MOFSL in a fresh strategy note said it remains constructive on the BFSI sector and expects banking stocks to perform better going ahead, helped by an impending recovery in earnings and an improving macro environment. The domestic brokerage said the management commentaries are also turning constructive, and that a pick-up in credit demand could further support investor sentiment.

Within banks, MOFSL said it continued to prefer large-cap lenders as valuations appear reasonable in the context of the earnings outlook. It said these banks stand out for their strong balance sheets, healthy PCR and relatively better growth prospects, which are expected to support a steady earnings trajectory. Over FY26-28, it estimated an earnings growth of 21 per cent for private banks and 8 per cent for public sector banks (PSBs), compounded annually. MOFSL's top large-cap picks are ICICI Bank Ltd, HDFC Bank Ltd and State Bank of India, while AU Small Finance Bank Ltd (AU SFB) is the broker's preferred mid-sized bank.

In NBFCs, MOFSL said vehicle financiers have reported steady improvement in asset quality over the past few quarters, backed by strengthening business momentum, with Shriram Finance remaining its preferred pick in the segment. It said demand trends for large HFCs remain subdued because of heightened competitive intensity from banks, but it continues to prefer PNB Housing for its increasing focus on high-yielding segments and the potential for NIM expansion over the next couple of years. 

"Within diversified financials, we maintain our preference for Aditya Birla Capital on the back of its steady execution across businesses, and L&T Finance, as the worst of the MFI sector stress appears to be behind, supporting improved growth and profitability. We also add Piramal Finance to our preferred list, supported by its consistent growth trajectory, strong improvement in asset quality, and steady," MOFSL said.
In life and general insurance, MOFSL said it likes SBI Life for its strong growth visibility, improving mix towards protection and non-ULIP products, stable VNB margins, and continued strengthening of agency distribution alongside the dominant SBI franchise. 

It also said it likes Canara HSBC Life because of its underpenetrated bancassurance opportunity within the Canara Bank ecosystem, strong APE growth visibility, improving product mix towards traditional products, and continued VNB margin expansion driven by operating leverage and rising rider attachment. 

Among general insurers, it prefers ICICI Lombard for its balanced growth-profitability approach, improving retail health mix, strong underwriting discipline and healthy reserve position, which it said should support earnings resilience despite competitive intensity.

In capital markets, MOFSL said it prefers Billionbrains Garage (Groww) because of its strong execution in broking, rising share of retail participation, expanding MTF book and multiple monetisation levers across financial products. The domestic brokerage also continued to like HDFC AMC, saying the recent correction has made valuations more reasonable, while strong market share gains and healthy SIP-led flows support earnings visibility. 

Meanwhile, in the wealth management, Nuvama Wealth remained its preferred pick, driven by its diversified multi-engine model, rising annuity revenue mix, strong operating leverage and improving RoE visibility, supported by multiple emerging profit pools. Overall, MOFSL's preferred BFSI picks span large-cap and mid-sized banks, NBFCs, insurers and capital market plays.