Macquarie sees strong earnings recovery for banks, picks 5 stocks to outperform

Synopsis

Macquarie expects Indian banks to deliver 18% EPS growth in FY28, supported by higher margins, stronger loan demand, easing liquidity pressures and stable asset quality. The brokerage upgraded Bank of Baroda, Kotak Mahindra Bank and select financial stocks.

Global brokerage Macquarie expects Indian banks to stage an earnings recovery in FY28, helped by higher margins, healthy loan demand, easing liquidity pressure and stable asset quality. In a report, the brokerage said banks could deliver about 18% earnings per share growth in FY28, supported by a likely 15 basis points rise in margins and valuations that remain undemanding.

The case for banks has improved after a period of margin pressure. The broker expects private banks to show stronger earnings growth over the next two years as margins improve and operating expenses and credit costs decline. Macquarie also said it is factoring in about 75 basis points of rate hikes over the next 9-12 months, which could support further margin expansion.