Goldman Sachs has revised its outlook on the banking sector, highlighting a shift from the favorable “Goldilocks” period to a more challenging “muddle-through” scenario. The firm sees significant trends unfolding in the sector, prompting further earnings per share (EPS) cuts and a more selective stance on stocks.
Key Highlights:
- Downgrade on IndusInd Bank: Goldman Sachs has downgraded IndusInd Bank to Neutral with a revised target price of ₹1,090/share.
- EPS Cuts: The firm has reduced aggregate EPS estimates for the banking sector by 1.5% for FY25, 4.8% for FY26, and 5.6% for FY27.
- Key Trends Affecting the Sector:
- Consolidation of Credit Growth: Higher leverage among households is leading to a slowdown in consumer retail credit growth.
- Higher Credit Costs: Several loan segments are entering a credit downcycle, increasing credit costs for banks.
- Lower Pre-Provision Operating Profit Return on Assets (PpOP-RoA): Subdued net interest margins (NIM) and higher operating expenses are pressuring returns.
Stock Preferences:
Goldman Sachs continues to prefer the following stocks within the sector:
- HDFC Bank (top pick)
- Kotak Bank
- AU Small Finance Bank
- Cholamandalam Finance
- SBI Card
The firm advises investors to stay selective in the current environment, given the evolving challenges for the banking sector.
