Kotak Shares Soar on Analyst Upgrades as Asset Quality Holds Up

Kotak Mahindra Bank Ltd. (KMBL) shares have been on a rollercoaster ride in recent months, but the tide seems to be turning as analysts upgrade the stock following the bank's strong earnings performance and resilient asset quality. Despite regulatory headwinds, such as the Reserve Bank of India's (RBI) ban on card issuance, Kotak's fundamentals remain robust, and investors are taking notice.



In the December quarter, Kotak Mahindra Bank reported a 10% rise in net profit, driven by healthy loan and deposit growth, stable asset quality, and a marginal uptick in net interest margins (NIM). The bank's advances and deposits grew over 15% year-on-year, while net interest income (NII) and net profit saw growth of 10% each. Notably, the lender's asset quality remained stable on a quarter-on-quarter basis, with lower slippages in personal loans and stability in the credit cards business.

Motilal Oswal, a leading brokerage firm, upgraded Kotak Mahindra Bank to "buy" after its December quarter results, citing the bank's healthy operating performance amid challenging macro conditions. The brokerage firm increased its price target on the stock to ₹2,100 from ₹1,900 earlier, expecting the bank's return on assets (RoA) to rise to 2.2% by financial year 2026 and return on equity (RoE) to rise to 13.5%. Jefferies, another prominent brokerage, also raised its price target to ₹2,200 from ₹2,120, highlighting the bank's all-around beat in the quarter and further triggers in place.



However, the regulatory ban on card issuance has been a significant headwind for Kotak Mahindra Bank. The RBI's action is expected to hit the bank's profit before tax by ₹300-450 crore per annum. While Kotak's management remains hopeful of resolving the RBI's concerns, analysts have expressed concerns about the potential impact on the bank's business and financials. Emkay Global, for instance, has retained a 'Reduce' rating on the stock, citing the impact of the ban and higher attrition, including in key managerial personnel.

Despite these challenges, Kotak Mahindra Bank's shares have been trading with gains of up to 6% on Monday, following the bank's all-round better-than-expected results for the March quarter. Analysts at Nomura and JPMorgan have upgraded the stock, while Jefferies has maintained its "hold" rating but cut its price target, citing risks from the RBI restrictions and potential attrition.

In conclusion, Kotak Mahindra Bank's shares have soared on analyst upgrades, driven by the bank's strong earnings performance and resilient asset quality. While regulatory headwinds, such as the RBI's ban on card issuance, pose challenges, the bank's fundamentals remain robust, and investors are taking notice. As the bank works to resolve the regulatory issues, its shares may continue to benefit from the positive sentiment surrounding its strong financial performance.