Kotak Mahindra Bank shares: 31% upside, overweight rating from Morgan Stanley; here's the trigger

Kotak Mahindra Bank shares ended higher on Tuesday after global brokerage Morgan Stanley initiated coverage on the lender with an ‘Overweight’ rating. It sees an upside of 31% in the banking stock. The global brokerage fixed a target price of ₹2,600 per share compared to Monday’s closing price of ₹1,991.60. Later, the stock ended 0.20% higher at Rs 1996.20 on BSE. 

According to Morgan Stanley, Kotak Mahindra Bank is well positioned to benefit from an improving economic environment, with a diversified loan book that includes commercial banking, vehicle financing, and unsecured loans. The brokerage highlighted that incremental spreads are likely to improve, supporting faster loan growth, and projected that core pre-provision operating profit (PPoP) and earnings per share (EPS) growth will return to the 18–20% range from the fiscal year 2027.

Among private sector lenders, Kotak Mahindra Bank competes with major players such as HDFC Bank, ICICI Bank, and Axis Bank. Morgan Stanley’s positive outlook is underpinned by expectations of improved growth and asset quality, though the recent rise in NPAs and higher provisioning will remain closely watched by investors and analysts.

With the brokerage’s target price implying a notable upside, market focus will likely be on the bank’s ability to deliver sustained performance amid sectoral challenges and evolving economic conditions.

In the June quarter, the bank reported a net profit of ₹3,281.7 crore, which was below Street estimates of ₹3,442 crore and represented a 57.5% decline from the previous year’s ₹6,250 crore. Net interest income rose by 6.1% sequentially to ₹7,249 crore, narrowly missing estimates.

Asset quality showed some deterioration, with gross non-performing assets (NPAs) increasing to ₹6,637.7 crore from ₹6,134 crore sequentially. The gross NPA ratio stood at 1.48% compared to 1.42% in the previous quarter, while net NPAs rose to ₹1,531 crore, with a net NPA ratio of 0.34% up from 0.31%. Provisions were also higher at ₹1,207.76 crore, reflecting a cautious outlook.