Banking, financial and insurance majors continue to maintain analysts' favour, as six of the ten counters with the highest optimism in June were from the BFSI space.
According to Moneycontrol's analyst call tracker, Shriram Finance, SBI Life Insurance, ICICI Bank, Axis Bank, HDFC Bank and IndusInd Bank were the top picks for brokerages, with each having more than 30 'buy' calls and between zero to one 'sell' ratings.
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services said a sectoral churn is taking place in this current market scenario. "Huge money is flowing into fairly valued large-caps in banking and profit booking is happening in other sectors like capital goods, telecom, metals and FMCG. This churn is likely to continue in the near-term since it is a healthy trend," he said.
The positive sentiment for the financial sector followed strong quarterly performances in the banking and financial sector, with stable loan growth, no asset quality concerns and an expected end to the NIM contraction cycle.
In a recent note, analysts at Bernstein praised the Indian banking sector, highlighting its strong credit growth, benign asset quality, and healthy margins. They noted that not only large private lenders but also niche lenders operating as NBFCs and HFCs present equally compelling compounding stories.
Similarly, analysts at CLSA expressed confidence in the Indian banks' future prospects, noting that they have much stronger balance sheets today compared to five or ten years ago.
"They are not only well-capitalised but also have the lowest net non-performing loans or net worth in more than a decade. The banking sector has seen a rebound in profits and profitability, with RoE in FY24 being the highest since FY11," the brokerage firm highlighted.
Shriram Finance, the latest addition to the Nifty 50, remains a favourite among brokerages, who remain confident in the company's growth prospects.
Shriram Finance was formed two years ago when Shriram Capital, Shriram Transport Finance Company and Shriram City Union Finance were merged. Following the merger, Shriram Finance has the second highest AUM of all NBFCs, just beneath Bajaj Finance's.
As the merger synergies come to fruition, analysts predict the NBFC will grow steadily. "Shriram Finance is leveraging its expanded distribution network to offer a wider range of products. The company aims to achieve a 19 percent CAGR in profit after tax from FY24 to FY26, translating into a return on equity RoE of 17 percent by FY26," Motilal Oswal stated.
Also Read | Apna time aa gaya: HDFC Bank’s spell of underperformance may be over as MSCI weight likely to increase
HDFC Bank has been in the limelight following its likely increase in its MSCI weight. The lender's June 2024 data reveals foreign ownership at 54.83 percent, making it eligible for an MSCI Indian index weight increase in the August 2024 rebalancing.
The latest foreign ownership opens up the ‘foreign room’ in the stock to more than 25 percent, necessary for the index provider to include a stock at its full market-cap weight. With this inclusion, HDFC Bank is likely to get MSCI inflow of up to $5 billion.
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