Holding bank or NBFC stocks? Here's why brokerages cutting targets on ICICI, HDFC, Axis, Bajaj Finance and others

Brokerages have turned cautious on the Indian banking and financial sector, cutting target prices across several large banks and NBFCs, citing rising global risks, tighter liquidity, and emerging pressure on both liabilities and assets.

However, despite the cuts, select stocks continue to offer meaningful upside based on current market prices.

Brokerages Flag Weakening Outlook Amid Global Risks

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According to reports by HSBC, JP Morgan, Citi, and Motilal Oswal, the sector is expected to deliver a steady March quarter performance, but the earnings outlook has weakened due to macro uncertainty, including the ongoing Middle East conflict and slower deposit growth.

HSBC said it has factored in the potential impact of the Middle East conflict on demand, growth, and margins.

“We have cut AUM growth, margin, and EPS estimates, as liability-side issues have emerged first, while asset-side pressures may also appear across segments,” the brokerage said.

It added that its preference remains for private banks over PSU banks and NBFCs. Among NBFCs, it prefers Cholamandalam Investment and Finance and Shriram Finance, while LIC Housing Finance is seen as a defensive play due to valuation comfort.

Deposit Growth Weakens, Liquidity Pressures Rise

Citi flagged emerging stress on the liability side, noting that deposit growth has weakened sharply in recent weeks. “The last fortnight saw system-wide deposit outflows of Rs 1.79 lakh crore, with Q4-to-date deposit growth at just 0.6 per cent compared with 1.7-2.3 per cent in previous years,” it said. It added that deposit growth will be a key swing factor, even as credit growth remains relatively resilient.

Motilal Oswal expects a steady quarter, with systemic credit growth at 13.8 per cent year-on-year as of March 15, supported by liquidity buffers and consumption demand. It expects credit growth to sustain at around 13.5 per cent in FY27, while margins are likely to remain range-bound due to elevated funding costs.

Despite stable near-term performance, brokerages have cut target prices across most frontline banking and financial stocks due to margin pressure and global risks.

Target Cuts Across Banks; Select Stocks Still Show Upside

Among large private banks, ICICI Bank is currently trading at Rs 1,196.20. JP Morgan has cut its target to Rs 1,569, implying an upside of about 31 per cent, while HSBC has reduced its target to Rs 1,470, indicating a potential upside of around 23 per cent.

HDFC Bank, at Rs 730.40, has seen its target cut by HSBC to Rs 840, suggesting an upside of about 15 per cent.

Axis Bank’s current price stands at Rs 1,160.40. JP Morgan’s revised target of Rs 1,462 implies a 26 per cent upside, while HSBC’s target of Rs 1,420 suggests a potential gain of about 22 per cent.

Kotak Mahindra Bank, trading at Rs 348.50, has seen JP Morgan cut its target to Rs 465, indicating an upside of around 33 per cent. HSBC’s revised target of Rs 420 implies a potential upside of about 20 per cent.

In the NBFC space, Cholamandalam Investment and Finance is currently trading at Rs 1,310. JP Morgan’s target of Rs 1,640 implies an upside of about 25 per cent, while HSBC’s target of Rs 1,790 suggests a stronger upside of around 37 per cent, making it one of the preferred plays in the segment.

Bajaj Finance, at Rs 1,009, has limited upside as per JP Morgan’s target of Rs 1,009, while HSBC’s target of Rs 920 implies a downside of about 9 per cent.

SBI Cards, currently at Rs 620, continues to see cautious views. JP Morgan’s target of Rs 665 implies a modest upside of around 7 per cent, while HSBC’s target of Rs 560 suggests a downside of about 10 per cent, indicating limited return potential.

JP Morgan has also cut its target on AU Small Finance Bank to Rs 1,090. Based on the current price of Rs 874, this implies an upside of about 25 per cent.

Earnings Stable but Margin and Asset Quality Risks Persist

The broad-based target cuts come even as earnings expectations remain intact. Motilal Oswal estimates the banking sector to report profit growth of about 7 per cent year-on-year in the March quarter and expects earnings to grow at a compound annual growth rate of around 16 per cent over FY26-28.

Private banks are expected to outperform, with profit growth of nearly 12 per cent year-on-year, while PSU banks may see modest growth of around 2 per cent.

Brokerages said the key concern remains the funding environment. With deposit growth lagging credit growth, the credit-deposit ratio has risen to around 83 per cent, increasing competition for deposits and keeping funding costs elevated. This is likely to keep net interest margins under pressure in the near term.

At the same time, global uncertainties, particularly the Middle East conflict, are adding to risks on asset quality, especially in segments such as MSMEs, business loans, and export-linked sectors.