Indian Financial Stocks Lagged Global Peers for Two Years. Jefferies Now Sees Up to 40% Upside
Indian financial stocks may be approaching an earnings-led recovery after two years of unusually weak performance compared with financial shares overseas, according to global brokerage Jefferies.
The firm has Buy ratings on 10 Indian financial stocks, with target-price upside ranging from low double digits to as much as 40%. Its preferred banking names include ICICI Bank, State Bank of India, Axis Bank, AU Small Finance Bank and IndusInd Bank.
But the most important part of the call is not the headline 40%.
Jefferies’ broader argument is that earnings momentum in Indian financials could improve materially over the next two years. It expects sector earnings growth to rise from 7% in FY26 to 9% in FY27 and 14% in FY28, potentially narrowing a performance gap that has opened between India and major overseas financial markets.
Jefferies’ preferred banking stocks
Among large banks, Jefferies has identified ICICI Bank, SBI and Axis Bank as preferred names.
The brokerage has set a ₹1,750 target for ICICI Bank, implying around 26% upside from the market level referenced in its report.
For State Bank of India, its target stands at ₹1,320, representing approximately 32% upside.
Axis Bank carries one of the higher potential returns among the large banks covered. Jefferies has set a ₹1,700 target, implying around 37% upside.
The brokerage also favours two smaller banking names.
AU Small Finance Bank has a target price of ₹1,270, corresponding to about 20% upside, while IndusInd Bank carries a target of ₹1,250, implying approximately 25% upside.
Jefferies explicitly lists ICICI Bank, SBI, Axis Bank, AU Small Finance Bank and IndusInd Bank as its top banking picks.
Where does the 40% upside come from?
The largest percentage in the report belongs to Bandhan Bank, not the financial sector as a whole.
Jefferies has a ₹240 target price on Bandhan Bank, which translated into approximately 40% potential upside from the reference market price used in the brokerage report.
That distinction matters.
A headline saying Jefferies expects “40% upside in financial stocks” could give the impression that the brokerage expects the entire group, or even most of its recommendations, to deliver that return.
It does not.
Target-price upside varies considerably across the list. For example, Jefferies sees around 11% upside in Kotak Mahindra Bank, 12% in IDFC First Bank, and 12% in Punjab National Bank.
The 10 financial stocks rated Buy
Beyond the five preferred banking names, Jefferies also has Buy ratings on:
HDFC Bank, with a target of ₹880 and around 28% indicated upside;
Kotak Mahindra Bank, with a target of ₹460 and approximately 11% upside;
IDFC First Bank, with a ₹96 target, implying roughly 12% upside;
Bandhan Bank, with a ₹240 target and approximately 40% upside;
and Punjab National Bank, where the brokerage has set a target of ₹130, corresponding to around 12% upside.
Jefferies has taken a more cautious position on Bank of Baroda, assigning it a Hold rating rather than Buy. Its ₹275 target nevertheless represented around 17% upside from the reference price in the report.
A target price and an investment rating are not the same thing. A stock can mathematically have upside to a target while still receiving a Hold rating if analysts believe the risk-reward profile is not attractive enough relative to alternatives.
Why Jefferies thinks the cycle could turn
The brokerage’s optimism follows a difficult period for Indian financial shares relative to global markets.
In US dollar terms, the MSCI All Country World Financials Index gained 46% over the previous two years, according to Jefferies data cited in reports.
Indian financial stocks, by comparison, declined about 9% over the same period.
The divergence was even more striking in some individual markets. Financial stocks gained about 96% in Japan, 90% in the UK, 68% in China and 30% in the US, Jefferies noted.
Part of that gap reflects very different interest-rate and earnings cycles.
Global financial companies benefited from higher rates and improving economic conditions, which helped profitability and triggered earnings upgrades.
Indian financials faced the opposite pressure in several areas. Falling interest rates weighed on net interest margins, while pockets of asset-quality concern also affected investor sentiment.
Earnings growth is the real number investors should watch
Jefferies’ central argument rests on what happens next to profits.
Indian financial-sector earnings grew only around 7% in FY26, according to the brokerage.
It expects that pace to rise to:
9% in FY27
14% in FY28
Meanwhile, global financial-sector earnings growth is expected to cool after a strong run.
Jefferies said global financial companies delivered roughly 15% earnings growth in 2025, with a similar rate expected in 2026 before growth slows towards approximately 7% in 2027.
If those forecasts prove accurate, the earnings-growth advantage that helped overseas financial stocks outperform could begin to narrow or even shift.
