Kotak Mahindra Bank stock upgraded to buy at Axis on NIM recovery

Axis Capital upgraded Kotak Mahindra Bank (KMB.NS) to a buy rating, increasing the price target to INR2,510 from INR2,320, citing expectations of a 2.3% return on assets by fiscal year 2027. The upgrade is based on Kotak's strong performance in key segments and anticipated net interest margin recovery ahead of peers in Q4 FY26 due to deposit rate cuts. While operating expenses are expected to remain elevated, Axis Capital forecasts improved returns driven by fee growth and productivity gains in the latter half of fiscal year 2026 and fiscal year 2027.

Analysis

Axis Capital has upgraded Kotak Mahindra Bank (NSE:KTKM) to a 'buy' rating from 'add', concurrently raising its price target to INR2,510 from INR2,320. This revised outlook is predicated on the expectation that Kotak Mahindra Bank will achieve a return on assets (RoA) of approximately 2.3% by fiscal year 2027, a projection underpinned by anticipated growth acceleration and a recovery in net interest margins (NIM). The bank's robust franchise in key segments such as small businesses, mortgages, and mid-corporates, coupled with the normalization of unsecured lending, is seen as supportive of a healthy medium-term growth trajectory. Notably, Axis Capital forecasts Kotak Mahindra Bank to experience NIM recovery ahead of its peers, specifically in the fourth quarter of fiscal year 2026, driven by significant deposit rate cuts and a lower duration deposit book. While operating expenses are expected to remain elevated in the near term due to upfront investments, improvements in fee growth and productivity gains anticipated in the second half of fiscal year 2026 and throughout fiscal year 2027 are projected to bolster returns. The bank is also noted to be currently trading below its long-term average valuation multiple, suggesting a potentially attractive entry point.

Key Decisions for Investors

• Investors may consider the 'buy' rating and increased price target for Kotak Mahindra Bank, given the projected RoA of 2.3% by FY27 and anticipated NIM recovery ahead of peers starting Q4 FY26.
• Monitor the bank's ability to manage sticky operating expenses while capitalizing on fee growth and productivity gains, particularly in H2 FY26 and FY27, which are key to achieving improved returns.
• Evaluate the current valuation, which is below its long-term average, as a potential opportunity, considering the positive medium-term growth outlook driven by its strong franchise in core segments.