Why Kotak Mahindra Bank Is Axis Securities’ Stock Pick of The Week? 4 Reasons Here

The brokerage firm Axis Securities has selected Kotak Mahindra Bank (KMB) as its pick of the week with a buy angle. The brokerage has set a target price of Rs 2,178, which indicates a potential upside of 8.14% from its current market price of Rs 2,014 as of 18 Aug, 11:09 am IST. The brokerage has fixed a time period of 6-9 months and has listed out 4 reasons why Kotak Mahindra Bank (KMB) is the pick of the week for investors.

Why To Buy Kotak Mahindra Bank Shares?

These are the four investment reasons, per Axis Securities, for buying Kotak Mahindra Bank stock this week.

MFI Stress Peaks; Credit Costs to Taper Gradually: The stress in the MFI has peaked, and slippages in this segment are expected to taper from H2 onwards gradually. Similarly, the asset quality challenges in the Personal Loans (PL) and Credit Card (CC) segments have stabilised. The bank is witnessing emerging stress in the retail CV segment. Consequently, the bank has tightened its underwriting policies. The management expects the stress in the retail CV segment to subside over the next couple of quarters. In the business banking and SME portfolio, KMB is currently not witnessing any signs of stress emerging. With the slippages in the unsecured portfolio having peaked out and the incremental stress formation across most segments (ex-Retail CV) remaining benign, KMB expects credit costs to taper sequentially. We pencil in credit costs of 80 bps (+/-5bps) over FY26-28E.

Growth Momentum to be Healthy; Calibrated Improvement in Unsecured Mix: The management has reiterated its guidance of growing the advances at 1.5-2x of nominal GDP growth. With Asset quality challenges in the unsecured portfolio now behind, the bank will look to resume growth in the PL, CC, and MFI segments. While the MFI portfolio contribution to the portfolio will remain capped at 3-4%, KMB believe PL and CC remain key growth drivers. The bank continues to aspire to scale the unsecured portfolio to ~15% of the overall book over the medium term vs ~9.7% in Q1FY26. Another focus area for the bank would be the mid-market segment, wherein KMB will look to accelerate growth. We expect KMB to deliver a healthy ~17% CAGR credit growth over FY25-28E.

NIMs to Bottom Out in Q2; Improved Unsecured Share to Support NIMs: KMB's margins contracted sharply by 32 bps QoQ owing to (1) Repo rate cuts weighing on yields, (2) Slower growth and lower mix of these better-yielding unsecured products in the portfolio mix, and (3) The day convention. The repo rate cut in Jun'25 is yet to reflect on the yields, and thus margins will continue to remain under pressure in Q2. However, the SA rate action (reduction of ~75 bps) should reflect in Q2, partially supporting NIMs. However, the impact of TD repricing would be visible from H2 onwards. Thus, from Q3 onwards, KMB's margins should find support from the (1) Impact of CRR cut, (2) Improving growth in the unsecured segments and an improving mix in the overall portfolio, and (3) Downward repricing of deposits. We expect FY26 margins to remain lower at ~4.7%, before improving to ~4.9-5% over FY27-28E, driven by aforementioned factors.

Outlook: With the embargo being lifted, KMB will look to pursue growth in the unsecured segments, though steadily. Resumption of growth in the higher-yielding segment, CRR cut, and the rate cut action on deposits, reflected in CoF, should help KMB's margins to recover from H2FY26 onwards. Asset quality challenges seem to be waning away, with fresh stress accretion trending downwards in the unsecured portfolios and secured portfolio (ex-retail CVs) asset quality holding up well.

Why Kotak Mahindra Bank Ltd?

As per the research analysts of Axis Sec namely Dnyanada Vaidya and Pranav Nawale, here are the reasons for selecting Kotak Mahindra Bank as the pick of the week.

1. Improving Growth Trajectory with Pick-up in Unsecured Segments
2. Asset Quality Improvement
3. Outperformance on NIMs in A Declining Interest Rate Cycle
4. Healthy RoA Profile

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