HDFC Bank, Kotak, SBI lead Axis Direct's top BFSI conviction picks

Axis Direct has released its latest set of top conviction ideas from the banking and financial services (BFSI) space, highlighting seven key stocks -- HDFC Bank, Kotak Mahindra Bank, State Bank of India, Federal Bank, Ujjivan Small Finance Bank, Bajaj Finance and Shriram Finance. The brokerage has maintained a 'BUY' rating on all seven counters, citing improving credit growth trends, easing asset-quality stress, margin stability and strong execution visibility across institutions.

HDFC Bank: Positioned for growth acceleration

Axis expects HDFC Bank to resume growth at par with the system in FY26, followed by a further pickup in FY27, as the lender reduces its loan-to-deposit ratio below 100 per cent. The bank is focusing on granular retail deposits and CASA mobilisation, supported by its branch network. Net interest margins (NIMs), which contracted in Q2 due to sharper yield decline, are expected to improve gradually with the repricing of term deposits and softening savings rates. The brokerage sees NIMs rising to 3.8 per cent over FY27–28.

Kotak Mahindra Bank: Credit costs to ease; NIMs bottom out

Kotak Mahindra Bank's unsecured portfolio stress has stabilised, with credit costs expected to taper in H2. Slippages in the MFI book and pressure in credit cards and personal loans are easing, though retail CV stress remains elevated for a few more quarters. NIM improvement is likely from H2, driven by term-deposit repricing and CRR cuts. Kotak is preparing to scale its unsecured portfolio—especially credit cards—and is targeting 17 per cent credit growth CAGR over FY26–28.

State Bank of India: Growth visibility strengthens

SBI's credit growth momentum remains strong across home loans, Xpress Credit, and corporate lending. A Rs 7 lakh crore sanction pipeline offers clear growth visibility, with half already approved and awaiting disbursement. Domestic NIMs expanded in Q2, supported by liability optimisation. The bank aims to sustain its 1 per cent RoA, aided by stable asset quality, disciplined pricing and operating-cost control. SBI is also evaluating the listing of its mutual fund and general insurance subsidiaries.

Federal Bank: NIM upside and stable asset quality

Federal Bank delivered a positive NIM surprise in Q2, helped by improved cost of deposits and the impact of the CRR cut. The bank continues to rebalance its asset mix and focus on CASA growth, particularly current accounts. MFI stress peaked in May 2025 and has moderated since. Axis expects RoA to improve to 1.2–1.4 per cent over FY27–28.

Ujjivan SFB: Credit costs set to decline

Slippages in major MFI states peaked in H1, and collection efficiencies have normalised. The SMA pool fell below 2 per cent, the lowest in seven quarters. Ujjivan expects credit costs to moderate significantly in H2, maintaining its FY26 guidance of 2.3–2.4 per cent. Loan growth remains strong, driven by secured segments such as micro-mortgage, gold and vehicle loans.

Bajaj Finance: Festive demand boosts volumes

Bajaj Finance saw robust festive-season disbursements and strong customer additions, but trimmed its FY26 growth guidance to 22–23 per cent due to stress in MSME and captive two-/three-wheeler portfolios. Corrective measures are underway, with asset-quality improvement expected from H2.

Shriram Finance: Strong AUM growth outlook

Shriram Finance recorded broad-based growth across CVs, PVs, MSME and farm equipment segments. NIMs improved as excess liquidity normalised and credit costs remain stable. Axis expects 16 per cent CAGR AUM growth over FY26–28.