Global brokerage Macquarie has significantly upgraded 11 financial stocks across banking, NBFC, insurance, and fintech sectors, with target price increases ranging from 20% to 22% upside potential. The brokerage upgraded Kotak Mahindra Bank to 'Outperform' from 'Neutral' with its target price raised to ₹500 from ₹455, implying an upside of nearly 21% from current levels. Bank of Baroda was also upgraded to 'Outperform' with its target price increased to ₹280 from ₹270, reflecting an upside of around 20%. Among NBFCs, Mahindra & Mahindra Financial Services was upgraded to 'Outperform' from 'Underperform' with its target price raised to ₹395 from ₹270, implying an upside of over 21% from current levels. Paytm parent ONE 97 Communications was upgraded to 'Outperform' from 'Neutral' with its target price raised to ₹2,025 from ₹1,235, the revised target price implying an upside of 20% from current levels. However, PB Fintech faced a significant downgrade to 'Neutral' from 'Outperform' with its target price lowered by 41% to ₹1,150 due to expected sharp EPS cuts following IRDAI commission caps.
Brokerage firm Macquarie expects Indian banks to stage an earnings recovery in FY28, supported by higher margins, healthy loan demand, easing liquidity pressure and stable asset quality. The brokerage projects banks could deliver about 18% earnings per share growth in FY28, supported by a likely 15 basis points rise in margins and valuations that remain undemanding. According to The Economic Times, the case for banks has improved after a period of margin pressure, with the brokerage expecting private banks to show stronger earnings growth over the next two years as margins improve and operating expenses and credit costs decline. Macquarie also factors in about 75 basis points of rate hikes over the next 9-12 months, which could support further margin expansion. Among individual banks, Macquarie's current top picks are ICICI Bank, Kotak Mahindra Bank, SBI and City Union Bank, with target prices of ₹1,730, ₹500, ₹1,220 and ₹265 respectively. The global brokerage equity research report says that private banks should deliver strong EPS growth in the next two years as margins improve and operating expenses and credit costs fall.
The banking sector recommendations include ICICI Bank, Kotak Mahindra Bank, SBI, and City Union Bank as top picks for their rerating potential. Macquarie expects PSU banks to report return on assets of more than 1% and return on equity of 13-15%, with banks benefiting from fresh FCNR inflows while stable asset quality and higher rates could help margins and cushion the impact of expected credit loss costs. The brokerage expects PSU banks to benefit from new FCNR inflows while their asset quality remains stable. There is significant re-rating potential for India's banking stocks, according to Macquarie, as they are trading at 1.3 times their FY28 estimated price-to-book and 10 times price-to-earnings. The broader backdrop is turning more supportive for lenders, with liquidity constraints having eased after foreign currency non-resident deposit mobilisation, loan demand remaining broad-based, and asset quality staying healthy. Bank of Baroda, upgraded to 'Outperform', has a target of ₹280 with core profitability remaining resilient and expects around 1% ROA as sustainable in FY28-29.
Within the NBFC segment, Macquarie has preferred stocks with clear potential to improve ROA, including Aditya Birla Capital, LT Finance, Shriram Finance, and M&M Financial Services. The report notes that growth should remain strong, but a rate increase and higher bond yields should raise borrowing costs and pressure near-term margins. Asset quality is another risk, particularly for unsecured MFI and personal loans if inflation persists, though most NBFCs are well capitalised and adequately provisioned. Following solid execution and valuation consolidation among some larger names, valuations appear more reasonable. In the insurance sector, Macquarie prefers LIC given the removal of the government stake-sale overhang, improving margins, and lower exposure to the Insurance Regulatory and Development Authority's proposed changes to commission limits. The brokerage has upgraded LIC to 'Outperform' with a target price of ₹550, while SBI Life was upgraded to 'Outperform' with a target price of ₹2,120.
The upgrades reflect Macquarie's belief that though the macro-economic environment remains supportive, broad-based triggers like asset quality remain a critical measure of long-term investment opportunity in financial sector stocks. The brokerage expects public sector banks to benefit from new FCNR inflows while their asset quality remains stable. Overall, the report covers current dynamics across the financial sector from banks to fintechs, with the brokerage noting that insurers have de-rated significantly and now trade at attractive levels following recent commission regulations. Macquarie expects NBFCs to benefit from healthy loan growth, though rate increases and higher bond yields may pressure near-term margins, with most NBFCs well capitalised and adequately provisioned. The brokerage expects FY28 to be a year of "pain and recalibration" for PB Fintech, with earlier FY27 profit levels now expected only by FY30 following IRDAI commission caps. The global brokerage has a list of 11 top stock picks in the banking and financial segment, covering the banking, NBFC, insurance, and fintech sectors.
