Indian banks could be entering a more favourable earnings cycle, and Goldman Sachs is betting on a select group of lenders to lead the recovery. The brokerage has six Buy-rated bank stocks in its coverage, with potential upside ranging from 18% to 37%. ICICI Bank and Kotak Mahindra Bank stand out as its strongest picks, while HDFC Bank, Axis Bank, Federal Bank and Au Small Finance Bank also make the Buy list.
Goldman Sachs expects improving loan growth, stabilising margins and stronger operating leverage to support a recovery in bank profitability. Its stock-picking framework puts ICICI Bank and Kotak Mahindra Bank at the top of the list on risk-reward.
“Profitability is the key driver of stock returns in the current cycle. Our stock-picking framework suggests the best risk-reward opportunities lie in ICICI Bank and Kotak Bank,” Goldman Sachs said.
Goldman Sachs on HDFC Bank: ‘Buy’
Goldman Sachs has given HDFC Bank a target price of Rs 861 with a ‘Buy’ rating, indicating an upside of 19% from current levels.
The brokerage expects the bank’s Core PPoP growth to improve from FY27 as operating leverage, branch productivity and the expanded distribution network begin contributing more meaningfully to earnings.
“HDFC Bank remains a strong franchise, consistently gaining market share in deposits while maintaining healthy asset quality,” Goldman Sachs said.
Goldman Sachs also sees valuation as an important part of the HDFC Bank thesis, with the stock trading at an attractive multiple relative to its expected earnings recovery.
Goldman Sachs on Axis Bank: ‘Buy’
Goldman Sachs has given Axis Bank a target price of Rs 1,477 with a ‘Buy’ rating, indicating an upside of 19% from its current levels.
The brokerage expects Core PPoP growth to rebound strongly, forecasting 18% CAGR during FY27-FY29 after muted growth in FY27. It expects cyclical pressure on the bank to ease and margins to recover.
“We see a good risk-reward profile, supported by rebound in core PPoP growth to 18% CAGR during FY27-FY29 post muted 11% growth in FY27,” Goldman Sachs said.
Goldman Sachs also sees digital banking as a potential earnings catalyst, arguing that stronger traction from Axis Bank’s platforms could lead to a re-rating.
“If its digital platforms gain traction, there could be upside surprise on core PPoP growth and lead to material re-rating,” Goldman Sachs said.
Goldman Sachs on ICICI Bank: ‘Buy’
Goldman Sachs has given ICICI Bank a target price of Rs 1,935 with a ‘Buy’ rating, indicating an upside of 37% fro current levels. This is the highest upside among the 14 banks covered by the brokerage.
Goldman Sachs expects ICICI Bank’s Core PPoP to grow at 17% CAGR over FY26-FY29E, supported by loan growth, a strong funding franchise, disciplined underwriting and operating leverage.
The brokerage sees ICICI Bank as its strongest banking pick.
“For ICICI, we see the highest re-rating potential among large private banks in our coverage. We believe the bank can mirror HDFC Bank-style compounding over the medium term,” Goldman Sachs said.
Goldman Sachs also explicitly identifies ICICI Bank as its preferred stock within Indian banks.
“ICICI Bank is our preferred pick within Indian banks,” Goldman Sachs said.
Goldman Sachs on Kotak Mahindra Bank: ‘Buy’
Goldman Sachs has given Kotak Mahindra Bank a target price of Rs 509 with a ‘Buy’ rating, indicating an upside of 31% from current levels.
Kotak is the second-highest-upside stock in the brokerage’s 14-bank coverage universe. Goldman Sachs expects 15% Core PPoP CAGR over FY26-FY29E, with asset-quality concerns easing and market-share gains supporting the earnings recovery.
The brokerage believes the stock has scope for a significant re-rating following a prolonged period of underperformance.
“We believe that Kotak Bank has the potential for material re-rating amongst our coverage banks,” Goldman Sachs said.
Goldman Sachs also points to Kotak’s diversified financial-services franchise as a structural advantage.
“Kotak is one of the few Indian financial institutions with access to multiple high-margin profit pools across banking, capital markets, asset management, and insurance/protection,” Goldman Sachs said.
Goldman Sachs on AU Small Finance Bank: ‘Buy’
Goldman Sachs has given AU Small Finance Bank a target price of Rs 1,270 with a ‘Buy’ rating, indicating an upside of 18% from current price.
The brokerage sees AU as a differentiated mid-sized private-bank franchise, with its underwriting capabilities and exposure to higher-margin MSME, commercial retail and vehicle-financing businesses supporting the investment case.
Goldman Sachs expects earnings to grow at 26% CAGR over FY26-FY28E, helped by loan growth, higher NIMs, cost discipline and improving asset quality.
“AU Small Finance Bank stands out as a highly differentiated franchise among mid-sized private banks, with robust underwriting capabilities and access to high-margin profit pools in MSME, commercial retail and vehicle financing,” Goldman Sachs said.
The brokerage also sees the RBI’s in-principle approval for a universal banking licence as an important medium-term catalyst.
“We believe the recent RBI ‘in-principle’ approval for a universal banking license bodes well to be a pivotal driver for its medium-term outlook,” Goldman Sachs said.
Goldman Sachs on Federal Bank: ‘Buy’
Goldman Sachs has given Federal Bank a target price of Rs 425 with a ‘Buy’ rating, indicating an upside of 19% .
The brokerage views Federal Bank as a self-help and turnaround story, with improvements in its CASA ratio, loan mix, fee income and credit costs expected to strengthen profitability.
Goldman Sachs expects EPS to grow at 19% CAGR over FY26-FY29E and RoA to improve by around 30 basis points.
“Federal Bank is a strong self-help story in the Indian banking sector,” Goldman Sachs said.
The brokerage expects these structural improvements to support earnings compounding and a potential re-rating.
“We believe the bank’s structural improvements will drive high-quality earnings and a re-rating. We believe the stock returns will be led by strong earnings compounding,” Goldman Sachs said.
Goldman Sachs’ six ‘Buy’rated bank stocks
| Stock | Rating | Target price | Upside |
| AU Small Finance Bank | Buy | Rs 1,270 | 18% |
| HDFC Bank | Buy | Rs 861 | 19% |
| Axis Bank | Buy | Rs 1,477 | 19% |
| Federal Bank | Buy | Rs 425 | 19% |
| Kotak Mahindra Bank | Buy | Rs 509 | 31% |
| ICICI Bank | Buy | Rs 1,935 | 37% |
Conclusion
Goldman Sachs’ six Buy calls therefore span an 18%-37% upside range, with ICICI Bank and Kotak Mahindra Bank clearly separated from the other four names in terms of potential return.
The brokerage’s broader banking thesis is that profitability is entering a recovery phase. It expects Core PPoP growth to accelerate as loan growth improves, margins stabilise and operating leverage strengthens.
Disclaimer: This story is based on Goldman Sachs Research and reflects the brokerage’s ratings, target prices, forecasts and investment views. These do not constitute independent investment advice. The article is for informational and journalistic purposes only and does not constitute a recommendation to buy, sell or hold any security. Investors should conduct their own research and consult a SEBI-registered investment adviser before making investment decisions.