Macquarie stock recommendations India: Amid poor returns by the key benchmark indices of the Indian stock market, global brokerage Macquarie has predicted a turnaround in investors’ fortunes through the banking and financial stocks. The brokerage has predicted a strong FY28 for the banking stocks, expecting a rerating in banking and financial stocks. The Macquarie Equity Research expects banks to deliver strong ~18% FY28E EPS growth driven by a ~15bps rise in margins. Attractive valuations offer further support.
Bank to report strong quarterly earnings
Expecting a strong recovery in the earnings of Indian banks and financial companies, the Macquarie Equity Research said, “We forecast FY28E EPS growth of ~18% and see significant re-rating potential, given undemanding valuations of 1.3x FY28E P/B and 10x P/E.”
The global brokerage equity research report says that private banks should deliver strong EPS growth in the next two years as margins improve and operating expenses and credit costs fall.
“We assume a ~75 bps of rate hikes in the next 9–12 months, increasingly likely as the Fed enters a tightening cycle, supporting further margin expansion. Including foreign currency non-resident (FCNR) deposits, we forecast ~15 bps of YoY margin expansion in FY28E. The macroeconomic backdrop remains supportive: post-FCNR mobilisation has eased liquidity constraints, loan demand is robust and broad-based, asset quality remains healthy, and rate increases appear imminent,” the Macquarie report went on to add.
Challenge for NBFCs
Speaking on the NBFC business, Macquarie’s report said that growth should remain strong, but a rate increase and higher bond yields should raise borrowing costs and pressure near-term margins. Asset quality is another risk, particularly for unsecured MFI and personal loans if inflation persists. However, most NBFCs are well capitalised and adequately provisioned. Following solid execution and valuation consolidation among some larger names, valuations appear more reasonable.
Insurance stocks available at attractive valuations
Speaking of the top features available in the Indian insurance industry, Macquarie’s report said that ULIP taxation, surrender-value rules, and GST ITC ineligibility have already affected valuations, while recent commission regulations could constrain FY28E growth. Insurers have de-rated significantly and now trade at attractive levels.
Rationale for choosing banking, other financial stocks
The Macquarie report has made it clear that banking stocks have been picked on for their rerating potential available in the segment. In the NBFC segment, the brokerage has preferred stocks with clear potential to improve ROA. In the insurance segment, stocks with improving margins and lower exposure to IRDA regulations have been preferred.
Macquarie stock recommendations India
The global brokerage has a list of 11 top stock picks in the banking and financial segment. Those 11 stocks are as follows:
Banking stocks: ICICI Bank, Kotak Mahindra Bank, SBI, City Union Bank.
NBFCs: Aditya Birla Capital, LT Finance, Shriram Finance, M&M Financial Services.
Insurance: LIC, SBI Life.
Disclaimer: This story is for educational and informational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified financial experts before making any investment decisions.
