Deven Choksey Research has placed Kotak Mahindra Bank on an “ACCUMULATE” rating, setting a price target of Rs 2,362 against the current market price of Rs 2,187. Despite operational softness attributed to margin compression, the research house identifies steady improvement in key metrics, healthy advances, and robust asset quality as bulwarks for investors. Core banking operations remain well-capitalized with ample headroom for growth, though subsidiary performances are weighed down by regulatory challenges and soft capital markets. Investors are advised to monitor stress in the retail Commercial Vehicle (CV) portfolio—a potential flashpoint amid otherwise resilient fundamentals. The following points break down the report’s most critical analyses and forward-looking insights.

Macro-Economic Landscape: Supportive Yet Nuanced

Management underscores a conducive macro environment post-RBI rate cuts, with monetary transmission now evident across the banking system. Liquidity stays comfortable, propelled by streamlined GST protocols, though both public and private capital expenditure (capex) trail expectations. While domestic inflows have offset foreign outflows amid global tariff headwinds, rural recovery—bolstered by the monsoon—supports a rebound in consumption sentiments into the festive quarter.

Financial Performance: Advances, Deposits, and Margin Dynamics

Kotak’s Q2FY26 saw net advances surge 16% YoY to Rs 46,26,880 million, fueled by broad-based growth spanning retail and corporate segments. Deposit growth remains robust at 14% YoY, reaching Rs 51,05,380 million, with the Current Account-Savings Account (CASA) mix moderately adjusting to 42.3% as term deposits climbed. Net Interest Margin (NIM) compressed to 4.54% for the quarter, impacted by a changing asset mix and repo rate transmission, while Net Interest Income (NII) stood at Rs 73,107 million—3.6% below expectations. Cost discipline paid off with operating expenses up only 1% YoY, enabling operating profit growth of 3% YoY to Rs 52,680 million.

Asset Quality: Provisions and Risk Resilience

Gross NPA improved to 1.39% and Net NPA to 0.32%, evidencing diligent risk management and a strengthened provision coverage ratio at 77%. The annualized credit cost fell to 0.79%, demonstrating sequential improvement and underpinning asset quality robustness. Retail CV stress remains a focal risk area, though management expects a steady moderation in credit costs through the rest of FY26.

Profitability and Capital Position: Adequacy for Expansion

The reported Profit After Tax (PAT) was Rs 32,530 million, with annualized Return on Assets (ROA) at 1.88% and Return on Equity (ROE) at 10.4%—both marginally softer than past quarters, yet comfortably above sector benchmarks. Capital Adequacy Ratio at 22.1% and CET1 Ratio at 20.9% signal significant capacity for organic and inorganic expansion.

Valuation: Steady Growth with SOTP Methodology

DevenChoksey appraises Kotak Mahindra Bank via a Sum-of-the-Parts (SOTP) approach:

• Core Banking Operations valued at 2.9x FY27E ABVPS, or Rs 2,186/share.
• Subsidiary and associate stakes collectively valued at Rs 176/share.
• Total target: Rs 2,362/share.

ACCUMULATE rating is reiterated, with further upside contingent on continued operational discipline and subsidiary recovery.

Key Growth Rates, Ratios, and Forecasts

Forecasts suggest a recovery in NIM to 4.9% by FY27E and steady asset growth, underscoring solid long-term prospects for investors.

Operational and Segmental Insights

Retail loans expanded 16% YoY, mortgages and LAP up 18%, and business banking surged by 20% on robust working capital demand. Credit cards reignited growth via new issuances post-embargo, with spend and flow rates improving and credit costs declining. CV and construction equipment present mixed signals—tractors outpaced expectations with 31% YoY growth, yet retail CV remains under stress.

Subsidiaries: Mixed Fortunes Amid Market Volatility

Kotak Primes AUM grew 12% YoY, and Kotak AMC delivered a 31% profit rise. However, Kotak Life’s profits were constrained by new GST rules (Rs 1.65 billion impact). The Alternate Asset arm (KAMIL) leads the market, having raised USD 11 billion since inception, positioning Kotak as a formidable player in alternative assets.

Technology Drive: Digital Efficiency Initiatives

Kotak’s digital-led 811 platform is now the 3rd most downloaded banking app globally, propelling customer engagement and deposit mobilization. Ongoing automation and process digitization continue to reduce the cost-to-asset ratio, despite significant balance sheet expansion.

Risks and Monitoring: Areas Needing Vigilance

A further macro slowdown, rural volatility, and latent CV stress could threaten the bank’s growth trajectory. Additionally, aggressive unsecured credit expansion and rate sensitivity remain key risk variables for prudent monitoring.

Levels and Targets for Investors

Stock Level: Rs 2,187 | Target: Rs 2,362 | Upside Potential: 8.0% | Recommendation: ACCUMULATE Short-term Level: Rs 2,170 (Support), Rs 2,210 (Immediate Resistance) Long-term Target for Investors: Rs 2,362, with monitored upside as subsidiary turnaround and margin recovery accelerate.

Bottomline: A Resilient Private Bank Poised for Strategic Growth

Kotak Mahindra Bank continues to demonstrate resilience in the face of market and regulatory challenges. Its strong balance sheet, technological prowess, and disciplined capital management support a positive outlook. While risk factors—primarily in the CV segment—warrant close scrutiny, long-term investors may find compelling value at current levels, provided they keep an eye on emerging sector dynamics.