Buy Kotak Mahindra Bank shares, target Rs 2,070, says Citi

Foreign brokerage Citi has reportedly upgraded Kotak Mahindra Bank Ltd to 'Buy' from 'Neutral' with a revised target of Rs 2,070 compared with Rs 1,940 earlier. It has opened a 90-day positive catalyst watch on the stock, saying lifting of the regulatory restrictions could be a key trigger for the stock going ahead.

Kotak Mahindra Bank shares have fallen 3.49 per cent in the past one year compared with a 6.96 per cent rise in the Nifty Bank index during the same period. Citi believes that Kotak Mahindra Bank may sustain loan growth momentum. It said personal loan with improved delinquency trends to gather pace, CNBC-TV18 reported. Credit cost expectations are already set in higher, it reported Citi as saying.

The foreign brokerage has tweaked its medium tern growth with relatively low beta.

In a note last month, Santanu Chakrabarti, Analyst – Banking and Finance at BNP Paribas said the banking system reported credit growth of 11.1 per cent YoY, the lowest in the past three years. Deposit growth, at 11.2 per cent outpaced credit growth, as the RBI continues to grow incrementally tolerant of overnight liquidity surpluses.

"However, even for FY25, OMO sales remain a net surplus (net liquidity extraction). As this reverses, we expect M3/deposit growth to pick up. On a 3-month rolling basis, incremental LDR for the sector was c79 per cent, and YTD FY25 incremental LDR stood at c74 per cent, suggesting increasing strength in deposits," it said.

Chakrabarti said BNP's prognosis for large banks is of benign margin expansion or at the very least stability in FY26 after a shallow bottom made in the quarter following rate cuts -- Q1FY26 as per his expectations.

"Thus, reasonable credit growth for this group should translate into concurrent earnings growth momentum in FY26 – a key catalyst for re-rating, in our view. Amongst banks, HDFC Bank, ICICI Bank and Axis Bank remain our top picks – in that order. Kotak Mahindra Bank and CUBK remain 'Underperform'. Amongst NBFCs, BAF remains our top pick with SBI Card as 'Underperform'," he said.

Axis Securities expects Kotak Mahindra bank to deliver healthy compounded annual growth of advances, NII and earnings growth of 18 per cent, 17 per cent and 12 per cent, respectively, over FY24-27.

With RBI restrictions limiting growth in higher-yielding unsecured products, the bank has shifted focus towards secured and corporate lending, it said.

"Despite asset quality challenges in the unsecured segments, improved performance in the secured segments in H2FY25 should help maintain asset quality. We recommend a BUY on the stock with a target price of Rs 1,916," it said in a November note.