Fintech-powered NBFCs beat PSU banks on growth despite lower valuations, says Deven Choksey

Public sector banks are emerging as value opportunities within the financial sector, but technology-led NBFCs and large private banks continue to offer the most compelling long-term risk-reward prospects, according to Deven Choksey, MD of DRChoksey FinServ. Speaking to ET Now, Choksey highlighted that several PSU banks, especially smaller ones, are trading at significantly cheaper valuations compared to mid-sized and large private banks and NBFCs, even as their recent quarterly results show improving fundamentals.

Interest Rate Environment Benefits Banks

Choksey noted that the easing interest rate environment is helping banks manage their liability costs better, provided asset-liability mismatches are controlled. "Lower cost of funds is clearly a blessing for lenders this year, but sustainable growth will depend on how well banks manage credit quality," he said. However, he believes the real acceleration in lending growth is visible among strong NBFCs and private banks that have successfully integrated fintech platforms into loan origination and customer acquisition.

Fintech Integration Drives Superior Growth

Highlighting Bajaj Finance as a key example, Choksey pointed out that fintech-enabled players are delivering exceptional performance metrics:

"The biggest differentiator is fintech adoption at the front end. Companies that grow systematically, keep NPAs low, and use technology to scale faster are the ones we prefer," Choksey explained. This growth rate significantly outpaces industry averages, with housing finance arms also expanding at similar rates supported by technology-driven underwriting and distribution systems.

Large-Cap IT Stocks Offer Better Risk Profile

On the IT sector, Choksey acknowledged the recent divergence in earnings performance, with some mid-sized firms facing pressure while large players delivered steadier outcomes. He believes the current risk-reward scenario favors large-cap IT stocks over mid- and small-cap alternatives. Stocks such as Infosys, TCS, and HCL Tech are trading at valuations that limit downside risk, while mid-cap IT companies face much less tolerance for earnings misses.

AI Adoption and Order Wins Support IT Giants

Large IT companies have demonstrated resilience through stronger order inflows across verticals, easing investor concerns. Choksey noted that labor cost adjustments have largely been absorbed in recent quarters, setting the stage for a cleaner outlook ahead. "AI-driven coding is helping deliver solutions faster, while companies like TCS are moving towards capital-intensive models such as data centers, which adds long-term revenue visibility," he observed.

Investment Strategy Focus

Choksey's investment approach remains concentrated on lenders with fintech-led growth models and large-cap IT companies where downside risk is contained. "In the current environment, scale, technology adoption and balance sheet strength matter more than chasing aggressive valuations," he concluded. This strategy emphasizes the importance of sustainable business models over speculative valuations in the current market environment.