MUMBAI – Indian banking stocks have faced a turbulent quarter, with several major lenders underperforming the Nifty 50 due to sustained FII outflows, geopolitical tensions in the Middle East, and surging energy prices. Despite a 16% decline in the benchmark index over the last three months, individual banking stocks have seen much steeper corrections.

Market Performance Highlights:

• Top Laggards: IDFC First Bank led the decline with a 32% drop, followed by HDFC Bank (-27%), YES Bank (-22%), and Canara Bank (-20%).
• Defensive Resilience: State Bank of India (SBI) emerged as the most resilient large-cap, declining only 1%, while Federal Bank limited its losses to 3%.
• Margin Concerns: Analysts note that while credit growth remains steady at 14%, rising funding costs and the RBI’s new $100 million cap on net open forex positions are putting pressure on near-term margins and treasury income.

Q4 Earnings Outlook & Brokerage Picks

As the FY 2025-26 Q4 earnings season approaches, the market anticipates a soft quarter with a 5.3% sequential decline in Profit After Tax (PAT). However, brokerages remain optimistic about a recovery in FY27, citing stable asset quality and consumption-led recovery.

Top Brokerage Recommendations:

• Large-Caps: SBI, ICICI Bank, HDFC Bank (Target: ₹1,147), and Axis Bank (Target: ₹1,555).
• Mid-Tier & SFBs: AU Small Finance Bank, Bandhan Bank, Equitas, and City Union Bank are favored for potential margin expansion.

With the RBI Monetary Policy Committee meeting on April 6, 2026, investors are bracing for rates to remain unchanged at 5.25% as global inflation risks persist.