Banking stocks to buy: Investors tracking banking stocks ahead of the September-quarter earnings season will be watching loan growth, net interest margins (NIMs), deposit mobilisation and asset quality for clues about the sector's earnings outlook. While strong credit demand is expected to support profitability, higher funding costs and pressure on margins could create differences in performance across banks.
Experts expect healthy earnings growth in Q2FY27, supported by expanding balance sheets and relatively stable asset quality. However, they flag near-term pressure on private banks' margins due to inflows of foreign currency non-resident bank (FCNR-B) deposits.
Brokerages see banks reporting healthy earnings growth in Q2FY27, driven by strong loan demand and deposit mobilisation. However, pressure on net interest margins due to FCNR-B inflows and muted low-cost deposit growth could weigh on private banks' profitability.
JM Financial expects banks under its coverage to report approximately 12% year-on-year (YoY) growth in profit after tax (PAT) in Q2FY27, compared with around 13% in Q1FY27. It estimates net interest income (NII) growth of approximately 12% YoY, supported by stronger balance-sheet expansion despite margin compression.
The brokerage's provisional updates for 30 banks indicated loan growth of 19.1% YoY and 6.6% quarter-on-quarter (QoQ), while deposits grew 15.8% YoY and 5.8% QoQ. It expects NIMs to contract by 5-20 basis points QoQ, particularly at private banks, as FCNR-B deposits take time to be deployed and growth in low-cost current account and savings account (CASA) deposits remains muted.