That, more than any individual target price, explains the brokerage’s renewed interest in Indian financials.
Why global financial stocks did so much better
Global financial companies benefited from more than rising share prices.
Consensus earnings estimates for global financials were upgraded by approximately 6% to 8% during the first nine months of 2026, followed by another 2% to 3% in the most recent quarter, according to Jefferies.
India did not experience the same broad earnings-upgrade cycle.
That matters because stock markets often respond not simply to whether profits are growing, but to whether earnings are turning out better or worse than investors previously expected.
A sustained improvement in Indian banks’ profit forecasts could therefore become an important trigger for valuations.
Jefferies specifically identifies the normalisation of the earnings-upgrade cycle as one of the potential catalysts for the sector.
Bank leadership could become another catalyst
There is another less obvious factor in Jefferies’ thesis: management succession.
The brokerage believes clarity around senior leadership at major banks could improve investor confidence.
HDFC Bank and Kotak Mahindra Bank are among institutions where management transitions are expected to receive attention, while leadership changes or renewals at Federal Bank, Bandhan Bank, IDFC First Bank and Axis Bank could also become relevant over the next one to two years.
Leadership changes do not automatically improve stock performance.
They matter because investors assign considerable weight to management quality in banking, where decisions on lending standards, capital allocation, deposit strategy and risk can affect results for years.
Foreign investor positioning could matter too
Jefferies also believes international investors may reassess their allocation to Indian financial companies if the earnings gap with overseas peers begins narrowing.
That would mark a reversal from the recent period in which global financial stocks offered stronger earnings revisions and substantially better dollar returns.
The argument is essentially relative rather than absolute.
Indian banks do not need global financials to perform badly for their own shares to improve. They need domestic earnings expectations, valuations and risk-reward to become more competitive relative to what investors can find elsewhere.
What does this mean for investors?
The report should not be read as a prediction that these stocks will automatically reach Jefferies’ targets.
Brokerage targets are based on assumptions about future earnings, margins, asset quality, valuations and economic conditions. Those assumptions can change quickly.
For banks in particular, investors should watch several variables:
Net interest margins: A faster-than-expected compression in lending spreads could weaken earnings.
Deposit costs and growth: Banks require stable funding to sustain loan growth.
Asset quality: A rise in stressed or non-performing loans could change profit forecasts.
Credit demand: Slower borrowing by households or businesses can reduce growth.
Valuations: Even a high-quality bank can deliver weak stock returns if its valuation already assumes very strong future performance.
Management transitions: Leadership continuity and strategic clarity could become especially relevant for some of the banks in Jefferies’ coverage.
The brokerage call is therefore best understood as an investment thesis, not a guaranteed return.
What the “up to 40%” number really means
This is the most important qualification for readers.
The 40% upside is Jefferies’ implied return to its Bandhan Bank target price based on the market price used when the brokerage report was prepared.
It is not a prediction that Bandhan Bank shares will rise exactly 40%, nor does it mean Jefferies expects every stock on the list to deliver anything close to that figure.
The upside percentages also change whenever share prices move.
If a stock rises after the report is published while the target stays unchanged, its implied upside becomes smaller. If the stock falls, the mathematical upside to the same target increases.
Readers should therefore focus more on the assumptions behind the target than on the percentage alone.
A broader financial-sector story is developing
Jefferies’ recent research suggests its interest in Indian financials extends beyond traditional banks.
In a separate set of financial-sector recommendations, the brokerage also identified Groww, Paytm, PB Fintech, AU Small Finance Bank and Poonawalla Fincorp as businesses capable of producing strong earnings growth, with operating-profit growth expectations of at least 25% annually through FY29 in the cases discussed.
That points to a broader theme in Indian finance.
Credit growth, digital payments, wealth management, insurance distribution and financialisation are increasingly creating opportunities outside traditional lending.
For investors, however, different parts of the sector carry very different valuation and risk profiles. A large private bank, a small finance bank and a fintech platform should not be assessed using the same assumptions simply because all three fall under “financials.”
What to watch next
The clearest test of Jefferies’ thesis will come from earnings rather than brokerage target prices.
If sector earnings growth progresses from 7% in FY26 towards the projected 14% by FY28, and if analysts begin upgrading estimates more consistently, the case for a financial-sector re-rating would become stronger.
If margins deteriorate further, asset-quality problems deepen or economic growth disappoints, the recovery could take longer than Jefferies currently expects.
For now, the brokerage is effectively arguing that the balance of opportunity may be changing after two years in which Indian financial stocks were left well behind their global counterparts.
