Banking stocks to buy: India’s banking and financial sector emerged from the Q4FY26 earnings season with improving asset quality, stable credit growth and moderating credit costs, prompting brokerages to turn increasingly optimistic on select lenders and NBFCs for the medium term.
According to a report by Axis Securities, the overall outlook for the BFSI space remains constructive despite external risks linked to geopolitical tensions and elevated global uncertainty. The brokerage believes improving operational efficiency, stable asset quality and steady loan growth could continue supporting earnings momentum across several banking and financial names over the next two years.
“Banks witnessed recovery in corporate demand along with steady retail demand, while stress in unsecured portfolios continued to ease across segments and geographies. Credit costs declined meaningfully during the quarter, aiding earnings growth across the banking universe,” said Axis Securities in its BFSI Q4FY26 outlook report.
The brokerage believes most banks are entering a more stable asset quality cycle after stress in unsecured retail segments moderated sharply during recent quarters. Axis Securities further said the sector’s improving asset quality trends remain one of the biggest positives emerging from the March quarter earnings season.
The report added that mid-sized private banks and small finance banks may continue to outperform larger peers in terms of loan growth and margin improvement over the medium term, while PSU banks are expected to benefit from improving operating efficiency and lower stress formation.
Axis Securities has identified several “top conviction ideas” across private banks, PSU banks, small finance banks and NBFCs following the Q4FY26 earnings season.
ICICI Bank: ICICI Bank remains one of Axis Securities’ top private banking picks with a “Buy” rating and a target price of ₹1,700. The brokerage highlighted the bank’s improving credit growth momentum, stable margins and benign credit cost outlook as key positives.
Axis expects ICICI Bank to deliver nearly 16% CAGR credit growth over FY26-FY28 while maintaining stable asset quality trends despite geopolitical uncertainties. The brokerage also believes the bank’s unsecured portfolio stress has eased significantly.
“Management remains confident that benign credit cost trends will continue, with credit costs being contained at sub-50 bps going ahead,” Axis Securities said while discussing ICICI Bank’s outlook.
Kotak Mahindra Bank: Kotak Mahindra Bank has also received a “Buy” recommendation from Axis Securities with a target price of ₹500. The brokerage believes the worst of the unsecured loan stress cycle is now behind the bank.
According to the report, lower slippages, improving collection efficiency across credit cards, MFI and commercial vehicle loans, along with improving fee income prospects, could support earnings recovery going forward.
Axis Securities also highlighted Kotak Mahindra Bank’s ongoing digitisation and automation efforts, which are expected to improve operational efficiency and gradually lower cost ratios over FY27 and FY28.
State Bank of India: Among PSU lenders, SBI remains Axis Securities’ preferred pick with a “Buy” rating and a target price of ₹1,285.
The brokerage highlighted SBI’s broad-based loan growth across retail, agriculture and corporate segments, along with growing exposure to emerging sectors such as renewable energy, transmission and semiconductor ecosystems.
Axis Securities expects SBI to deliver nearly 14% CAGR advances growth over FY26-FY28, supported by strong traction in retail and corporate credit demand. The brokerage also believes SBI’s improving fee income strategy and stable asset quality trends position it well for sustained profitability growth.
Federal Bank: Federal Bank was another preferred mid-sized banking idea with Axis Securities assigning a “Buy” rating and a target price of ₹340.
The brokerage highlighted the lender’s improving CASA mix, calibrated deposit repricing strategy and healthy asset quality profile as key strengths. It also noted that Federal Bank has limited direct exposure to Middle East-linked risks despite ongoing geopolitical uncertainty.
Ujjivan Small Finance Bank: Ujjivan Small Finance Bank also featured among Axis Securities’ top conviction ideas with a target price of ₹78.
The brokerage said the lender’s focus on diversifying its loan book and increasing the share of secured loans could support stronger and more stable growth over the medium term. It expects the bank’s secured portfolio growth to remain robust in FY27 while credit costs continue to moderate gradually.
Bajaj Finance: Among NBFCs, Bajaj Finance remained one of Axis Securities’ top picks with a target price of ₹1,160.
The brokerage expects improving asset quality, lower credit costs and strong customer additions to support earnings growth going forward. Axis Securities believes Bajaj Finance’s AI-led operational efficiency initiatives and broad-based AUM growth could help improve return ratios further in FY27.
Along with banks, Axis Securities also remains constructive on select NBFCs such as Shriram Finance and CreditAccess Grameen, citing improving asset quality trends, healthy growth outlook and stable margins as key investment drivers.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
