
JM Financial, which met over 25 institutional investors in Hong Kong and Singapore during its analyst marketing trip for India financials, said global investors are worried about muted loan growth in the sector. While there was not much concern on asset quality trends of large banks and HFCs, investors of a majority of NBFCs and mid-sized banks said caution has increased on the asset quality side in the last few months, with growing concern over full year FY26 credit cost being higher than management guidance.
Net-net, there was a preference for defensive names in core portfolio; and that stock investors were not keen on selecting stocks only on net interest margin (NIM) dynamics, the brokerage said.
The JM Financial note suggested there was a clear sense of optimism around Axis Bank, State Bank of India (SBI), and Bank of Baroda. Investors seemed increasingly comfortable with the outlook for these names. The common thread? A belief that the worst may already be behind them.
Loan growth, while slightly lagging some private peers in the past, is expected to catch up, narrowing the gap. Asset quality trends are holding steady, and perhaps most importantly, the decline in net interest margins (NIMs)—a key concern in the sector—seems largely priced in given their more modest valuations. These banks are being seen as solid value plays in an otherwise selective environment.
On the other hand, ICICI Bank, long a favorite among institutional investors, saw slightly tempered enthusiasm this time around. Not due to any major concerns, but more a sense that the story is well understood and perhaps fully priced. Loan growth appears to be moderating a bit, and with the stock trading at a premium to peers, some investors are starting to look elsewhere for better risk-reward.
"Stock wise, in large banks, most of the investors were quite positive on Axis/SBI/BoB given the expectation of reducing delta in loan growth compared to peers, benign asset quality trends and NIM decline being already priced in, in their lower valuations. On ICICI, after a long time, we found a little lower interest than before given moderating loan growth and higher valuation multiple compared to other large banks," JM Financial said.
Kotak Mahindra Bank (KMB) sparked the most debate. There is no clear consensus here. Some investors see its smaller base as an opportunity—it could potentially outpace peers in loan growth. Others remain skeptical, especially given its historically cautious lending stance. At the same time, Kotak’s superior NIMs continue to impress, but whether this outperformance is sustainable in a competitive market is up for discussion.
"In mid banks, tactically, we found higher interest in RBL/Bandhan/Ujjivan SFB over FB/CUBK given expectation of stress peaking out in MFI/unsecured loans in 2HFY26. For AU SFB, investors were not comfortable with current valuations amidst pressure on margins and expectation of FY26 credit cost being higher than management guidance. However, higher loan growth and expectation of receiving a universal bank licence are keeping investors interested in AU SFB," JM said.
NBFC space
Investors were quite selective with Aditya Birla Capital, PNB Housing being the most favoured, given strong growth and relatively lower asset quality stress and valuation.
Investors liked Shriram Finance as well due to relatively better growth profile and benign valuation, though confidence in asset quality was lower than before given rising net slippages in the last 3 quarters, JM Financial said.
"In Bajaj Finance/CIFC, there were some concerns around loan growth/credit cost being higher than management guidance in 1Q/FY26. However, most of the investors preferred BAF over CIFC given a more diversified loan book and a relatively better track record. On MMFS, we found investors generally positive given lower expectations/valuations. For LTFH, the general consensus is that the current valuation captures most of the positives in this name," it said.
Among housing finance names, investors were worried about loan growth given expectation of increased BT outs and NIM decline. But, low valuation in case of LIC HF is making investors evaluate it closely, it said.
"In AHFCs, discussions were mainly on Aadhar/Homefirst/Aptus. In Five Star, investors were concerned about rising delinquencies from the past few quarters. Our picks: We like Axis, SBI, ICICI, BoB and DCB in Banks, and prefer AB Cap, BAF, Shriram Finance, PNB HF, Aadhar and Five Star in NBFC/HFCs," JM Financial said.