HSBC expects the earnings upgrade cycle for large Indian private sector banks to gather momentum, supported by favourable interest rate trends, improving operating leverage and multiple growth levers over FY28-29. The brokerage believes the earnings outlook for large private lenders is strengthening relative to the broader Indian market, other domestic lenders and global banking peers.
According to HSBC, earnings estimates for four large private banks — HDFC Bank, ICICI Bank, Axis Bank and Kotak Mahindra Bank — have been upgraded by 1.4% for FY28 over the past six months. In comparison, consensus earnings estimates for Nifty 50 companies have been cut by 2.1%, while the Nifty 50 excluding these four banks has seen a 3.4% reduction.
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Among the four lenders, ICICI Bank and Kotak Mahindra Bank have witnessed the strongest earnings upgrade momentum, while Axis Bank and HDFC Bank have lagged. HSBC noted that ICICI Bank and Kotak Mahindra Bank have also moved up the global rankings in terms of earnings upgrades over the past one to three months.
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The brokerage sees several factors supporting further earnings upgrades over FY28-29. It estimates that every 25-basis-point repo rate hike could improve net interest margins (NIMs) by around 10 basis points and boost earnings per share (EPS) by 3-5%. HSBC expects another 50-basis-point repo rate hike by the end of FY27.
Additionally, operating leverage could support profitability as operating expense growth continues to lag loan and revenue growth. HSBC believes the potential impact of the insurance distribution consultation paper and the transition to expected credit loss (ECL) provisioning norms is largely factored into consensus estimates.
Despite the earnings upgrades, valuations of Indian banks have become more attractive, HSBC said.
The brokerage has maintained a Buy rating on ICICI Bank shares with a target price of Rs 1,710, Axis Bank at Rs 1,620 and Kotak Mahindra Bank at Rs 520. It also has Buy ratings on IndusInd Bank and IDFC First Bank, with target prices of Rs 1,180 and Rs 100, respectively. HDFC Bank shares carry a Hold rating with a target price of Rs 830.
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