HDFC Bank: Zero exposure? Why Emkay exited large private lenders; its view on RBL, YES Bank
Emkay said ICICI Bank remained the strongest bank, but leaves little upside at 2.4x book value. HDFC Bank and Axis Bank are relatively underpriced and have to deliver consistent growth to offer meaningful stock upside.
- Jul 7, 2026,
- Updated Jul 7, 2026 8:38 AM IST
Emkay Global in its latest strategy note said it has exited HDFC Bank Ltd and has zero exposure to large private banks and public sector banks (PSBs) in its model portfolio. The domestic brokerage believes large-cap bank valuations are still above the fair-value zone, despite the multi-year de-rating
It said all ‘quality’ banking names price in a higher growth in book value per share than return on equity (RoE), which is unlikely given the high base and the lack of risk appetite.
"We, therefore, remain cautious on this space, as the market continues to extrapolate past some of the hyper-growth despite the structural downward shift in growth. The re-rating potential lies in franchises with a credible RoA-repair path, with historic valuation ranges largely irrelevant," Emkay said.
Views on HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank
Among private banks, Emkay said ICICI Bank Ltd remained the strongest bank in the sector, but leaves little upside at 2.4 times book value. HDFC Bank and Axis Bank Ltd are relatively underpriced and have to deliver consistent growth to offer meaningful stock upside. Kotak Mahindra Bank Ltd is starting to deliver growth, but is too conservative given its capital drag, and the management change now creates an overhang, Emkay said.
The turnaround in IndusInd Bank is largely priced in at 1.3 times book value and the risk-reward does not look attractive, Emkay said.
The domestic brokerage said the cyclical upturn masks a tougher structural reality. Competitive intensity is rising on three fronts. Larger banks are struggling to gain market share. Disintermediation is seen in the wholesale space through bond markets. Also, the disruption of payments, distribution, and unsecured lending is hurting long-term profitability.
Consequently, the hyper-growth for private banks is largely over, with rich return on assets (RoAs) also under threat, Emkay said.
"FDI and strategic capital are key positives for SMID banks – recent investments (eg Warburg/ADIA into IDFC First) provide long-term growth capital, ease dilution overhangs, and signal confidence in franchise-building runway," it said.
Emkay has cut exposure in financials to 25 per cent from 29 per cent, with no exposure to large-cap and PSU banks. A rising competition has ended hyper-growth for large private banks, and they are unlikely to gain meaningful market share from here, Emkay said.
"The recent rally has pushed multiples back above fair value, and we see a time-correction ahead. We do expect a strong cyclical earnings recovery for lenders in FY27, led by a reviving credit cycle and bottoming margins at large private banks. We prefer to play that through SMID banks and NBFCs, with capital markets being our other preferred sector," Emkay said.
Views on YES Bank, RBL Bank, Federal Bank Among small private banks, Emkay said FDI investment in IDFC First Bank, Federal Bank, RBL Bank and YES Bank is a big positive. It gives the banks a solid base of capital, with anchor investors addressing future capital anxiety.
"In RBL Bank and YES Bank, we expect positive management changes with focus on tech, systems, HR, and compliance. This opens the door for them to accelerate market-share gains and deliver sustained high growth, especially as the operating environment is expected to be strong over FY27-28," Emkay said.
These stocks, Emkay said, represent growth beta. It said that these stocks will outperform the sector by a considerable margin in this strong growth upcycle over the next 2-3 years, with 20 per cent growth on a sustained basis.
"We also expect their deposit profiles to improve as they deepen their franchises, helped also by an easy liquidity regime. We are OW in this sector, with IDFC and RBL as our key picks," Emkay said.
Views on SBI, other PSU banks
EMKAY SAID IT HAS zero weight in the segment. SBI remained its favorite PSB, given the strength of its franchise and aggressive execution in the post-Covid phase. However, it feels the stock is fully valued at 1.6 times book value. The implied exit multiple of 1.7 times book value for a 20 per cent return is too optimistic, it said.
