The sector that didn't flinch: BFSI shines as markets face turbulence

Banking, financial services and insurance (BFSI) stocks have quietly emerged as unexpected winners amid the recent market turmoil. Over the past six months, leading banks, non-bank lenders, and insurers have outpaced the broader market. 

The Nifty Financial Services index has slipped just 3 per cent since the end of September 2024. Over the same period, the Nifty Bank index is down 6.9 per cent, and the Nifty Private Bank index has declined 7.6 per cent. In contrast, the Nifty 50 has dropped 13.2 per cent. 

BFSI is the only sector to have consistently outperformed the broader market over this period. Pharmaceutical has come close — the Nifty Pharma index is down 13.9 per cent since late September. 

Traditional defensive sectors such as fast-moving consumer goods (FMCG) and information technology (IT) services, howe­ver, have lagged. The Nifty FMCG index has fallen 16 per cent since Septem­ber, while the Nifty IT index has lost 23 per cent. For many analysts, BFSI now stands out as the market’s new defensive bet, as FMCG and IT companies grapple with sluggish demand and muted revenue and profit growth. Valuations remain steep in these segments, even after recent corrections. By comparison, most BFSI stocks still trade at a discount to the Nifty 50. 

The BFSI sector has also become the mainstay of corporate earnings in 2024-25, even with some pressure on margins and a slowdown in loan growth. Analysts expect diversified and large lenders to continue driving earnings growth in the fourth quarter, thanks to a robust credit pipeline. 

Crucially, most BFSI companies are focused on the domestic market, insulating them from the global economic jitters sparked by the Trump tariff war. 

Here are 10 stocks across different segments of the BFSI universe that have held up well in the past six months — and may have more room to run.  HDFC Bank India's most valuable lender HDFC Bank has been an oasis of calm in the recent turmoil in the equity market  Analysts attribute the outperformance to its discounted valuation compared to the benchmarks and the bank’s leadership of high-yielding and high-quality retail lending franchise   HDFC Bank is trading at a trailing price-to-earnings (P/E) multiple of 19.5x and price-to-book-value (P/BV) ratio of 2.82x, both lower than Nifty 50 trailing P/E and P/BV of 20.5x and 3.33x, respectively   HDFC Bank’s current valuation ratios are also 35 to 40 per cent lower than its past valuation, providing downside protection to investors  Brokerages attribute HDFC Bank’s weak returns in recent years to a period of ‘hard’ adjustments after its merger with Housing Development Finance Corporation (HDFC) in July 2023  Analysts see limited downside from current level and a gradual upswing in the stock price in forthcoming quarters  

 

  ICICI Bank 

ICICI Bank has been another winner amidst the turmoil in equity markets

  The private sector bank’s stock price is up 2.4 per cent since the end of September last year compared to 13.2 per cent decline in Nifty 50 during the period, making it the top performing banking stock in the last six months

  ICICI Bank’s market outperformance is attributed to its superior financial performance in recent quarters

  The bank, however, remains reasonably valued with trailing P/E of 18.8x and P/BV of 3.43x, in line with Nifty 50’s valuation

  Analysts at LKP Securities have a ‘buy’ rating on the stock and see a further 13 per cent upside driven by healthy loan growth, robust asset quality, and 

higher profitability 

Bajaj Finance 

Bajaj Finance came from behind to deliver double-digit returns to its equity inves­tors amidst a sharp selloff in broader market

  The recent rally (past three months) came after three years of poor show by the stock, when its price had declined by nearly 20 per cent between October 2021 and November last year on concerns of slowdown in retail lending, rising bad loans

  Analysts attribute the recent outperformance by Bajaj Finance to its better-than-expected financial performan­ce in Q3, and encouraging management commentary

  The company's consolidated net profit was up 16.7 per cent Y-o-Y and gross interest income was up 26.7 per cent Y-o-Y in Q3FY25 driven by 28 per cent Y-o-Y growth in assets, or loan book

  Three years of underperformance has also brought down Bajaj Finance’s valuation premium compared to other retail lenders and the broader market, providing some downside protection to investors 

  HDFC Life Insurance Co  

Despite the single-digit negative returns, the private sector life insurer, HDFC Life Insurance, has outperformed the benchmark indices in the last six months

 

The company's stock price is down 4.4 per cent since the end of September last year as against a 13.2 per cent decline in Nifty 50 in the period, making it the top-performing life insurer in the period

 

Brokerages attribute the relatively better show by the stock to a faster growth in the life insurer’s premium income and earnings in recent quarters

 

HDFC Life’s gross premium income was up 10.2 per cent Y-o-Y while its net profit was up 14.6 per cent Y-o-Y in Q3FY25, driven by margin improvement

 

Brokerages expect the company to gain market share from rivals driven by product innovation and distribution reach

 

