Aug 20 2026 GoldmanSachs IndiaFinancialsCorePPoPrecoverytodrivestockreturnsinitiatingcoverageof14stocks

EQUITY RESEARCH | 20 August 2026 | 9:47PM IST

: India Financials Core PPoP recovery to drive stock returns; initiating coverage of 14 stocks Indian banks are approaching a cyclical inflection, with earnings poised to accelerate - a sharp reversal from the past few years. Our proprietary GS India Banks Leading Indicator points to a gradual improvement in the sector, underpinned by healthy GDP growth, improved liquidity from RBI measures, and easier funding conditions. Accordingly, we expect core PPoP growth to accelerate to ~17% YoY over FY26-FY29E, driven by steady ~14% loan growth, a 10bps NIM recovery off an FY27 trough and benign asset quality, notwithstanding near-term geopolitical and macroeconomic uncertainty.

Structural challenges appear fully priced in. Private banks’ valuations are near 15-year lows - below even COVID-19 levels - and screen as attractive relative to Asian peers. Current valuations already capture this decade’s structural headwinds, including intense deposit competition, slowing low-cost deposit growth, compressing risk spreads, and a tighter operating environment.

We initiate coverage of 14 stocks. We believe that profitability will be the key driver of stock performance. The magnitude of ROA normalization in FY27-FY28 is likely to vary materially across banks, creating meaningful alpha opportunities. Our stock-selection framework - based on earnings’ acceleration, franchise strength, and valuation - highlights ICICI Bank, Kotak Bank, AU Bank, and Federal Bank as offering the strongest upside, and we initiate each at Buy. We also initiate HDFC Bank and Axis Bank at Buy on compelling valuations, despite expecting further downside earnings revisions. Among mid-sized private banks, we see scope for a strong cyclical earnings recovery, albeit from a weaker starting point. However, we remain unconvinced of a sustained ROA recovery beyond 1.2-1.3% over the next two years and therefore initiate RBL Bank and Yes Bank at Sell. Within SOE banks, we expect gradual credit-cost normalization and lower core PPoP margins to weigh on ROA progression from FY28 onwards. We prefer SBI (initiate at Neutral) within the segment and initiate Bank of Baroda and PNB at Sell.

Key risks: Higher-than-expected competitive intensity and a slower-than-expected recovery in retail credit demand could weigh on loan growth assumptions. Further, weaker MSME asset quality could drive higher-than-expected credit costs. Lastly, NIMs could remain under pressure if loan spreads do not improve as the rate cycle turns.

Sumeet Kariwala Bhavik Shah Wuzmal Handu Mahek Rohra Goldman Sachs India SPL Goldman Sachs India SPL Goldman Sachs India SPL Goldman Sachs India SPL

Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S. The Goldman Sachs Group, Inc.

Goldman Sachs India Financials

Executive Summary: Cyclical Recovery Ahead 7

Introducing GS India Proprietary Leading Indicator 11

#1: Core PPoP growth to inflect in FY27, and grow in high teens during FY27e-FY29e 16

#2: Private banks at an inflection point 22

#3: Profitability will be the key driver of stock performance in the current cycle 26

#4: Valuation de-rating over the past five years more than prices in the structural challenges facing private banks 28

Valuation Methodology and Earnings estimates summary 32

HDFC Bank (HDBK.BO): PPOP growth to inflect in FY27; Initiate at Buy 35

ICICI Bank (ICBK.BO): Multi-year earnings compounding story with a virtuous flywheel at play; Initiate at Buy 44

State Bank of India (SBI.BO): Balanced Risk Reward; Initiate at Neutral 52

Kotak Mahindra Bank (KTKM.BO): An Underappreciated Franchise; Initiate at Buy 61

Axis Bank (AXBK.BO): PPoP recovery amid undemanding valuations to drive stock returns; Initiate…