5 bank stocks to buy, target prices | FCNR(B) windfall, unevenly shared
Nomura suggested a target of Rs 395 for Federal Bank. It maintained a target of Rs 1,700 on ICICI Bank, Rs 95 on IDFC First Bank, Rs 1,145 on IndusInd Bank, Rs 460 on Kotak Mahindra Bank.
- Sep 8, 2026,
- Updated Sep 8, 2026 2:23 PM IST
Nomura in a note on Tuesday said industry-wide dollar inflows have far exceeded expectations. The foreign brokerage said FCNR(B) windfall was unevenly shared, with large private and mid-tier banks captured a disproportionate share of these flows, while PSUs lagged.
It expects private banks to reverse the market share losses incurred during the liquidity-constrained period as FCNR(B) deployment scales through the rest of the FY27 and FY28. For now, Nomura has preference for ICICI Bank Ltd and Kotak Mahindra Bank Ltd (KMB) among large private banks.
It remained cautious on PSU banks. Within mid-tier banks, Nomura prefers IDFC First Bank, IndusInd Bank, and Federal Bank. The brokerage has 'Buy' rating on the five stocks.
Nomura said the FCNR(B) influx arrived at a critical juncture for the Indian banking system, which has been grappling with liquidity constraints, elevated certificate of deposit (CD) rates, and persistent deposit mobilisation pressures. This stemmed from a structural CASA decline across the industry and increasing investor preference to higher yielding asset classes against fixed deposits (FDs).
"While we anticipate some margin compression over the next two quarters due to negative carry as banks deploy these funds, the FCNR(B) windfall represents a strategic liquidity buffer that can materially boost FY28F earnings growth once deployment gains traction 2QFY27 onwards," Nomura said.
Nomura suggested a target of Rs 395 for Federal Bank. It maintained a target of Rs 1,700 on ICICI Bank, Rs 95 on IDFC First Bank, Rs 1,145 on IndusInd Bank, Rs 460 on Kotak Mahindra Bank.
The foreign brokerage said there are two main drivers of earnings upgrade when FCNR(B) funds are fully deployed. The first is FCNR(B) deposits as a percentage of overall deposits; and yields/potential spread that the bank can generate.
"Mid-tier banks have both these parameters in their favour. Thus, we expect IDFC First Bank to see the highest earnings upgrades (12 per cent on FY28F). Within large private banks, we expect KMB to see 4 per cent while Axis Bank/ICICI Bank to see a 3 per cent earnings upgrade each on FY28F. However, for HDFC Bank, the upgrade is limited to 1 per cent as the bank’s FCNR(B) flow as a percentage of 1QFY27 deposits is the lowest at 4 per cent (vs 9-15 per cent for the other three)," Nomura said.
In the case o PSU banks such as SBI and Bank of Baroda, they have lower potential spread and lower share of FNCR(B) flow as a percentage of deposits as compared to both large private and mid-tier banks. Thus, Nomura expects the upgrades for them to be limited to 1 per cent each.
Nomura in a note on Tuesday said industry-wide dollar inflows have far exceeded expectations. The foreign brokerage said FCNR(B) windfall was unevenly shared, with large private and mid-tier banks captured a disproportionate share of these flows, while PSUs lagged.
It expects private banks to reverse the market share losses incurred during the liquidity-constrained period as FCNR(B) deployment scales through the rest of the FY27 and FY28. For now, Nomura has preference for ICICI Bank Ltd and Kotak Mahindra Bank Ltd (KMB) among large private banks.
It remained cautious on PSU banks. Within mid-tier banks, Nomura prefers IDFC First Bank, IndusInd Bank, and Federal Bank. The brokerage has 'Buy' rating on the five stocks.
Nomura said the FCNR(B) influx arrived at a critical juncture for the Indian banking system, which has been grappling with liquidity constraints, elevated certificate of deposit (CD) rates, and persistent deposit mobilisation pressures. This stemmed from a structural CASA decline across the industry and increasing investor preference to higher yielding asset classes against fixed deposits (FDs).
"While we anticipate some margin compression over the next two quarters due to negative carry as banks deploy these funds, the FCNR(B) windfall represents a strategic liquidity buffer that can materially boost FY28F earnings growth once deployment gains traction 2QFY27 onwards," Nomura said.
Nomura suggested a target of Rs 395 for Federal Bank. It maintained a target of Rs 1,700 on ICICI Bank, Rs 95 on IDFC First Bank, Rs 1,145 on IndusInd Bank, Rs 460 on Kotak Mahindra Bank.
The foreign brokerage said there are two main drivers of earnings upgrade when FCNR(B) funds are fully deployed. The first is FCNR(B) deposits as a percentage of overall deposits; and yields/potential spread that the bank can generate.
"Mid-tier banks have both these parameters in their favour. Thus, we expect IDFC First Bank to see the highest earnings upgrades (12 per cent on FY28F). Within large private banks, we expect KMB to see 4 per cent while Axis Bank/ICICI Bank to see a 3 per cent earnings upgrade each on FY28F. However, for HDFC Bank, the upgrade is limited to 1 per cent as the bank’s FCNR(B) flow as a percentage of 1QFY27 deposits is the lowest at 4 per cent (vs 9-15 per cent for the other three)," Nomura said.
In the case o PSU banks such as SBI and Bank of Baroda, they have lower potential spread and lower share of FNCR(B) flow as a percentage of deposits as compared to both large private and mid-tier banks. Thus, Nomura expects the upgrades for them to be limited to 1 per cent each.