio versions generated some of their strongest returns from AU Small Finance Bank, which gained 103%, L&T Finance, which returned 106%, Federal Bank, which rose 78%, Angel One, which gained 66%, and Shriram Finance, which advanced 57%. Despite those gains, MOFSL has selectively altered the portfolio where it believes future upside and risk-reward dynamics are more attractive elsewhere.
“We have introduced six new stocks and, overall, we have churned 12 names from the previous three versions of our MOFSL BFSI portfolio,” the brokerage said.
Large private banks remain the cornerstone of the strategy
Banks continue to occupy the largest allocation within MOFSL’s preferred ideas list, reflecting the brokerage’s confidence in the sector’s earnings outlook.
According to the report, banking system credit growth remained robust at 17.6%, supported by broad-based demand across corporate, retail and MSME segments. MOFSL expects banking system credit to grow at a 14% CAGR over FY26-FY28, while sector earnings are projected to deliver roughly 15% CAGR during the same period.
The brokerage expects private banks to outperform PSU banks over the next three years. It forecasts earnings CAGR of around 21% for private banks versus approximately 8% for PSU banks during FY26-FY28.
MOFSL’s preferred large-cap banking picks are ICICI Bank, HDFC Bank and State Bank of India, while AU Small Finance Bank remains its preferred mid-sized banking idea.
“We continue 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 PCR, and relatively better growth prospects,” MOFSL said.
Why the brokerage remains positive on banks
MOFSL believes several factors are aligning in favour of banks.
The report said margin pressure appears to be easing after a prolonged decline in net interest margins. Asset quality stress in unsecured retail and MSME lending has moderated, while credit costs are expected to remain under control. The brokerage also noted that the possibility of a rate hike during the second half of FY27 could support margins for large private-sector banks.
Among PSU banks, the brokerage pointed to healthy provision coverage ratios of around 75%-90%, stable slippages and continued traction in retail, agriculture and MSME lending.
NBFCs remain a major area of conviction
MOFSL continues to maintain a constructive stance on non-banking financial companies, supported by improving asset quality trends and healthy disbursement growth.
The brokerage said NBFCs delivered strong performance in FY26 as demand remained broad-based across housing, vehicle finance, gold loans, SME lending and unsecured credit. Asset quality also improved across most segments, while microfinance portfolios continued to recover.
Among vehicle financiers, Shriram Finance Ltd. remains the preferred pick. In housing finance, PNB Housing Finance continues to feature in the model portfolio because of its increasing focus on higher-yielding segments and potential for margin expansion.
The brokerage also retains Aditya Birla Capital Ltd. and L&T Finance among its preferred diversified financials and has added Piramal Finance to its preferred list, citing consistent growth, improving asset quality and steady margin expansion.
Within microfinance, CreditAccess Grameen remains MOFSL’s preferred idea as collection trends, portfolio quality and delinquency metrics continue to improve.
“NBFC-MFIs reported continued improvement in PAR and overall asset quality during the quarter, with the positive trend further strengthening in Apr’26 and May’26,” the brokerage said.
Insurance picks continue to focus on profitability and protection-led growth
MOFSL remains selective within insurance and continues to prefer companies with strong profitability profiles and favourable product mix.
In life insurance, SBI Life and Canara HSBC Life remain the brokerage’s preferred ideas. The report cited improving product mix, growing contribution from protection products, rising rider attachment and stable value of new business margins as key positives.
Among general insurers, ICICI Lombard remains the preferred pick. MOFSL said the company benefits from a balanced growth-profitability profile, healthy reserve position, underwriting discipline and improving retail health insurance mix.
“Going forward, protection-led growth, improving product mix, and recovery in demand should support stable growth and margin expansion,” MOFSL said.
Capital markets and wealth management remain structural growth themes
MOFSL 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 the recent correction made valuations more attractive. In wealth management, Nuvama Wealth continues to be MOFSL’s preferred name because of its diversified business model, increasing annuity revenue mix, improving return ratios and multiple emerging profit pools.
The brokerage also noted that wealth managers continue to benefit from rising HNI and UHNI wealth creation, while adoption of managed investment products remains strong.
Earnings, growth and valuations drive the investment case
MOFSL’s central thesis remains unchanged despite the portfolio refresh.
The brokerage expects the BFSI sector to benefit from healthy credit demand, improving macroeconomic conditions, stabilising margins and easing asset-quality concerns. Management commentary has also become more constructive, according to the report, supporting confidence in earnings recovery.
MOFSL believes the combination of earnings growth, business momentum and reasonable valuations creates a favourable setup for financial stocks over the next several years.
Conclusion
MOFSL BFSI Picks 4.0 represents one of the most significant portfolio refreshes undertaken by the brokerage in recent years, with six additions.
Despite the changes, the brokerage’s core positioning remains centred on large private banks, selected NBFCs, insurance companies and capital-market businesses. Motilal Oswal believes banks and financials remain well placed to deliver the next phase of sector performance.
Disclaimer: The specific stock recommendations, target prices, and upward growth projections discussed in this report are based on institutional equity research from Motilal Oswal Financial Services and do not constitute direct buy, sell, or hold recommendations for retail investors. Equity investments across sectors like technology, renewable energy, and hospitality carry inherent market risks, including corporate execution challenges, cyclical demand fluctuations, and regulatory shifts. Because individual financial goals, risk thresholds, and investment horizons vary significantly, readers are strongly advised to consult a SEBI-registered investment advisor or a qualified financial consultant before making specific capital allocations or investment decisions based on these projections.
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