Small and Mid Sized Private Banks Could Lead Financial Sector Recovery, Says Emkay; Mahindra Finance Enters Model Portfolio

Small and mid sized private banks could lead the next leg of the financial sector recovery, brokerage Emkay Global has said, arguing that large lenders face structural challenges that may cap their earnings momentum. The view marks a shift in preference within the banking pack, where smaller franchises with cleaner balance sheets and room for margin expansion are seen better placed.

Among non banking financial companies, Emkay has replaced Shriram Housing Finance with Mahindra and Mahindra Financial Services in its model portfolio. The brokerage cited stronger rerating potential for the vehicle financier, linked to an expected recovery in the automobile financing cycle.

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Why Emkay Prefers Small and Mid Sized Private Banks

According to the brokerage, large private lenders are grappling with structural challenges, including intense competition for deposits, pressure on net interest margins and a high base that makes incremental growth harder. Smaller private banks, in contrast, operate from a lower base and can gain market share as credit demand revives.

A recovery in the broader financial sector typically favours lenders that can grow advances faster than the system while keeping credit costs contained. Emkay believes select smaller private banks fit this profile better at current valuations.

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Mahindra Finance Replaces Shriram Housing Finance in the Model Portfolio

In the NBFC space, Emkay swapped Shriram Housing Finance for Mahindra and Mahindra Financial Services in its model portfolio. The brokerage flagged stronger rerating potential for the company as the automobile financing cycle recovers, supported by demand for utility vehicles, tractors and pre owned vehicles in rural and semi urban India.

Mahindra and Mahindra Financial Services shares were trading at Rs 327.85 on the NSE on Wednesday morning, down 1.31 percent, as the broader market opened weak on global cues.

What the Emkay View Means for Bank Investors

Brokerage model portfolio changes signal where institutional preference is moving, but they are not a substitute for individual research. Investors tracking these smaller lenders should focus on deposit growth, asset quality trends and Q1 FY27 results before adding exposure, and should size positions carefully given the higher volatility in smaller banking names.

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Conclusion

Emkay expects small and mid sized private banks to lead the financial sector recovery while large lenders work through structural challenges. The addition of Mahindra and Mahindra Financial Services to its model portfolio, in place of Shriram Housing Finance, reflects confidence in the auto financing cycle. Investors should verify fundamentals and consult a SEBI registered advisor before acting.

Frequently Asked Questions FAQs

What did Emkay say about small and mid sized private banks?

Ans. Emkay Global said small and mid sized private banks could lead the financial sector recovery, as large lenders face structural challenges such as deposit competition and margin pressure.

Which NBFC did Emkay add to its model portfolio?

Ans. Emkay replaced Shriram Housing Finance with Mahindra and Mahindra Financial Services in its model portfolio, citing stronger rerating potential linked to a recovery in the automobile financing cycle.

Why are large private banks facing structural challenges?

Ans. Large private lenders face intense competition for deposits, pressure on net interest margins and a high base effect that makes incremental growth harder, according to the brokerage view.

What is the Mahindra and Mahindra Financial Services share price today?

Ans. Mahindra and Mahindra Financial Services shares were trading at Rs 327.85 on the NSE on the morning of 8 July 2026, down 1.31 percent.

Why could small and mid sized private banks outperform in a recovery?

Ans. These banks operate from a lower base, can grow advances faster than the system and have room for margin expansion, which typically supports earnings in a financial sector recovery.

Should investors buy smaller private bank stocks now?

Ans. Model portfolio changes indicate institutional preference but are not personal advice. Investors should review deposit growth, asset quality and Q1 FY27 results, and consult a SEBI registered investment advisor before investing.