Goldman Sachs picks ICICI Bank, Kotak Mahindra Bank as top banking bets
Goldman Sachs has begun its assessment of fourteen Indian banks, pinpointing its top selections. ICICI Bank and Kotak Mahindra Bank stand out with Buy ratings that indicate substantial upside potential. The firm anticipates a cyclical recovery in earnings across the banking sector. It forecasts that private banks will surpass their state-owned counterparts in performance over the next two years,…
Mumbai: Goldman Sachs has recently initiated coverage on 14 Indian banks, with ICICI Bank and Kotak Mahindra Bank being highlighted as the top choices for investors. The brokerage anticipates a potential upside of up to 37% across its coverage, as it believes the banking sector will enter a period of earnings recovery fueled by robust loan growth, enhanced liquidity, recovering net interest margins (NIMs), and satisfactory asset quality.
Goldman Sachs has assigned a Buy rating to ICICI Bank with a target price of ₹1,935, projecting a 37% upside. Similarly, the firm has given a Buy rating to Kotak Mahindra Bank with a target of ₹509, indicating a 31% upside. Additionally, the brokerage has initiated coverage on HDFC Bank with a target price of ₹861, suggesting a 19% upside, while also covering Axis Bank at ₹1,477 and Federal Bank at ₹425, both with a 19% upside potential.
AU Small Finance Bank has also been covered by Goldman Sachs with a target price of ₹1,270, implying an 18% upside.
On the neutral side, Goldman Sachs has initiated ratings on IndusInd Bank, IDFC First Bank, Bandhan Bank, and State Bank of India, setting target prices of ₹1,020, ₹92, ₹180, and ₹1,170, respectively. The firm believes that the earnings recovery at mid-sized private banks has already been reflected in their valuations, and further re-rating would necessitate sustained return on equity (RoE) above the cost of equity.
Conversely, Goldman Sachs has initiated a Sell rating on RBL Bank, with a target price of ₹285, implying a 26% downside, and assigned a target of ₹22 to Yes Bank, suggesting a mere 2.1% upside. Bank of Baroda and Punjab National Bank have also been covered on the Sell side, with target prices of ₹245 and ₹103, respectively.
Goldman Sachs anticipates private banks to outperform state-owned banks over the next two years due to strong loan growth, improved NIMs, and better asset quality. They expect private banks to experience accelerated loan growth above system levels, driven by increased FCNR(B) deposit mobilization and a recovery in unsecured lending as asset-quality concerns subside.
The brokerage expects system loan growth to remain around 14-15% during FY26-FY29E, while deposit growth will accelerate as liquidity improves. NIMs are expected to bottom out over the next two quarters before gradually recovering. Furthermore, Goldman Sachs anticipates asset quality to remain stable, with stress predominantly affecting granular unsecured loans.
For state-owned banks, the brokerage expects a gradual normalization of credit costs and lower core provisioning provisions (PPoP) margins, which will weigh on return on assets (RoA) progression.
Written by urgent.news from The Economic Times - Top News's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
