From HDFC Bank To SBI: Axis Direct's Top Banking Stock Picks

Banking stocks: While the Nifty Bank index opened in red territory, shredding 0.23% or 129.10 to 55,574.80, brokerage house Axis Direct noted that for banking entities Q4 appears to be a strong quarter aided by a meaningful pick-up in credit growth.

However, deposit competition remains intense.

"All eyes will be on commentary around possible headwinds on growth due to the geopolitical uncertainties, especially for MSMEs, Vehicle Finance and Corporate credit in oil-sensitive sectors," it noted.

Further, it mentioned that while a "ceasefire has been announced for a period of 2 weeks, any further escalation in the West Asia war could impair credit momentum meaningfully, at least in H1FY27".

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With the full impact of the Dec’25 rate cut yet to reflect on yields and rising wholesale deposit rates, Axis Direct expect divergent NIM trends during Q4.

It also expects "mid-sized private. banks and SFBs to report margin improvement, while the larger banks and PSBs should defend their margins QoQ".

Hereon, management commentary on NIM movement, especially in H1FY27, remains critical, especially with CoD remaining sticky.

Q4 is seasonally the strongest quarter for asset quality, and Q4FY26 is expected to be no different.

The asset quality outlook appears favourable, with unsecured stress now behind and secured and corporate segment asset quality metrics holding up well. However, focus will remain on management commentary on potential risks arising from the geopolitical conflict and its implications on asset quality.

At the current juncture, the brokerage firm remained "selective" in its stock picking approach and favoured banks with "diversified portfolios, strong deposit franchise, adequate capitalisation and attractive valuations."

Top Bank Stock Picks

Axis Direct picked Kotak Mahindra Bank, ICICI Bank, SBI, Federal Bank, Ujjivan SFB, and AU Small Finance Bank.

Under the non-banking financial institutions category, it picked Shriram Finance, Bajaj Finance, Cholamandalam Inv & Fin., and Can Fin Homes.