ICICI Bank, HDFC Bank, SBI, Axis, YES Bank: Banking stocks for up to 35% rise, Q4 previews

Analysts highlight a challenging operating environment for Indian banks amid ongoing geopolitical tensions in West Asia. elevated energy prices, supply chain disruptions, and inflationary pressures are expected to strain household cash flows, especially in rural and lower-income segments. Valuations have corrected but remain above trough levels, they suggest.

JM Financial projects limited impact on 4QFY26E performance, with loan growth estimated at around 14% year-on-year. Net interest margins (NIMs) are expected to show varied trends, remaining flat or slightly down for large banks while expanding for small and mid-sized banks. Asset quality is anticipated to stay stable overall.

Looking ahead to FY27E, JM Financial notes elevated credit and credit-deposit ratios, along with declining liquidity coverage, indicating increased reliance on higher-cost funding. This is likely to exert pressure on margins. The report also flags potential risks in unsecured retail, microfinance, and SME segments for the coming year.

Consequently, JM Financial has revised earnings per share estimates downward for FY27–28E and reduced target price multiples by 3–19 per cent. However, the firm upgraded Kotak Mahindra Bank from reduce to add due to its attractive valuation. Top picks include ICICI Bank, State Bank of India, Axis Bank, City Union Bank, Ujjivan Small Finance Bank, and DCB Bank.

Systematix Institutional Equities report highlights a challenging outlook for Indian banks amid geopolitical tensions in West Asia. Rising energy prices, supply chain issues, and inflation are expected to strain household cash flows, especially in rural and lower-income groups.

According to Systematix, 4QFY26E performance impact is limited, with loan growth forecasted at about 14 per cent year-on-year. Net interest margins (NIMs) may remain flat or slightly decline for large banks, while smaller and mid-sized banks could see expansion. Asset quality is expected to stay stable overall.

The report emphasises tightening liquidity and risk exposure as factors weighing on the sector’s outlook. Elevated credit and credit-deposit ratios constrain growth and increase dependence on costlier funds. Meanwhile, loan growth is expected to remain healthy, supported by retail, services, and corporate segments, with private and public sector banks maintaining steady momentum.

NIM compression is likely to continue but at a moderated pace, with large banks experiencing slight quarter-on-quarter declines. Deposit repricing benefits are gradual, and liability pressures persist. JM Financial expects asset quality to remain stable, though early stress indicators in vulnerable segments should be closely monitored.

Looking into FY27E, Systematix points to elevated credit and credit-deposit ratios alongside declining liquidity coverage. This suggests greater reliance on higher-cost funding, which may pressure margins. Risks are noted in unsecured retail, microfinance, and SME segments.

Systematix has lowered earnings per share estimates for FY27–28E and cut target price multiples by 3–19 per cent. However, Kotak Mahindra Bank has been upgraded from reduce to add due to attractive valuation. Top picks include ICICI Bank, State Bank of India, Axis Bank, City Union Bank, Ujjivan Small Finance Bank, and DCB Bank.

Earnings growth is projected to moderate, with net interest income growth in the low to mid-single digits for large banks. Profit before provisions will benefit from operating leverage in select banks, yet profit after tax trends may be uneven due to margin pressures and provisioning cycles. The firm has adjusted estimates to reflect rising macroeconomic uncertainty and higher costs of equity.

Earnings growth is projected to moderate, with net interest income growth in low to mid-single digits for large banks. Profit before provisions may benefit from operating leverage in select banks, but profit after tax could be uneven due to margin pressures and provisioning cycles. Estimates reflect rising macroeconomic uncertainty and higher equity costs.

Provisional data point to steady loan growth of 13–14 per cent YoY. JM Financial advises focusing on banks with strong liability franchises, capital buffers, and diversified portfolios. Large banks are considered best positioned, while mid-sized and small finance banks offer higher growth with increased risks.

JM Financial has a ' buy' rating on ICICI Bank (Target Price: Rs 1,550), Axis Bank (Target Price: Rs 1,400), State Bank of India (Target Price: Rs 1,210), City Union Bank (Target Price: Rs 280), DCB Bank (Target Price: Rs 200) and Ujjivan Small Finance Bank (Target Price: Rs 66). YES Bank is the only lender with a 'sell' rating with a target price of Rs 16 apeice.

HDFC Bank (Target Price: Rs 850), Kotak Mahindra Bank (Target Price: Rs 390), Federal Bank (Target Price: Rs 290), Bandhan Bank (Target Price: Rs 160), Bank of Baroda (Target Price: Rs 280), Punjab National Bank (Target Price: Rs 115) and AU Small Finance Bank (Target Price: Rs 950) have an 'add' rating from JM Financial. Equitas SFB and IndusInd Bank have a reduce rating with a target price of Rs 56 and Rs 780, respectively.

Systematix has a 'buy' rating on ICICI Bank (Target Price: Rs 1,630), Bank of Baroda (Target Price: Rs 330), Kotak Mahindra Bank (Target Price: Rs 475), Union Bank of India (Target Price: Rs 225), HDFC Bank (Target Price: Rs 960), State Bank of India (Target Price: Rs 1,300), Axis Bank (Target Price: Rs 1,530), Bank of India (Target Price: Rs 175), Bank of Maharashtra (Target Price: Rs 80), Federal Bank (Target Price: Rs 310). It has a 'hold' rating on Indian Bank (Target Price: Rs 990) and IndusInd Bank (Target Price: Rs 890).