Global brokerage firm Bernstein has released an updated outlook on the Indian banking sector, projecting substantial upside for several key private lenders. HDFC Bank shares, in particular, are expected to see a significant 57% increase, with Bernstein setting a target price of Rs 1,150. This target is based on HDFC Bank's intraday price of Rs 730.75 observed on Friday.
Bernstein's Ratings and Target Prices
Bernstein assigned an "Outperform" rating to four major private sector banks: HDFC Bank Ltd, ICICI Bank Ltd, Axis Bank Ltd, and IndusInd Bank Ltd. For other prominent lenders, Kotak Mahindra Bank Ltd (KMB) and State Bank of India (SBI), the brokerage maintained a "Market perform" rating.
- HDFC Bank: Target of Rs 1,150 (57% upside potential)
- ICICI Bank: Target of Rs 1,800
- Axis Bank: Target of Rs 1,600
- Kotak Mahindra Bank (KMB): Target of Rs 500
- State Bank of India (SBI): Target of Rs 1,300
- IndusInd Bank (IIB): Target of Rs 1,000
The firm indicated that it updated its financial models for Axis, KMB, and SBI to incorporate their latest quarterly results, making minor adjustments to growth and margin assumptions. These changes, however, resulted in less than a 2% alteration to EPS estimates and no change to the previously set target prices.
Sector Outlook and Dynamics
Bernstein's analysis suggests the Indian banking sector is currently in a favorable position, characterized by loan growth hitting a four-year high and easing margin risks due to improved system liquidity. Asset quality remains robust despite broader macroeconomic volatility, contributing to a "compelling" setup given current valuations.
The brokerage anticipates the sector will maintain healthy growth through FY27, driven by strong liquidity and a recovery in nominal credit growth. While potential policy tightening could temper momentum later in the year, the margin outlook is expected to remain stable. This stability is attributed to deposit repricing largely being completed and any future rate hikes potentially boosting Net Interest Margins (NIMs).
Asset quality is projected to remain benign, which will support consistent credit costs and overall earnings resilience. Within the sector, private banks are expected to continue closing the growth gap with public sector banks. Bernstein noted that public sector banks' higher reliance on borrowings might negatively impact their relative margin performance compared to private counterparts.