HDFC Bank and Shriram Finance poised to ride sectoral tailwinds; Motilal Oswal sees 12-18% upside scope

The Indian fiscal assemblage maintained dependable show successful Q4 FY25 contempt mixed marketplace conditions. Systemic recognition maturation moderated to 11.1% YoY crossed banking and NBFC segments, reflecting prudent lending practices.

The banking sector's elevated credit-deposit ratio of 80.5% underscores the continued value of deposit mobilization to prolong maturation momentum.

The affordable lodging concern conception (HFCs) and golden indebtedness providers (NBFCs) stood retired arsenic beardown performers, with golden indebtedness AUM increasing ~29% YoY. Vehicle financiers (NBFCs) reported unchangeable disbursements, benefiting from their fixed-rate indebtedness portfolios, which saw ~20% YoY AUM growth.

However, mid-ticket owe loans (HFCs) and unsecured retail recognition (banks/NBFCs) experienced slower maturation arsenic lenders exercised caution.

The microfinance assemblage (NBFC-MFIs), portion inactive facing elevated recognition costs ranging from 9–34%, demonstrated improving postulation efficiency—particularly successful Karnataka, wherever March collections showed important recovery.

Net involvement margins (NIMs) remained unchangeable crossed astir segments, though golden lenders (NBFCs) and affordable lodging providers (HFCs) witnessed humble compression of 10–15 bps owed to rising backing costs. Asset prime remained mostly stable, with lodging concern companies (HFCs) and powerfulness financiers (NBFCs) reporting measurable improvements.

The assemblage is well-positioned to payment from the evolving complaint cycle, with imaginable RBI complaint cuts expected to supply lagged benefits implicit the adjacent 3–6 months.

The fiscal assemblage is poised for a measured 12% recognition maturation successful FY26, led by secured lending segments. Vehicle financiers (NBFCs) whitethorn spot NIM enlargement from imaginable complaint cuts, portion deposit mobilization remains important for banks to support liquidity.

The microfinance assemblage could normalize by H2 FY26 if improving postulation trends continue. While challenges persist successful deposit maturation and prime plus prime pockets, the sector’s fundamentals stay strong, supported by unchangeable macroeconomic conditions and improving operational trends.

The Nifty Financial Services Index is expected to bespeak this resilience, with opportunities emerging successful segments demonstrating sustainable maturation and prudent hazard management.

Stock Picks:
Shriram Finance | Buy | Target: Rs 775 | LTP: Rs 653 | Upside: 18%

Shriram Finance is well-positioned to capitalize connected the betterment successful conveyance finance, peculiarly arsenic request for commercialized and rider vehicles gains momentum. With a diversified lending portfolio, the institution is acceptable to payment from little borrowing costs, which volition heighten nett involvement margins and profitability.

Its diversified merchandise suite helps mitigate the cyclicality of the commercialized conveyance (CV) business. A beardown absorption connected plus prime and postulation ratio indicates that the institution is well-prepared to navigate the evolving recognition environment. We expect AUM/PAT to turn astatine a CAGR of 18%/19% implicit FY24–27.

HDFC Bank | Buy | Target: Rs 2,050 | LTP: Rs 1,817 | Upside: 12%

HDFC Bank is prioritizing profitability implicit volume, reflected successful moderated indebtedness maturation (projected astatine 4%/10%/13% implicit FY25–27) arsenic it optimizes its credit-deposit ratio and shifts toward higher-yielding retail and commercialized assets. Recent deposit maturation of 14.1% YoY and a rising CASA ratio (34.8%) awesome improved backing stability, supporting borderline enlargement with NIM betterment expected from FY27.

Asset prime remains robust (GNPA: 1.4%, NNPA: 0.5%) with dependable recognition costs (~50 bps). By replacing high-cost borrowings with deposits and enhancing operating leverage, RoA/RoE is expected to emergence to 1.8%/14.2% by FY27—balancing disciplined maturation with sustained profitability.

(The writer is Head – Retail Research, Motilal Oswal Financial Services)

(Disclaimer: Recommendations, suggestions, views, and opinions fixed by experts are their own. These bash not correspond the views of the Economic Times)