The brokerage firm Goldman Sachs has released its latest insights into India’s banking and financial sector. While the sector faces headwinds such as slower credit growth and higher credit costs, regulatory measures and policy support could provide relief and create selective investment opportunities.
The brokerage further noted that credit growth in India’s banking system has moderated to approximately 11% year-on-year as of February 2025, a decline of 500 basis points. The biggest slowdown has been in retail unsecured loans, which dropped from 16% to 8%, and in credit to NBFCs, which declined from 9% to 6% year-on-year. However, the recent rollback of risk weights on lending to NBFCs could provide some relief to this segment.
Stocks to watch: Goldman Sachs’ top financial picks
Goldman Sachs remains bullish on select financial stocks. The brokerage’s preferred picks include:
HDFC Bank – Strong asset quality and early signs of growth recovery.
Kotak Mahindra Bank – Strong ROA despite elevated credit costs and healthy loan growth.”
AU Small Finance Bank -“Better growth and healthy ROA despite MFI stress.”
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Cholamandalam Investment and Finance -“High growth visibility and an improving return profile make it a strong contender.”
SBI Cards & Payment Services -“With the consumer credit cycle peaking, we see stabilization in stressed ratios and improved card spending trends.”
Shriram Finance -“Strong profitability and a well-managed growth trajectory help it stand out in the NBFC space.”
Aavas Financiers -“A niche player in affordable housing with a strong earnings trajectory.”
L&T Finance – Despite industry-wide MFI stress, L&T Finance has managed well with high buffer provisions and attractive valuations.”
Sector in transition
The brokerage firm describes the Indian banking sector as being in a “muddle through” phase, grappling with moderating credit growth, increasing credit costs, and margin pressure. However, the brokerage highlights that recent fiscal and monetary interventions, such as liquidity infusions, tax cuts, and risk-weight rollbacks on lending, have supported valuations.
“The sector has started outperforming in the past three months, possibly due to a series of favorable fiscal and monetary measures, including income tax cuts,
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