Kotak Mahindra Bank Q2 performance lagged peers; what's next for the stock?

Kotak Mahindra Bank reported an in-line performance for the September quarter, as softer other income was offset by lower operating expenses. The private lender’s net interest margin (NIM) declined 11 basis points sequentially to 4.5 per cent, while gross slippages moderated to 1.5 per cent from 1.7 per cent in the previous quarter. Credit cost eased to 88 basis points from 116 basis points in Q1, reflecting improved asset quality trends.

“Despite a strong show by peers, Kotak Mahindra Bank’s Q2FY26 performance lagged, with no outperformance on NIMs or asset quality,” Nomura India said in its post-results note. Loan and deposit growth stood at 16 per cent and 15 per cent, respectively. The management indicated that stress in unsecured retail and microfinance portfolios is moderating, though it remains cautious on the retail commercial vehicle (CV) segment, where stress levels continue to be elevated.

Nomura sees limited upside potential for the stock and has maintained a neutral stance with a target price of Rs 2,200. Nuvama Institutional Equities also retained a ‘Hold’ rating, citing slower progress on margins and slippages compared with peers. It noted that operating expense growth has remained subdued since the digital ban and is a key variable to track amid intensifying competition. Nuvama raised its target price slightly to Rs 2,082 from Rs 2,020.

Motilal Oswal Financial Services (MOFSL) said Kotak Mahindra Bank’s net interest income (NII), pre-provision operating profit (PPoP), and profit after tax (PAT) were largely in line, with lower other income—affected by treasury losses—offset by reduced operating costs and provisions. MOFSL retained its ‘Buy’ rating and revised its target price upward to Rs 2,500.

Antique Stock Broking maintained a constructive view, noting that the bank continues to deliver sector-leading growth higher than large private peers. It expects Kotak Mahindra Bank to benefit from a pick-up in unsecured credit growth post the lifting of the RBI embargo on personal loans and credit cards in FY25.

“With the asset quality cycle normalising, the bank remains a key beneficiary of improving unsecured credit growth in FY26–27. Valuations remain reasonable at 2.2 times FY27 P/B for an expected 22 per cent earnings CAGR and 16–17 per cent loan growth over the next three years,” Antique said.