Motilal Oswal has unveiled its latest investment initiative, the Smart Basket – FinRise Market, which highlights five carefully selected stocks from the Banking and Non-Banking Financial Company (NBFC) sectors. This curated portfolio anticipates a promising 10% to 15% upside over the next year, featuring notable names such as Kotak Mahindra Bank, Cholamandalam Investment & Finance, Paytm (One 97 Communications), Poonawalla Fincorp, and PNB Housing Finance.

With a positive outlook, the brokerage states, "Banks are strategically positioned to outperform, bolstered by strong balance sheets and the capacity to adeptly manage economic uncertainties."

Key Picks from the Banking Sector

Let’s break down what each of these selected stocks represents for investors.

Kotak Mahindra Bank

Kotak Mahindra Bank has consistently demonstrated solid performance, showcasing stable margins and profitability over the past year. The brokerage indicates that with the Reserve Bank of India easing significant regulatory constraints, the bank is poised for growth. They anticipate a notable increase in overall business and profitability, particularly within its consumer banking segment. This development is expected to drive the stock’s upward momentum.

Cholamandalam Investment & Finance

Cholamandalam Investment & Finance stands out due to its diversified offerings and increasing digital footprint. The management team is optimistic about improving Net Interest Margins (NIMs) as interest rates stabilize. They project an ambitious 24% CAGR in Assets Under Management (AUM) from FY24 to FY27, primarily fueled by growth in vehicle financing and personal/business loans through their digital channels.

Paytm (One 97 Communications)

Despite facing regulatory challenges, Paytm has successfully maintained a robust merchant base of 43 million. The fintech giant is expanding its loan distribution capabilities through First Loss Default Guarantee partnerships. The brokerage forecasts a 24% CAGR in Gross Merchandise Value (GMV) and a 25% CAGR in revenue from FY25 to FY27, highlighting the company’s resilience and growth potential.

Poonawalla Fincorp

Poonawalla Fincorp is undergoing a significant transformation. The company, which previously offered four financial products, plans to expand its portfolio to ten and establish 400 new branches starting in the first quarter of FY26. This aggressive growth strategy is expected to result in a 30-40% increase in AUM for FY26-27, according to Motilal Oswal’s analysis.

PNB Housing Finance

PNB Housing Finance is setting ambitious goals, aiming to expand its retail loan portfolio to Rs 1 lakh crore by FY27. This growth is expected to be driven by a surge in mortgage demand and government initiatives like the Pradhan Mantri Awas Yojana (PMAY). The brokerage anticipates that NIMs will rise to approximately 4% by FY27, supported by an improved product mix, despite facing competitive challenges.

Equal Opportunities for Growth

Motilal Oswal has allocated equal weight (20%) to each of the five stocks in the FinRise Market basket. The brokerage believes that each stock presents a viable growth opportunity, reinforcing their strategy of balanced investment in the banking sector.

This carefully curated selection not only highlights the potential for attractive returns but also reflects the evolving landscape of the financial services industry. As investors look for promising avenues, these banking and NBFC stocks present compelling options for those aiming to capitalize on future growth.