Analysts at Centrum Broking have a ‘buy’ rating on the stock, with a price target of ₹780 given the robust demand in Tier-II and -III markets, steady market share in the HDFC Bank channel, and newer products 

Muthoot Finance 

Muthoot Finance has also outperformed the benchmark indices in the last six months propelled by a steady rise in gold prices in international and domestic markets

 

Gold prices are up nearly 18 per cent in US dollar and close to 22 per cent in Indian rupees since the end of September 2024, raising the underlying value of the assets (held as security) for lenders

 

Higher gold prices make it easier for lenders to recover their capital in case of a loan default

 

The company's consolidated net profit was up 25.9 per cent Y-o-Y while gross interest income was up 35.9 per cent Y-o-Y in Q3FY25

 

On the downside, provisions and writeoffs were up 4x in Q3 from a rise in bad loans

 

Elara Capital has a ‘buy’ rating on the stock, with strong tailwinds underpinned by continued gold price traction and full adherence to regulatory norms 

Indian Bank 

The midsize lender, Indian Bank, has been one of the top-performing public sector banks (PSBs) in the last six months

 

Its stock price is up 0.8 per cent since the end of September last year, outperforming the Nifty 50 and other PSBs by a comfortable margin

 

Its outperformance on the bourses can be attributed to faster revenue and earnings growth in recent quarters

 

Indian Bank’s net profit was up 31.9 per cent Y-o-Y while gross interest income was up 11 per cent Y-o-Y in Q3FY25

 

Earnings growth was driven by margin expansion and a further decline in provisions and writeoffs for bad loans

 

Indian Bank’s provisions for bad loans were down 21.5 per cent Y-o-Y in Q3FY25 to the lowest level in the last 21 quarters

 

Analysts remain bullish on the stock given its earnings momentum and relatively low valuation with P/BV ratio of 1.1x 

  Bank of India 

The public sector lender, Bank of India (BoI), has been an outperformer in the last six months, and its stock is down just 3.3 per cent since the end of September last year as against a 13.2 per cent decline in the Nifty 50 in the period

 

This outperformance has been driven by better-than-expected revenue and earnings growth in recent quarters

 

BoI’s net profit was up 34.6 per cent Y-o-Y while its gross interest income was up 19.7 per cent Y-o-Y in Q3FY25 — among the fastest growth in the banking space

 

The bank’s earnings were driven by slower growth in expenses and a further decline in provisions and writeoffs for bad loans

 

On the downside, however, BoI reported a contraction in net interest margin as interest expenses grew faster than gross interest income for the fourth consecutive quarter

 

Brokerages see further upside in the stock driven by growth in BoI’s loan book, improvement in asset quality, and gains from rate cut by the Reserve Bank of India 

PNB Housing Finance 

Mortgage lender PNB Hous­ing Finance’s stock price has shown resilience in recent months amidst a selloff in the broader market

 

The lender's stock price has rallied in the last one month, reversing the trend of a decline after it hit a 52-week high in September last year

 

The improved sentiment is driven by an uptick in the lender’s revenue and earnings growth in the current year compared to a year ago

 

The company's net profit was up 36 per cent Y-o-Y while its gross interest income was up 10 per cent Y-o-Y in Q3FY25, growing at the fastest pace in the last three quarters

 

JM Financial has a ‘buy’ rating given the lender’s strong growth trajectory in affordable and emerging markets, corporate disbursements (starting Q4), and steady branch expansion. Among the 10 stocks, the potential upside is highest in case of PNB Housing 

  General Insurance Corp of India 

The reinsurer, General Insurance Corporation of India, has also outperformed the Nifty 50 in the last 

six months

 

The outperformance has been driven by an uptick in GIC’s revenue growth and higher earnings in recent quarters after a poor show in FY24

 

In Q3FY25, the company's gross premium income was up 10.1 per cent Y-o-Y while its net profit was up 

6.8 per cent Y-o-Y

 

Analysts expect the growth momentum to continue for at least a few more quarters as the reinsurance market recovers from Covid-19 shock

 

Brokerages see further upside in the stock driven by higher earnings and its relatively low valuation with current trailing P/E of 9.7x and P/BV ratio of 1.16x 

SBI Cards & Payment Services 

SBI Cards & Payment Services has been one of the top-performing midcap stocks in recent months

  The company's outperformance in the last six months followed nearly three years of poor show on the bourses after its post-IPO rally ended in July 2021

  The company's stock price nearly halved between July 2021 and October 2024 on concerns of growth slowdown and higher delinquencies in unsecured credit

  Majority of brokerages have either ‘sell’ or ‘hold’ rating on the stock. Analysts at Elara Capital gave a reduced rating after its Q3FY25 results, citing accelerated writeoffs and weakening receivables-to-spends adversely impacting its core earnings

  The correction in the stock price has, however, lowered its valuation to a trailing P/E of 39x and P/BV of 6.2x, against its peak P/E of 63x and peak P/BV of 13.2x