As market trends take a downturn, investors are actively seeking safe havens for their investments. A recent report from brokerage firm Motilal Oswal has unveiled its latest recommendations, highlighting promising sectors such as financials, real estate, and banking. These areas are identified as potential long-term growth opportunities, despite facing short-term fluctuations.

Insights on Non-Banking Financial Companies (NBFCs)

Motilal Oswal’s analysis indicates that the fourth quarter of FY25 has presented an unusual scenario for NBFCs. Traditionally, this quarter benefits from seasonal boosts, but this year has been different. Demand and collection rates have remained subdued, and asset quality hasn’t shown the typical year-end improvements.

• Earnings in the NBFC sector are flat year-on-year due to persistent credit costs and slow growth in net interest income (NII).
• Excluding microfinance institutions, the firm anticipates a modest 5% year-on-year growth in profit after tax.

Top NBFC Selections:

Motilal Oswal has identified several promising players in the NBFC arena:

• Sundaram Home Finance
• HomeFirst Finance
• PNB Housing Finance

The report also highlights the potential for vehicle financing firms, predicting around 20% year-on-year growth in assets under management (AUM). Similarly, gold loan providers are expected to thrive, with an anticipated 29% growth in their portfolios, including non-gold offerings.

Banking Sector Overview

In the banking sector, Motilal Oswal predicts a temporary squeeze on net interest margins (NIMs) due to a downward trend in the repo rate. As banks pass on rate cuts to borrowers, this could lead to lower yields.

• The brokerage expects banks to experience downward pressure on NIMs in the near term, particularly in unsecured loans.

Preferred Banking Stocks:

Here are the banks that have caught the brokerage’s attention:

• ICICI Bank
• State Bank of India (SBI)
• AU Small Finance Bank
• HDFC Bank

Despite the current challenges, Motilal Oswal believes that the banking sector’s earnings growth will reach a low point in FY26, with a gradual recovery projected thereafter, estimating an 11.8% compound annual growth rate (CAGR) from FY25 to FY27.

Real Estate Spotlight: Prestige Estates

Moving to the real estate sector, Prestige Estates Projects (PEPL) has emerged as a notable investment opportunity. Motilal Oswal has issued a BUY recommendation for the stock, setting a target price of Rs 1,725.

• PEPL boasts a diverse portfolio spanning residential, commercial, retail, and hospitality segments.
• With 15 million sq ft of new business development planned for 9MFY25 and a robust launch pipeline valued at Rs 800 billion, the firm predicts a 14% CAGR in pre-sales from FY24 to FY27.

Commercial and Hospitality Growth:

The company is also expanding its commercial and hospitality divisions, likely resulting in significant income increases:

• Commercial rental income is expected to surge by 53% CAGR, reaching Rs 19.5 billion.
• Hospitality revenue is projected to grow at 20% CAGR, hitting Rs 13.7 billion between FY24 and FY27.

Broader Real Estate Sector Outlook

Beyond Prestige Estates, Motilal Oswal maintains a cautiously optimistic stance on the overall real estate market. The report notes that several developers are adapting well to regulatory and pricing challenges.

Recommended Real Estate Investments:

The brokerage continues to support the following real estate stocks:

• Anant Raj
• Brigade Enterprises
• DLF
• Godrej Properties
• Kolte-Patil Developers
• Lodha
• Prestige Estates
• Signature Global
• Sobha
• Shriram Properties

Despite the recent increase in Ready Reckoner (RR) rates by the Maharashtra government, impacting transaction costs, the report suggests that this will only lead to a slight increase in costs. Stakeholders are encouraged to stay vigilant about market trends and strategically adjust their investments to navigate these regulatory changes effectively.

In a fluctuating market, these insights can help investors make informed decisions in the financial, banking, and real estate sectors.