Strategy Overall, Emkay switched its NBFC exposure from SHFL to MMFS, as it sees stronger rerating potential (both playing on the auto theme). In AMCs, it switched from ICICIAMC to ABSLAMC as a more high-beta exposure, in line with its positive view on the markets. Its Financials exposure declined 25 per cent and the brokerage added Godrej Consumer to fill the gap in it model portfolio.
Emkay Global in its latest strategy note said it has exited HDFC Bank Ltd and has zero exposure to large private banks and public sector banks (PSBs) in its model portfolio. The domestic brokerage believes large-cap bank valuations are still above the fair-value zone, despite the multi-year de-rating
It said all ‘quality’ banking names price in a higher growth in book value per share than return on equity (RoE), which is unlikely given the high base and the lack of risk appetite.
"We, therefore, remain cautious on this space, as the market continues to extrapolate past some of the hyper-growth despite the structural downward shift in growth. The re-rating potential lies in franchises with a credible RoA-repair path, with historic valuation ranges largely irrelevant," Emkay said.
Views on HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank
Among private banks, Emkay said ICICI Bank Ltd remained the strongest bank in the sector, but leaves little upside at 2.4 times book value. HDFC Bank and Axis Bank Ltd are relatively underpriced and have to deliver consistent growth to offer meaningful stock upside. Kotak Mahindra Bank Ltd is starting to deliver growth, but is too conservative given its capital drag, and the management change now creates an overhang, Emkay said.
The turnaround in IndusInd Bank is largely priced in at 1.3 times book value and the risk-reward does not look attractive, Emkay said.
The domestic brokerage said the cyclical upturn masks a tougher structural reality. Competitive intensity is rising on three fronts. Larger banks are struggling to gain market share. Disintermediation is seen in the wholesale space through bond markets. Also, the disruption of payments, distribution, and unsecured lending is hurting long-term profitability.
Consequently, the hyper-growth for private banks is largely over, with rich return on assets (RoAs) also under threat, Emkay said.
"FDI and strategic capital are key positives for SMID banks – recent investments (eg Warburg/ADIA into IDFC First) provide long-term growth capital, ease dilution overhangs, and signal confidence in franchise-building runway," it said.
Emkay has cut exposure in financials to 25 per cent from 29 per cent, with no exposure to large-cap and PSU banks. A rising competition has ended hyper-growth for large private banks, and they are unlikely to gain meaningful market share from here, Emkay said.
"The recent rally has pushed multiples back above fair value, and we see a time-correction ahead. We do expect a strong cyclical earnings recovery for lenders in FY27, led by a reviving credit cycle and bottoming margins at large private banks. We prefer to play that through SMID banks and NBFCs, with capital markets being our other preferred sector," Emkay said.
Views on YES Bank, RBL Bank, Federal Bank Among small private banks, Emkay said FDI investment in IDFC First Bank, Federal Bank, RBL Bank and YES Bank is a big positive. It gives the banks a solid base of capital, with anchor investors addressing future capital anxiety.
"In RBL Bank and YES Bank, we expect positive management changes with focus on tech, systems, HR, and compliance. This opens the door for them to accelerate market-share gains and deliver sustained high growth, especially as the operating environment is expected to be strong over FY27-28," Emkay said.
These stocks, Emkay said, represent growth beta. It said that these stocks will outperform the sector by a considerable margin in this strong growth upcycle over the next 2-3 years, with 20 per cent growth on a sustained basis.
"We also expect their deposit profiles to improve as they deepen their franchises, helped also by an easy liquidity regime. We are OW in this sector, with IDFC and RBL as our key picks," Emkay said.
Views on SBI, other PSU banks
EMKAY SAID IT HAS zero weight in the segment. SBI remained its favorite PSB, given the strength of its franchise and aggressive execution in the post-Covid phase. However, it feels the stock is fully valued at 1.6 times book value. The implied exit multiple of 1.7 times book value for a 20 per cent return is too optimistic, it said.
Strategy Overall, Emkay switched its NBFC exposure from SHFL to MMFS, as it sees stronger rerating potential (both playing on the auto theme). In AMCs, it switched from ICICIAMC to ABSLAMC as a more high-beta exposure, in line with its positive view on the markets. Its Financials exposure declined 25 per cent and the brokerage added Godrej Consumer to fill the gap in it model portfolio.