Global brokerage Macquarie is repositioning its strategy across Indian financial services, with profitability, valuation discipline, and margin visibility taking precedence over pure growth metrics. Suresh Ganapathy, Managing Director and Head of Financial Services Research–India at Macquarie Capital, outlined the firm's evolved approach during a recent market assessment.

Paytm Upgrade Reflects Profitability Focus

Macquarie has upgraded One 97 Communications (Paytm), reversing its earlier bearish stance after identifying a clear path to profitability and improving operating leverage. Ganapathy emphasized that the assessment is anchored in clean earnings quality, noting that both Paytm and PB Fintech are reporting EBITDA without excluding employee stock ownership plan costs or one-off items.

The brokerage believes Paytm has strengthened its financial profile significantly, with valuations expected to re-rate further as profitability becomes more entrenched in the business model.

Strategic Shift in NBFC Recommendations

Macquarie is advising investors to recalibrate their NBFC exposure, shifting away from large, fully-priced names towards mid-sized and smaller players that offer better balance between growth and returns. Ganapathy explained that as NBFCs scale up, maintaining both high growth and high return on assets becomes increasingly challenging.

Using Bajaj Finance as an illustration, he noted that its non-mortgage portfolio delivers a return on assets of around 5.50-6.00%, a level difficult to sustain alongside 25-30% growth rates. Despite Bajaj Finance reporting 24% growth in assets under management with guidance of 22-23% growth, Ganapathy remains cautious, highlighting this represents a deceleration from earlier 30% growth rates.

Insurance Sector Bullishness

Macquarie has turned increasingly bullish on the insurance sector, driven by strong growth and superior profitability in the protection segment. Recent data on sum assured growth indicates healthy pickup in protection volumes, while the market is underestimating potential margin upside.

Ganapathy highlighted the significant margin differential between protection and unit-linked products:

Macquarie has raised price targets on SBI Life Insurance Company and HDFC Life Insurance Company, advising investors to look beyond near-term headwinds from input tax credit changes. The firm expects greater stability ahead, supported by reforms including risk-based solvency and eventual transition to International Financial Reporting Standards (IFRS).

Banking Sector Tactical Repositioning

Within banking, Macquarie is advocating a tactical shift towards cheaper valuation names, preferring State Bank of India and Axis Bank over near-term market leaders. While acknowledging HDFC Bank's strong long-term earnings growth potential extending into FY28, Ganapathy noted current market focus on deposit growth and balance-sheet metrics.

Ganapathy emphasized that outperformance depends on multiple factors beyond earnings growth, including deposit dynamics and balance sheet strength. The strategy focuses on capitalizing on valuation gaps while navigating shifting growth and profitability dynamics across Indian financial services.

India's listed restaurant operators face a challenging period as demand recovery remains slower than anticipated, prompting Macquarie to revise down earnings estimates and target prices across the quick-service restaurant (QSR) sector. The brokerage expects any meaningful recovery to materialize only in the second half of calendar year 2026, with delivery continuing to outperform dine-in segments.

Subdued Performance in December Quarter

Macquarie's analysis indicates that the December quarter marked another weak phase for consumption, with the festive season failing to deliver a material uplift in same-store sales (SSS). According to the brokerage's channel checks, SSS growth across QSR chains remained muted in the third quarter, with even Jubilant FoodWorks' relative strength appearing to moderate toward the end of December.

The delivery segment continues to provide some cushion for operators, but dine-in traffic has yet to show sustained improvement, raising concerns about near-term revenue momentum across different restaurant formats.

Significant Earnings and Target Price Revisions

The delayed recovery has prompted Macquarie to implement substantial revisions across major listed players. The brokerage cut EPS estimates by 7-23% for FY26-FY28, with broad-based downgrades affecting the entire sector.

Notably, Jubilant's cuts are lower than peers, helped by stronger performance in Turkey, which partially offsets an expected 11% decline in standalone India EPS. Target prices have been revised down to a lesser extent than earnings, as Macquarie rolled valuations forward by a quarter.

Selective Optimism Despite Challenges

Despite the near-term weakness, Macquarie maintains a selectively constructive outlook on the sector. The brokerage expects government measures to support small-ticket discretionary spending, which could aid recovery in late 2026. This optimism draws comfort from early green shoots observed in FMCG demand.

Macquarie's preference hierarchy includes:

• Top preference: Devyani and Sapphire Foods, citing strong global formats such as KFC and McDonald's
• Second preference: Westlife Foodworld
• Cautious approach: Jubilant FoodWorks due to potential pressure on like-for-like growth from a high base

The brokerage also sees the recent merger of Yum! franchisees as improving the growth outlook, particularly for Pizza Hut operations.

Market Outlook and Recovery Timeline

Macquarie's revised timeline pushes meaningful sector recovery to the second half of calendar year 2026, reflecting the persistent challenges in consumer discretionary spending. The brokerage noted that visibility on a turnaround remains limited in the near term, with gradual recovery expected over the next few quarters rather than any immediate improvement.