In its note on Wednesday, September 30, Macquarie said that it expects banks to deliver an Earnings per Share (EPS) growth of nearly 18% in financial year 2028, driven by an increase of nearly 15 basis points in their net interest margins.
Macquarie went on to add that insurance firms have underperformed and offer good value with the regulatory concerns now priced in, while the rising margins in PSU Banks will help cushion their ECL costs.
There is significant re-rating potential for India’s banking stocks, according to Macquarie, as they are trading at 1.3 times their financial year 2028 estimated price-to-book and 10 times price-to- earnings. The brokerage expects private banks to deliver strong EPS growth in the next two years as margins improve and operating expenses and credit costs fall.
“We assume a 75 basis points of rate hikes in the next 9-12 months, increasingly likely as the Fed enters a tightening cycle, supporting further margin expansion,” Macquarie’s note stated, adding that it expects a 15 basis points year-on-year margin expansion in financial year 2028, including the FCNR deposits.
With the macroeconomic backdrop remaining supportive, the post-FCNR mobilization has eased liquidity constraints, loan demand is robust and broad-based asset quality remains healthy, Macquarie’s note said.
What Are Macquarie’s Top Picks Within Financials, Insurance Names?
Among its top picks, Macquarie said that it prefers companies with a clear potential to improve their Return on Assets (RoA) going forward, such as L&T Finance, Aditya Birla Capital, Shriram Finance and M&M Financial Services.
Within banking stocks, Macquarie’s pecking order goes ICICI Bank, Kotak Mahindra Bank, State Bank of India, and City Union Bank.The brokerage bets on Paytm within Fintech and LIC and SBI Life among insurance firms. It has downgraded PB Fintech to “neutral” from “outperform” rating.
Macquarie has also upgraded Bank of Baroda to “outperform” from “neutral”. Its price target of ₹280 implies an upside potential of 22% from current levels. For Bank of Baroda, Macquarie expects Return on Assets to be above 1% and Return on Equity (RoE) of 13% to 15%. Despite the one-offs from the NMC case, Macquarie upgraded Bank of Baroda citing reasonable valuations and resilient core profitability.
Kotak Mahindra Bank has also been upgraded by Macquarie and its price target has been raised to ₹500 from ₹455 earlier.
| Stock | Old Rating | New Rating | Old Target (₹) | New Target (₹) |
| Kotak Bank | Neutral | Outperform | 450 | 500 |
| Bank of Baroda | Neutral | Outperform | 270 | 280 |
| Bajaj Finance | Underperform | Neutral | 850 | 990 |
| Chola Fin | Underperform | Neutral | 1,495 | 1,645 |
| M&M Finance | Underperform | Outperform | 270 | 395 |
| LIC Housing | Neutral | Outperform | 600 | 660 |
| SBI Card | Underperform | Neutral | 725 | 600 |
| ICICI Prudential | Neutral | Outperform | 700 | 540 |
| Paytm | Neutral | Outperform | 1235 | 2025 |
| PB Fintech | Outperform | Neutral | 1950 | 1150 |
Macquarie also prefers LIC among the insurance company after the removal of the government stake sale overhang, improving margins and lower exposure to the IRDAI regulations.
While Paytm has been upgraded to “outperform” and its price target revised to ₹2,025 from ₹1,235 earlier, PB Fintech has been downgraded to “neutral” from “outperform” earlier and its price target has been cut to ₹1,150 from ₹1,950.