Nuvama Institutional Equities expects banks to report strong earnings in the second quarter of the financial year 2026-27 (Q2 FY27), driven by robust credit growth and benign asset quality.
The domestic brokerage's preferred banking stocks are Kotak Mahindra Bank Ltd, ICICI Bank Ltd, RBL Bank Ltd, Karur Vysya Bank Ltd (KVB) and Ujjivan Small Finance Bank Ltd.
Nuvama said funding through Foreign Currency Non-Resident (FCNR-B) deposits could weigh on banks' margins in the near term, although the impact should largely reverse over the next two to three quarters.
It added that the managing director (MD) appointments at Kotak Mahindra Bank and HDFC Bank remove a key overhang, paving the way for a gradual re-rating of large private sector banks.
The brokerage has a 'Buy' rating on Kotak Mahindra Bank with a 12-month target price of Rs 550, ICICI Bank at Rs 1,850, RBL Bank at Rs 470, Karur Vysya Bank at Rs 360 and Ujjivan Small Finance Bank at Rs 90.
In the non-banking financial company (NBFC) space, Nuvama expects healthy credit and earnings growth in Q2 FY27, supported by operating leverage and benign credit costs.
However, it flagged potential earnings risks in FY28 estimates for Mahindra & Mahindra Financial Services (MMFSL) and L&T Finance (LTF) due to rate hikes and the capping of insurance commissions.
The brokerage's preferred NBFC stocks are Piramal Finance, Shriram Finance, Aditya Birla Capital and CreditAccess Grameen.
It has assigned a 'Buy' rating to Piramal Finance with a target price of Rs 2,600, Shriram Finance at Rs 1,250, Aditya Birla Capital at Rs 480 and CreditAccess Grameen at Rs 1,700.