The brokerage firm Motilal Oswal has released its latest analysis of the BFSI (Banking, Financial Services, and Insurance) sector and named its top large cap and midcap stock picks from the sector.
The brokerage remains bullish on the structural transformation of India’s financial landscape, driven by several factors such as digitisation, fintech growth, regulatory reforms, and the sheer scale of demographic expansion.
As per the brokerage report, over the past two decades, the BFSI sector’s market cap has jumped more than 50 times, that is, from just Rs 1.8 trillion in 2005 to Rs 91 trillion in 2025. According to the brokerage, this “paradigm shift has heightened the demand for comprehensive stock-level research,” with its own coverage of the sector more than doubling from 30 stocks in FY20 to nearly 70 at present.
Motilal Oswal’s top stock picks: Large caps and mid-size banks
As per the brokerage report, Motilal Oswal’s top large-cap recommendations include ICICI Bank, HDFC Bank, and State Bank of India. Among midsize banks, it prefers Federal Bank and AU Small Finance Bank.
In the NBFC space, Shriram Finance, HomeFirst Finance, PNB Housing Finance, and L&T Finance Holdings are among its preferred picks.
Moilal Oswal: Private banks take the lead
The brokerage notes that private sector banks are showing stronger performance compared to PSU banks. “We estimate that PVB earnings will grow at ~11.7%/18.8% over FY26/27, while PSB earnings will grow at 7.1%/11.7% over the same period,” the report says. It added that private banks are better equipped to handle macro uncertainties due to stronger balance sheets and better cost management.
Motilal Oswal on how the sector has evolved
The BFSI sector’s weight in the Nifty 50 has risen significantly from 14.6% in FY04 to 37.9% in April 2025. HDFC Bank’s share rose from just 1.7% to 13.3%, while ICICI Bank jumped from 4.6% in FY18 to 9.1% now. On the other hand, PSU banks saw their share drop to 2.8%, with only SBI still part of the benchmark index.
Meanwhile, NBFCs that once had a 10.3% share in FY20 now stand at 4.8%, largely due to the merger of HDFC Ltd into HDFC Bank, the brokerage added.
Motilal Oswal: FII love story with BFSI continues
The report also highlights the long-standing interest of foreign institutional investors (FIIs) in India’s BFSI sector. Over the past 15 years, the value of FII holdings has surged 11 times, from Rs 2 trillion in 2010 to Rs 23.7 trillion in December 2024.
“Leading private banks, such as HDFC Bank and ICICI Bank, have witnessed steady FII interest, as these banks demonstrated healthy growth, stable asset quality across cycles, and technological leadership,” the brokerage firm noted in its report .
However, recent global headwinds like high interest rates and tighter liquidity have triggered a temporary dip in FII interest, particularly in mid- and small-cap names.