News Stocks BFSI Sector Outlook Remains Strong Despite Near-Term NIM Pressures, Says Gaurang ShahBFSI Sector Outlook Remains Strong Despite Near-Term NIM Pressures, Says Gaurang Shah
Gaurang Shah of Geojit Financial Services maintains a positive long-term outlook on the BFSI sector despite near-term net interest margin pressures following the December repo rate cut. While IndusInd Bank showed weaker performance due to elevated NPAs, Shah expects improvement in Q4 and a positive outlook for the next financial year. Strong loan book growth, supported by rising credit demand and cumulative interest rate cuts of 1.25%, is expected to benefit the entire sector. Geojit maintains positive coverage on multiple private banks, PSU banks, and NBFCs, recommending dedicated portfolio allocation to BFSI given improving fundamentals and growth prospects.
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Gaurang Shah of Geojit Financial Services has expressed confidence in the banking and financial services sector's long-term prospects, despite acknowledging near-term challenges that have emerged during the current earnings season. Speaking to ET Now, Shah provided his assessment of recent bank results and outlined where investors could find value in the evolving market landscape.
IndusInd Bank Performance and Sector Comparison
When discussing IndusInd Bank's ambitious target of achieving 1% return on assets by FY27, Shah offered a measured perspective on the bank's recent performance. Among the three major private banks - Axis Bank, Kotak Mahindra Bank, and IndusInd Bank - he noted that IndusInd had delivered a weaker quarter, primarily due to elevated gross and net non-performing assets.
| Bank Performance Comparison: | Recent Quarter Assessment |
|---|---|
| IndusInd Bank: | Weaker performance due to elevated NPAs |
| Axis Bank: | Better relative performance |
| Kotak Mahindra Bank: | Better relative performance |
| Recovery Outlook: | Q4 expected to show improvement |
Shah acknowledged the bank's recovery efforts and suggested that the fourth quarter could show some improvement, though he stopped short of calling it a turnaround quarter. He indicated that the outlook for the next financial year appears more encouraging.
Net Interest Margin Pressures
Addressing concerns about net interest margins, Shah acknowledged that both Axis Bank and Kotak Mahindra Bank have flagged potential pressure on margins in the fourth quarter following the December repo rate cut. He recognized that maintaining NIMs could be challenging for some banks in the near term, noting that "a lot depends upon the cost of borrowing and cost of lending."
However, Shah cautioned investors against overreacting to short-term fluctuations, emphasizing that "one-off quarters should not be a reason to deviate from your long-term investment objectives." He projected that the new financial year beginning April 1, 2026, is expected to be positive for the sector as a whole.
Sector Growth Drivers and Positive Factors
Shah highlighted several supportive factors for the BFSI sector, including strong loan book growth expected across the industry. This growth is being supported by rising credit demand and cumulative interest rate cuts of around 1.25% over the past year. According to Shah, this favorable backdrop should benefit the entire BFSI universe, including public sector banks, private lenders, and well-capitalized NBFCs.
Investment Recommendations Across BFSI Segments
Geojit maintains positive coverage across multiple segments of the banking and financial services sector. Shah outlined the firm's recommendations across different categories:
| Sector Segment: | Recommended Stocks |
|---|---|
| Private Sector Banks: | HDFC Bank, Axis Bank, Kotak Mahindra Bank, IndusInd Bank, Federal Bank, IDFC First Bank, City Union Bank |
| Public Sector Banks: | State Bank of India, Bank of Baroda, Bank of India, Canara Bank, Indian Bank, Union Bank of India |
| NBFCs: | Shriram Finance, L&T Finance, Mahindra Finance, Bajaj Finance |
| Small Finance Banks: | AU Small Finance Bank, CreditAccess Grameen |
Shah particularly noted that public sector banks have reported "a stellar set of numbers" and highlighted strong performance across the NBFC space.
Investment Strategy and Portfolio Allocation
Concluding his assessment, Shah recommended that investors with equity exposure should consider allocating a dedicated portion of their portfolio to the BFSI segment. This recommendation is based on the sector's improving fundamentals and long-term growth prospects, despite the near-term challenges that some institutions may face with margin pressures and asset quality concerns.
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