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BFSI Earnings to Double from FY27 as Sector Stabilizes: MOSL

The Indian BFSI sector faced a challenging FY26 with margin pressures and weak loan growth, marking a trough in its earnings cycle. However, a Motilal Oswal Financial Services report indicates early signs of stabilization are emerging, with improving asset quality trends. The outlook is constructive, with sector earnings growth expected to rebound strongly to 16-17% in FY27 and FY28. This recovery will be supported by structural drivers like digitalization and a pickup in loan growth, with private banks anticipated to lead the momentum.

Key Points: BFSI Sector Recovery: Earnings Growth to Double from FY27

  • FY26 marked as earnings cycle trough
  • Recovery driven by easing credit costs & loan growth
  • Private banks to lead with ~20% growth
  • Digitalization & retail credit are key long-term drivers
2 min read

Earnings growth to double from FY27 as BFSI sector stabilises: MOSL Report

MOSL report forecasts BFSI earnings growth to rebound to 16-17% in FY27-28 after a challenging FY26, driven by stabilizing margins and loan growth.

"earnings growth will rebound to 16-17% in FY27-28 - MOSL Report"

New Delhi, April 3

The Indian banking and financial services sector is poised for a gradual recovery after a challenging FY26, with improving earnings visibility and structural tailwinds expected to drive medium-term performance, according to a recent report by Motilal Oswal Financial Services.

The report characterizes FY26 as a "challenging year for investing," noting that macro volatility, margin pressures and weak loan growth weighed on sectoral performance."

However, it also highlights and stated that 21 stocks within their BFSI coverage universe delivered more than 25% returns, underscoring the importance of stock selection and the breadth of opportunities within the sector.

Despite near-term headwinds, the sector continues to expand structurally. MOSL notes that "BFSI market cap has expanded to INR108t in 2026 from INR91t in 2025, reflecting a growth of ~18% in a year," driven by outperformance in PSU banks, NBFCs and fintechs, alongside ongoing technological shift and innovation. Digitalisation and retail credit penetration remain key long-term drivers, broadening the investment universe beyond traditional banking.

On the earnings front, the report flags that estimates have seen downgrades due to margin pressure, weak loan growth, and high credit costs, although it adds that the pace of earnings revisions...has moderated significantly in recent months. Importantly, early signs of stabilisation are emerging, particularly with improving collection efficiencies and asset quality trends in unsecured segments.

MOSL expects FY26 to mark the trough in the earnings cycle, with sector growth bottoming out at 5% YoY in FY26E. Thereafter, a recovery is anticipated, supported by easing credit costs, stabilising margins and a pickup in loan growth.

The outlook for the next two years remains constructive. The report estimates that "earnings growth will rebound to 16-17% in FY27-28," with private banks expected to deliver even stronger momentum at around 20% growth over the same period. This recovery is expected to be aided by macro levers such as GST-led formalisation, direct tax cuts and lower borrowing costs.

Crucially, MOSL underscores that "this recovery in earnings momentum, along with improved loan growth...should help to drive better sector performance over the medium term."

In summary, while near-term pressures persist, the BFSI sector appears to be transitioning into a recovery phase, with structural growth drivers intact and earnings momentum set to improve meaningfully from FY27 onwards.

- ANI

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Reader Comments

P
Priya S
Finally some positive outlook! As someone with a home loan and a car loan, stability in the banking sector is crucial. Hope this predicted recovery translates to more competitive interest rates for us consumers in the coming years.
R
Rohit P
MOSL reports are generally reliable. The part about PSU banks outperforming is interesting - maybe it's time to look beyond the usual private bank favorites. The market cap growth to 108 trillion is massive! Reflects the growing depth of our financial markets.
S
Sarah B
While the long-term view is positive, I hope regulators and banks have learned from the recent stress in unsecured loans. Growth should not come at the cost of asset quality. Responsible lending is key for sustainable recovery.
V
Vikram M
"Earnings growth to double from FY27" - that's the headline that catches every investor's eye. But we've heard similar projections before. Execution is everything. Let's see if the macro levers like GST formalisation actually play out as expected.
K
Kavya N
The focus on fintechs is the real story here. Traditional banking is being reshaped. For young investors, the growth might lie in these new-age financial companies, not just the old giants. Exciting times ahead for the sector!

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