Bank of Baroda stock rating upgraded to Buy at Nomura on strong earnings

Nomura/Instinet upgraded Bank of Baroda (BOB:IN) to Buy from Neutral, raising its price target to INR320.00, following the bank's strong second-quarter fiscal 2026 performance. The bank reported core pre-provision operating profit of INR62.5 billion, exceeding Nomura's estimate by 8% driven by net interest margin expansion and robust loan and deposit growth. Consequently, Nomura increased its EPS estimates for FY26-28, projecting average return on assets of 1.0% and return on equity of 13.7% over the period.

Analysis

Bank of Baroda (BOB:IN) reported a robust second-quarter fiscal 2026 performance, with core pre-provision operating profit reaching INR62.5 billion, exceeding Nomura's estimate by 8% and marking a 9% quarter-over-quarter increase. This outperformance was driven by a 5 basis point quarter-over-quarter expansion in net interest margin, stable core fee income, and controlled operating expenses.

The bank demonstrated strong balance sheet expansion, with loans growing 6% quarter-over-quarter and 12% year-over-year, while deposits increased 5% quarter-over-quarter and 10% year-over-year. This led to a 124 basis point quarter-over-quarter rise in the credit-deposit ratio to 83.9%, indicating efficient asset utilization and demand.

Proactively, Bank of Baroda created INR4 billion in floating provisions, bringing the total to INR10 billion, in preparation for the transition to expected credit loss norms. Management anticipates a limited net impact of approximately 75 basis points on the capital adequacy ratio, spread over five years, suggesting a manageable regulatory adjustment.

Following these results, Nomura/Instinet upgraded BOB to Buy from Neutral and raised its price target to INR320.00 from INR240.00. The firm also increased its earnings per share estimates by 6% for FY26 and 9-11% for FY27-28, projecting average return on assets of 1.0% and return on equity of 13.7% over the FY26-28 period.

Key Decisions for Investors

• Consider initiating or increasing exposure to Bank of Baroda given the strong Q2 FY26 performance, positive analyst upgrade, and upward revisions to EPS estimates.
• Monitor the bank's net interest margin trajectory and sustained loan and deposit growth as key indicators for continued profitability and market share gains.
• Evaluate the actual impact of the expected credit loss norms on capital adequacy over the next five years, despite management's current limited impact guidance.