The brokerage firm, Goldman Sachs sees light at the end of the tunnel for Indian financials. Even as Indian financial stocks remain under pressure from the slowing credit growth and the ripple effects of interest rate uncertainties, the brokerage firm believes the worst may soon be behind us.
In its latest report, the brokerage says the “muddle through” phase for Indian financials is nearing an end, with early signs of a turnaround emerging across key metrics.
Why is the banking sector falling?
According to the brokerage firm, asset quality is beginning to improve, and operating profitability, measured by pre-provision operating profit return on assets (PPOP-ROAs) is showing green shoots. Despite factoring in 100 basis points of rate cuts by the RBI, the brokerage report indicates that Indian banks may be approaching the bottom of their earnings cycle.
“We expect the light at the end of the tunnel has started to emerge,” added the brokerage in its report and said that though it warns that near term softness may persist due to muted credit growth, pressure on net interest margins (NIMs), and elevated credit costs.
The brokerage house also expects consensus EPS cuts to continue into the first half of FY26, but sees that phase ending soon. “New NPL formation should start peaking in 4QFY25/1QFY26,” the firm notes
These 2 stocks just got an upgrade
The brokerage house has upgraded two banking stocks in its recent report, which include PNB housing Finance, and the other Axis Bank.
PNB Housing Finance has been upgraded to ‘Buy’ with a revised 12-month target price of Rs 1,184. According to the report, the stock offers “improving visibility of delivering healthy loan growth and robust profitability.”
Axis Bank also received an upgrade to ‘Buy’ with a new target of Rs 1,288. The brokerage sees a mean reversion opportunity here, highlighting that the bank’s profitability and growth are “nearing the bottom in the 1HFY26.” With liquidity infusion expected in the system, Axis Bank could be one of the key beneficiaries.
Other Buy-rated names to watch
While PNB Housing and Axis Bank received fresh upgrades, HDFC Bank remains Goldman’s top pick among financials. The brokerage expects a revival in loan growth and improvement in operating profitability (PPOP-ROAs) by the fourth quarter of FY26
The brokerage firm in its report also highlights AU Small Finance Bank, Kotak Mahindra Bank, SBI Card, Chola, Shriram Finance, L&T Finance, and Aavas among its preferred picks.
AU Small Finance Bank
The brokerage has a Buy rating on AU Small Finance Bank with a 12-month target price of Rs 795. The optimism is based on a strong 22x forward P/E valuation. However, the brokerage highlights potential risks such as key person dependency, merger-related challenges, and asset quality concerns in the MFI (Microfinance Institution) space.
Kotak Mahindra Bank
Kotak is also on the brokerage Buy list, with a target price of Rs 2,357. The firm expects a mean reversion in valuation and sees subsidiaries contributing about 20–25% to market cap.
SBI Cards & Payment Services
SBI Card has a 12-month target price of Rs 1,006, based on 27x forward EPS. The brokerage remains positive due to its strong brand and profitability potential.
Cholamandalam Investment & Finance
Chola is rated Buy with a target price of Rs 1,731. The valuation is based on a 25x forward EPS. The brokerage house sees potential in the company’s expansion into new businesses and mortgage lending, though it cautions about execution risks and rural economic sensitivity.
Shriram Finance
With a target price of Rs 804, Shriram Finance makes the cut due to expected improvement in productivity ratios and stability post-merger.
Goldman values Aavas at Rs 2,277 per share, with 85% of that based on fundamentals (25x P/E) and the rest on M&A potential (36x P/E).
L&T Finance Holdings
The stock is rated Buy with a 12-month price target of Rs 185. The brokerage firm expects the company to benefit from its renewed strategic direction.