'Time To Be Stock-Specific': This Goldman Sachs Expert Prefers NBFCs, Private Banks Over PSBs — Here's Why

Goldman Sachs has maintained a positive stance on the Indian economy and the banking sector, anticipating an earnings upswing for Indian banks, particularly in the latter half of the year. The global brokerage foresees a rebound over easing liquidity and declining non-performing loan (NPL) risks. 

Earlier this year, Goldman Sachs said India is a top-performing emerging market, owing to macroeconomic stability and strong domestic risk capital. In the ongoing April-June quarter results season (Q1FY26), Rahul Jain, Head, India Equity Research & Asia Financials, Goldman Sachs, told NDTV Profit that FY27 will be 'very strong' for the banking sector after a V-shaped recovery.

Rahul Jain told NDTV Profit that the setup looks favourable for the overall banking space amid a slew of measures from the Reserve Bank of India (RBI) and the market regulators. As a result of RBI's liquidity measures, banks have cut 50-90 basis points (bps) of term deposit rates and 25-50 bps for savings deposits.

One basis point is equal to one-hundredth of a percentage point. Jain expects a V-shaped recovery playing out in margins for most of the Indian banks in the second half of the year after a decent performance in Q1FY26. "FY27 could be very strong for the overall banking space," claims Jain.

Jain told NDTV Profit that he does not hold a favourable view on public-sector banks (PSBs). "I see flavours shifting back to private banks," he said. According to the expert, the moderating return on assets (RoA) on banks is not appealing to investors. "Credit growth is a huge problem to deal with," he added.

He explained that the non-banking financial companies (NBFCs) managed their net interest margins (NIMs) better during the June quarter. "Private banks and select NBFCs have well-diversified loan book mixes, so as and when the consumer lending picks up, driven by unsecured loans, that will also support the margins," Jain told NDTV Profit.

During the June quarter, Goldman Sachs's focus was on the core operating profitability, which was well managed by the sector, despite the overall NIM declines. "However, now it's time to be stock-specific on the banking space rather than take a macro, broad-based view on the sector," said the expert.

As per the global broking's latest report on the Indian banking sector, its top financial stock picks are Axis Bank, HDFC Bank, AU Small Finance Bank, Kotak Mahindra Bank, Shriram Finance, L&T Finance, PNB Housing Finance, Cholamandalam Finance, and Aavas Financiers.