Many see high tariff led global inflation as the likely outcome of current politics and therefore ‘higher for longer’ rates and strong USD, a natural outcome. Select brokerage firms have shared views on select banking stocks and they have varied views on the stocks from this sector. They have continued to remain positive on the sectors, despite select names continuing to struggle. However, the overall view for the banking sector remains constructive amid the consolidation as they find risk-reward attractive.
Many see high tariff led global inflation as the likely outcome of current politics and therefore ‘higher for longer’ rates and strong USD, a natural outcome. Another group sees ‘tariff tantrums’ as a temporary means to an end, a stepping stone to the US setting its fiscal health and borrowing economics in order, prompting a bond rally and some reversal of US dollar strength.
The impact of both scenarios on the sector through the prism of Indian rate cut timing. Analysis of the RBI delaying the next rate cut to 3QFY26 (vs 1QFY26) suggests that the health of Indian banks’ earnings momentum is not overly dependent on this. This can be attributed to margin bottoming out from the saturation of fixed deposit repricing and fast repricing of loans to rate cuts, said BNP Paribas.
"The regulator has turned supportive on all three elements of the policy trinity – monetary, liquidity and credit. We believe its liquidity interventions, supportive of M3 growth as well as lending appetite, bode well for FY26 credit growth," it said" Stable/improving margins on account of the already peaked out cost of funds ensure leading to healthy earning momentum."
Indian Banks’ shifting preference for retail vs corporate loans is partly driven by improved reach (physical/digital) and partly by optionality available to corporates. Scuffle for deposits would keep deposit pricing high and pressurize margins in FY26. But the quantum of decline will vary for each bank, said Ambit.
The current asset quality pain is more seasonal and less structural as it is driven by internal factors, including over-leveraging. We expect the quantum of asset quality pain will be identified by 1HFY26. As the peak of RoA/RoE is behind, with pressure on margins and surge in credit costs, sustainability of return ratios will be tough, it said.
Commenting on IndusInd Bank, Ventura Securities said that long-standing derivatives accounting discrepancies remained undetected for 5–7 years and raised concerns over internal controls, impacting the street’s confidence in the bank’s governance. Elevated stress in the microfinance portfolio and the street’s eagerness to see the new CEO designated— along with clarity on his strategies—adds to the uncertainty.
"Until then, the bank will have to take exceptional steps to rebuild trust across both corporate and retail segments, which will require sustained effort. We place the stock under review for the next 2–3 quarters as we assess the bank’s ability to restore its reputation and return to a sustainable growth trajectory," it added without rating the stock as of now.
Ambit has picked HDFC Bank as its top pick with a 'but' rating and a target price (TP) of Rs 2,150, followed by ICICI Bank (TP: Rs 1,550), SBI (TP: Rs 950) and Axis Bank (TP: Rs 1,350). Kotak Mahindra Bank remains top 'sell' as valuations don’t justify rising asset quality concerns. It has a target price of Rs 1,900 on the stock. Ambit gave a sell tag on Bandhan Bank (TP: Rs 130) and RBL bank (TP: Rs 140) also.
BNP Paribas made small revisions to our earnings estimates from building in 3QFY25 actuals and a slightly muted 4QFY25. HDFC Bank (TP: Rs 2,660), ICICI Bank (TP: Rs 1,710) and Axis Bank (TP: Rs 1,630) remain its top picks amongst large-cap banks, offering favourable return expectations on conservative target multiples. It believes Kotak Mahindra Bank (TP: Rs 2,180) and IndusInd Bank (TP: Rs 860) to underperform, while its neutral on SBI (TP: Rs 910).
Nirmal Bang Institutional Equities has a 'hold' rating on Bandhan Bank with a target price of Rs 160. "We have estimated earnings CAGR of 29.3 per cent over FY24-FY27E on the back of 14.1 per cent CAGR in the loan book, stable opex ratios and 2.5 per cent average credit cost during the same period," it said.