Japanese, Korean banks see massive EPS upgrades while India lags: Jefferies

Japanese and Korean financial stocks have emerged as the biggest beneficiaries of the global earnings upgrade cycle in 2026, while Indian financials have largely missed out, according to a Jefferies report. The brokerage said FY27 consensus earnings-per-share (EPS) estimates for Japanese financials rose 19% and those for Korean financials increased 18% between December 2025 and September 2026, compared with just 1% for India.

The divergence comes as financial companies across several global markets have benefited from improving economic conditions and, in some markets, higher interest rates supporting net interest margins (NIMs). Jefferies said the global financial sector saw a broad-based EPS revision cycle over the past year, with upgrades extending across the US, Europe and Asia.

The divergence highlights how differing rate cycles, economic conditions and earnings trajectories have shaped financial-sector performance across major markets in 2026.

India trails Japan, Korea and European peers

In contrast, Indian financials have lagged the global trend. The brokerage attributed this partly to the falling-rate environment in India, which weighed on NIMs, as well as pockets of asset-quality pressure. While global financials saw consensus earnings estimates upgraded by 6-8% during the first nine months of 2026 and by another 2-3% in the most recent quarter, Indian lenders saw considerably weaker revisions.

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The gap is particularly stark when compared with Japan and Korea. Japan recorded the strongest FY27 EPS upgrade at 19%, followed by Korea at 18% and Spain at 17%. Greece saw a 15% increase, while Poland and Italy recorded 9% and 8%, respectively. China, the UK and France each registered 6% upgrades, while the US saw a 3% increase. India was near the bottom of the ranking with a 1% upgrade.

Stock-market performance reflects earnings gap

The earnings revision gap has also been reflected in stock-market performance. Over the past two years, the MSCI All Country World Financial Index has gained 46% in US-dollar terms. Financial indices in Japan and the UK rose 96% and 90%, respectively, while China gained 68% and the US rose 30%. In contrast, Indian financials declined 9% in dollar terms.

India could see growth advantage emerge

However, Jefferies expects this performance gap to potentially narrow as the earnings-growth cycle turns in India's favour. Global financials are expected to see earnings growth slow to 7% in 2027, from 15% in both 2025 and 2026. Indian financials, meanwhile, are expected to accelerate from 7% EPS growth in FY26 to 9% in FY27 and 14% in FY28.

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The brokerage said a normalisation in the global upgrade cycle and the narrowing growth gap could encourage foreign investors to revisit their allocations to Indian financials. A potential policy-rate hike, if higher inflation warrants one, could also support earnings upgrades for Indian banks by improving NIM trends.

CEO transitions add another potential catalyst

Jefferies also identified leadership clarity as another potential catalyst, with CEO terms at several large banks coming up for renewal or retirement over the next two years. HDFC Bank's CEO term ends in October 2026, followed by Kotak Mahindra Bank in December 2026, while Federal Bank, Bandhan Bank, IDFC First Bank and Axis Bank face leadership milestones in 2027.

Jefferies' preferred picks among banks are ICICI Bank, SBI and Axis Bank, while AU Small Finance Bank and IndusInd Bank are its preferred mid-cap names. The brokerage has BUY ratings on these stocks, reflecting its expectation that India's financials could benefit as earnings growth catches up with global peers.

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