Nomura expects the Indian banking sector to enter a multi-year phase of earnings acceleration, driven by expanding return ratios, stronger credit demand and supportive fiscal and monetary conditions. In its 2026 outlook, the brokerage said the sector is transitioning from a period of margin pressure to one of improving earnings momentum, with system credit growth likely to pick up to 13% in FY26 and 14% in FY27. This, alongside benign credit costs and healthier balance sheets, positions banks well for a potential re-rating over the medium term.
According to Nomura, sector-wide RoAs are projected to expand by nearly 15 basis points over FY26–28 as operating leverage improves and profitability becomes more broad-based across lenders. Despite the solid fundamentals, the brokerage highlighted that valuations remain attractive at around 2.1x one-year forward book value, a discount to historical averages and not fully reflective of the improving earnings trajectory. Nomura believes this disconnect offers an appealing entry point for investors ahead of a likely sector-wide re-rating.
Within the coverage universe, Nomura’s top picks are Axis Bank, ICICI Bank and State Bank of India, citing their strong liability franchises, consistent execution and higher sensitivity to an upturn in system credit growth.
Disclaimer: The views and recommendations above are those of Nomura. Business Upturn does not endorse them. Please consult a financial advisor before making investment decisions.
