Global brokerage firm Goldman Sachs has revised its outlook on banks from a ‘Goldilocks period’ to a ‘muddle-through scenario,’ expecting further earnings-per-share cuts. Goldman Sachs sees multiple trends playing out for the sector including:
1) Consolidation of credit growth especially consumer retail for households due to higher leverage,
2) Higher credit costs as various loan segments face a credit downcycle,
3) Weaker PPOP-ROA driven by subdued net interest margins (NIMs) and rising operational expenses.
The brokerage firm has lowered its earnings per share estimates by 1.5% for FY25, 4.8% for FY26, and 5.6% for FY27.
- The foreign brokerage advises a selective approach, downgrading IndusInd Bank to ‘Neutral’ and reducing its target price to ₹1,090.
2. Goldman Sachs favors following stocks
- HDFC Bank,
- Kotak Mahindra Bank,
- AU Small Finance Bank,
- Cholamandalam Investment and Finance Company,
- SBI Card,
- Shriram Finance, and
- Aavas Financier.
In a recent report, another brokerage house Jefferies said it expects private banks with strong deposit growth to outperform, while HDFC Bank and PSU banks may face slower growth.
Among private banks, ICICI Bank, Axis Bank, and HDFC Bank are identified as top picks, with Kotak Mahindra Bank upgraded from ‘Hold’ to ‘Buy’ due to an improved valuations.
On the public sector side, SBI remains the preferred choice. At the same time, Bank of Baroda has been downgraded from ‘Buy’ to ‘Hold’ due to its high loan-to-deposit ratio and slower deposit growth, which could constrain its performance and rerating potential, the brokerage said