JPMorgan Favours PSUs Over Mid-Sized Banks, NBFCs; Downgrades Federal Bank, IndusInd Bank

JPMorgan has revised earnings estimates, price targets, and ratings across a mix of public sector, mid-sized banks, NBFCs, and real estate firms. The brokerage, in its note on Wednesday, said it preferred public sector undertakings and real estate developers over mid-sized private banks and NBFCs due to pressure from narrowing net interest margins, policy easing, and slower growth in the NBFC space.

The brokerage remains positive on real estate developers and REITs, citing stable pre-sales and cash flow. In the banking space, it favours PSU banks over mid-sized peers, expecting temporary EPS weakness in financial year 2026, but stronger volume-led profit growth in fiscals 2027-2028, as easing policy supports asset growth and profitability recovery.

The brokerage downgraded Federal Bank Ltd. from 'overweight' to 'neutral' and trimmed the target price to Rs 210 from Rs 215. The downgrade is based on the view that return on assets expansion will take time as the bank undergoes structural transformation, including expanding outside Kerala and increasing its focus on mid-yield loans. JPMorgan believes near-term expectations may not materialise, which could disappoint investors.

IndusInd Bank Ltd. saw a more significant downgrade from 'neutral' to 'underweight', with the target price sharply reduced to Rs 550 from Rs 1,100. The brokerage cited concerns over the bank’s pre-provision operating profit RoA, which is expected to remain under pressure for an extended period.

JPMorgan also highlighted the need for process overhauls and suggested that even with a new CEO and capital infusion, recovery could be slow. Its financial year 2026 and fiscal 2027 EPS forecasts are significantly below market consensus.

On the positive side, IDFC First Bank Ltd. was upgraded to 'neutral' from 'underweight', with the target price raised to Rs 63 from Rs 50. JPMorgan views the bank’s premium valuation as justified, citing strong liability franchise growth (with CASA at 46.9%), a diversified retail asset book, and controlled credit costs outside of the microfinance segment.

Other changes include maintaining 'overweight' ratings on Bank of Baroda, PNB, and YES Bank. However, the target price for Bank of Baroda and PNB were cut to Rs 305 and Rs 120 respectively, while the target price for YES Bank was hiked to Rs 18.

RBL Bank remains 'underweight', though its target has been raised to Rs 190. LIC Housing Finance retained its 'overweight' rating, but the target has been trimmed to Rs 690.