Jefferies reports a widening earnings gap in 2026, with Japanese and South Korean banks leading a global upgrade cycle, while Indian lenders face slow growth due to pressure on profit margins and asset quality.
Jefferies says the gap in bank earnings momentum across major markets has widened sharply in 2026, with Japanese and South Korean lenders leading a global upgrade cycle while India has moved far more slowly. The brokerage’s data show consensus earnings per share forecasts for Japanese financials rising 19% between December 2025 and September 2026, with Korea up 18%, compared with only 1% for India. Jefferies links the split to different interest-rate paths, economic conditions and profit trends across the sector.
In broader global terms, financial earnings estimates rose by 6% to 8% in the first nine months of 2026, and then by a further 2% to 3% in the latest quarter, according to Jefferies. India, by contrast, has seen much weaker revisions as falling domestic rates have pressured net interest margins , the spread banks earn between lending and deposit costs , while some lenders have also faced asset-quality concerns. That has left Indian financials close to the bottom of the brokerage’s ranking, with only a 1% upgrade, far behind Japan, Korea, Spain and several European markets.
The earnings divergence has also shown up in share-price performance. Over the past two years, the MSCI All Country World Financial Index has climbed 46% in dollar terms, while financial indices in Japan and the UK have surged 96% and 90% respectively, and China’s sector has gained 68%, according to the figures cited by Business Today from Jefferies. Indian financial stocks, however, have fallen 9% in dollar terms over the same period. S&P Global separately noted earlier this year that Japanese megabanks were likely to benefit from rising domestic rates, with net interest margins projected to improve in 2026 and 2027, underscoring why Japan has been such a strong outlier.
Jefferies does expect the pattern to ease over time. It projects global financial earnings growth slowing to 7% in 2027, after 15% growth in both 2025 and 2026, while Indian financials are forecast to accelerate from 7% earnings-per-share growth in fiscal 2026 to 9% in fiscal 2027 and 14% in fiscal 2028. The brokerage said that if India’s earnings cycle strengthens as expected, overseas investors may begin to increase exposure again, especially if inflation or policy settings improve the outlook for bank margins.
The firm also pointed to management changes at several large Indian lenders as a possible additional catalyst, with succession timelines approaching at HDFC Bank, Kotak Mahindra Bank, Federal Bank, Bandhan Bank, IDFC First Bank and Axis Bank over the next two years. In a separate portfolio update, Jefferies added Axis Bank and AU Small Finance Bank to its India model portfolio, while another industry note said the firm continues to favour select banking, NBFC and insurance names as value opportunities emerge in parts of the market.
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