India’s financials lag global peers, but earnings growth could turn the tide in 2027: Jefferies

Indian financials have sharply underperformed their global peers over the past two years, but the gap could begin to narrow as the earnings growth trajectory turns in India’s favour, foreign brokerage Jefferies said.

The MSCI ACWI Financials Index, which tracks large- and mid-cap financial companies across developed and emerging markets, has gained 46% in US dollar terms over the past two years. This compares with a 30% rise in US financials, 90% in the UK, 96% in Japan and 68% in China. Indian financials, in contrast, have declined 9% over the same period.

“Over past 2yrs, Indian financial index (in US$) is down 9% and global financials up 46% amid broad-based returns from US, Europe & Asia. This was led by better EPS upgrades, growth & currency; India lagged on all three,” Jefferies said in its report.

The divergence was driven by a stronger earnings upgrade cycle, better growth and favourable currency movements in global markets. Indian financials, meanwhile, were held back by a falling interest-rate environment that pressured net interest margins (NIMs), along with pockets of asset-quality stress.

The gap is significant for India, given that financials account for around 17% of the MSCI index, while Indian companies make up about 2% of the MSCI Financials Index. Global financials have continued to see upward earnings revisions, with consensus estimates rising 6-8% in the first nine months of 2026 and another 2-3% in the recent quarter.

Earnings growth could favour India

The earnings trajectory could shift in 2027, with Indian financials expected to outpace their global counterparts, Jefferies said.

Consensus EPS growth for global financials is estimated to slow to 7% in 2027, compared with 14% for Indian financials. Global financials delivered around 15% earnings growth in 2025, with a similar pace expected in 2026, before growth moderates sharply next year.

“Consensus earnings estimates for global financials indicate an upgrade of 6-8% during 9M2026 and 2-3% during the recent quarter. Their earnings growth during 2025 was 15%, should be 15% in 2026 also, and could slow down to 7% in 2027,” the brokerage said.

For Indian financials, EPS growth is expected to improve from 7% in FY26 to 9% in FY27 and 14% in FY28.

For India, Jefferies sees a combination of faster earnings growth, a normalisation of the earnings upgrade cycle and a narrowing growth gap with global peers as potential catalysts for greater investor interest.

CEO transitions in focus

Earnings are not the only potential catalyst. Leadership changes at several large Indian financial institutions could also prompt investors to reassess the sector, Jefferies said.

The brokerage expects CEO term expiries or retirements at several banks and financial companies over the next two years, including HDFC Bank, Kotak Mahindra Bank, Federal Bank, Bandhan Bank, IDFC First Bank, Axis Bank, Bajaj Finance, IndusInd Bank and ICICI Bank.

HDFC Bank CEO Sashidhar Jagdishan’s term ends in October 2026, while Kotak Mahindra Bank CEO Ashok Vaswani’s term ends in December 2026. Federal Bank’s KVS Manian and Bandhan Bank’s Partha Sengupta have terms ending in September and October 2027, respectively. Axis Bank MD & CEO Amitabh Chaudhry’s term ends in December 2027.

Jefferies said greater clarity on CEO succession, alongside a normalisation of the earnings upgrade cycle, could encourage foreign investors to revisit their allocations to Indian financials.

A potential rise in policy rates could provide another catalyst. If higher inflation prompts monetary tightening, the resulting improvement in the NIM outlook could support earnings upgrades for Indian banks, Jefferies said.

Jefferies has picked ICICI Bank, SBI and Axis Bank among large-cap banks and AU Small Finance Bank and IndusInd Bank among mid-cap banks.