Kotak Mahindra Bank shares can deliver 12% return in 3 months, says Anand Rathi

Shares of Kotak Mahindra Bank Ltd have potential to deliver double digit return in the next three months, Jigar Shantilal Patel of Anand Rathi Share & Stock Brokers said in a technical report. The banking stock has risen 19 per cent from its 52-week low of Rs 1,544.15 hit on May 3, but is still down 4.33 per cent for 2024 so far. Patel suggested a target of Rs 2,055 and suggested a stop loss at Rs 1,728.  The target suggests a 12.16 per cent potential upside over Monday's closing value of Rs 1,832.20 on BSE. 

Kotak Mahindra Bank breached a key bear trendline on the weekly chart, which is hinting at a potential shift in the momentum, Patel said.   

"After breaking this downward trendline, the stock entered a consolidation phase, essentially retesting the trendline to confirm its strength as a new support level. In the most recent week, Kotak Mahindra Bank rebounded from this trendline, indicating renewed bullish sentiment," Patel said. 

The Anand Rathi analyst said the Kotak Mahindra Bank stock has shown a consistent pattern of respecting its 200-day exponential moving average (DEMA) High-Low band(daily scale), reinforcing the likelihood of a continued upward move. 

"Adding to the bullish case, the weekly Relative Strength Index (RSI) has formed a double bottom near the 50 level, which is often viewed as a strong reversal signal, suggesting growing momentum in the stock. Based on these technical factors, the recommendation is to initiate a long position in Kotak Bank within the price range of 1820-1850, with an upside target of 2050. To manage risk, a stop-loss should be set at Rs 1,728, on a daily closing basis, ensuring protection against any
downside reversal," he said.

On the fundamental side, Nomura India in a note last week said rate cuts going ahead could be a sector return on asset (RoA) dampener. It, however, has Kotak Mahindra Bank among its top sectoral pick. 

Nomura India said banks have 30-60 per cent of their loan books directly linked to the repo rate or external benchmarks. Banks’ liabilities, however, are entirely on fixed rates, which only reprice lower on maturity and leaves them negatively exposed to potential rate cuts. "Although Kotak Mahindra has a higher net interest margin (NIM) impact, it also gains from having 80 per cent of its investments in marked-to-market buckets (HFT and AFS), and so the ultimate impact on profitability is lower," Nomura India said.