Ahead of the upcoming first-quarter results, Nomura India has provided its comprehensive banking sector preview, outlining target prices and ratings for several prominent Indian lenders. The foreign brokerage firm has issued 'Buy' ratings for five key banks, projecting potential double-digit gains, while maintaining a 'Neutral' stance on others, including YES Bank and State Bank of India (SBI).
Nomura's 'Buy' Ratings and Upside Potential
Nomura India's report, dated July 8, 2026, highlights five banks with 'Buy' recommendations, anticipating a potential upside ranging from 4 to 21 percent. These top picks include major private sector players:
- HDFC Bank Ltd: Target price set at Rs 950.
- ICICI Bank Ltd: Target price set at Rs 1,620.
- Axis Bank Ltd: Target price set at Rs 1,560.
- Kotak Mahindra Bank Ltd (KMB): Target price of Rs 460, suggesting a significant 20.6 percent potential upside.
- IDFC First Bank Ltd: Target price maintained at Rs 85, hinting at a modest 5 percent upside.
'Neutral' Stance for Select Lenders
While bullish on some, Nomura has adopted a 'Neutral' rating for several other banks, with some facing potential downsides:
- YES Bank: Target price of Rs 21, implying a potential downside of 13.4 percent.
- Bandhan Bank: Target price of Rs 195, suggesting a potential decline of 6 percent.
- AU Small Finance Bank: Assigned a target price of Rs 975.
- State Bank of India (SBI): Target price of Rs 1,140.
- Bank of Baroda (BOB): Target price of Rs 300.
For some of these 'Neutral' rated stocks, Nomura forecasts potential downsides between 6 and 13 percent.
Broader Banking Sector Outlook for Q1
Nomura's preview also shed light on the broader performance expectations for the banking sector in Q1. The firm anticipates a modest core Pre-Provision Operating Profit (PPOP) growth of 12 percent year-over-year (YoY), driven primarily by soft net interest income (NII) growth at 9 percent YoY and well-managed operating expenses.
Profit Growth and Credit Costs
Despite the PPOP growth, overall profit growth for banks is expected to remain muted at 6 percent, largely due to seasonally higher credit costs. The report notes that while loan growth momentum remained robust in June, a notable divergence is now observed within cohorts, not just across them.
Net Interest Margins (NIMs) and Funding
A mild-to-moderate decline in Net Interest Margins (NIMs) is projected across most banks in Nomura's coverage, with Federal Bank being an exception. Banks like Bank of Baroda and Axis Bank are expected to experience a sharper drag on their NIMs. The brokerage also highlighted that management commentary on Foreign Currency Non-Resident (Bank) or FCNR(B) mobilization and its potential to narrow the funding gap will be a key area of focus during this earnings season.
Asset Quality and Deposit Trends
Asset quality trends have remained steady, but a delayed monsoon is flagged as a watch item for the second half of the fiscal year. Nomura's analysis indicates that deposit growth continues to lag credit growth, keeping Credit-Deposit (CD) ratios elevated across the banking system. The firm reiterates its view that a margin recovery in FY27 will be back-ended rather than immediate, with the credit-deposit growth gap likely to persist through 1QFY27F before narrowing from 2QFY27F as incremental FCNR(B) deposits begin to flow through.
Disclaimer: This article provides information for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.