A new report from Jefferies highlights a stark divergence in the performance of financial sectors globally, with Japanese and Korean banks leading the charge in earnings-per-share (EPS) upgrades, while Indian financial institutions notably lag behind.
According to the brokerage, consensus FY27 EPS estimates for Japanese financials surged by 19%, and those for Korean financials increased by 18% between December 2025 and September 2026. This impressive growth stands in sharp contrast to India's financial sector, which saw a modest 1% upgrade during the same period.
Global Financial Sector Sees Broad-Based Growth
The report indicates that financial companies across various global markets have capitalized on improving economic conditions and, in some regions, higher interest rates that have bolstered net interest margins (NIMs). Jefferies observed a widespread EPS revision cycle in the global financial sector over the past year, with upgrades extending across the United States, Europe, and Asia.
Japan recorded the strongest FY27 EPS upgrade at 19%, followed closely by Korea at 18%, and Spain at 17%. Other notable increases included Greece (15%), Poland (9%), and Italy (8%). China, the UK, and France each registered 6% upgrades, while the US saw a 3% increase. India, however, was near the bottom of this ranking with just a 1% upgrade.
India's Lagging Performance Explained
In contrast to its global peers, Indian financials have not kept pace with this trend. Jefferies attributes this partly to a falling-rate environment within India, which has exerted pressure on NIMs. Additionally, localized asset-quality concerns have further weighed on performance. While global financials saw consensus earnings estimates upgraded by 6-8% in the first nine months of 2026, and by an additional 2-3% in the most recent quarter, Indian lenders experienced considerably weaker revisions.
Market Performance Reflects Earnings Gap
The disparity in earnings revisions has been mirrored in stock market performance. Over the past two years, the MSCI All Country World Financial Index gained 46% in US-dollar terms. Financial indices in Japan and the UK demonstrated exceptional growth, rising 96% and 90% respectively. China's financial sector gained 68%, and the US saw a 30% increase. Conversely, Indian financials declined by 9% in dollar terms over the same period.
Outlook: Potential for India's Growth Advantage
Despite the current lag, Jefferies anticipates that this performance gap could narrow as India's earnings-growth cycle is expected to accelerate. Global financials are projected to see earnings growth slow to 7% in 2027, from 15% in both 2025 and 2026. Meanwhile, Indian financials are expected to accelerate from 7% EPS growth in FY26 to 9% in FY27 and a robust 14% in FY28.
A normalization in the global upgrade cycle and a narrowing growth differential could encourage foreign investors to re-evaluate their allocations to Indian financials. Furthermore, a potential policy-rate hike, if warranted by higher inflation, could also support earnings upgrades for Indian banks by improving NIM trends.
Leadership Transitions as a Catalyst
Jefferies also identified leadership clarity as another potential catalyst. Several large Indian banks face CEO term renewals or retirements over the next two years. HDFC Bank's CEO term concludes in October 2026, followed by Kotak Mahindra Bank in December 2026. Federal Bank, Bandhan Bank, IDFC First Bank, and Axis Bank also have significant leadership milestones in 2027.
Among its preferred picks, Jefferies maintains BUY ratings on ICICI Bank, SBI, and Axis Bank in the large-cap segment, and AU Small Finance Bank and IndusInd Bank among mid-cap names. These recommendations reflect the brokerage's expectation that India's financials are poised to benefit as their earnings growth catches up with global peers.