Motilal Oswal Financial Services has reiterated a BUY call for private banking major Kotak Mahindra Bank, setting a target price of Rs 2,500, implying an upside of 14% from current levels. The recommendation reflects confidence in the bank’s ability to sustain superior asset quality, calibrated credit growth, and return on assets of about 2% through the cycle. While FY26 has seen near-term pressure on margins and credit costs due to unsecured stress, the bank’s strong liability franchise, disciplined execution, and digital operating leverage are expected to normalize earnings from FY27 onward. Kotak’s balance sheet strength and diversified subsidiaries continue to underpin long-term compounding potential.

Motilal Oswal Reiterates BUY With Target Price of Rs 2,500

Motilal Oswal has retained its BUY recommendation on Kotak Mahindra Bank, valuing the stock at 2.5x FY27E adjusted book value, along with an additional Rs 775 per share attributed to subsidiaries under a sum-of-the-parts framework. At the current market price of Rs 2,203, the target price of Rs 2,500 represents a potential upside of about 14% over a 12-month horizon.

The brokerage highlights Kotak’s ability to deliver consistent returns despite near-term volatility, positioning it as a high-quality compounder within the private banking space.

Business Growth Remains Disciplined and Calibrated

• Loan growth aligned with macro expansion.
Kotak Mahindra Bank continues to grow its balance sheet at a disciplined pace of 1.5–2.0x nominal GDP growth. Advances grew 15.8% year-on-year to Rs 4.63 trillion in Q2FY26, reflecting management’s focus on quality-led expansion rather than aggressive volume chasing.

• Secured retail and SME anchor growth.
Growth continues to be driven by secured retail products such as housing loans and loans against property, along with a largely secured SME portfolio. Wholesale lending remains selective and margin-led, with preference for shorter-tenor, flow-based exposures.

Net Interest Margins to Stay Range-Bound Near Term

• Temporary distortions weigh on margins.
Net interest margins are expected to remain broadly flat in the near term, with Q3FY26 margins likely to stay range-bound. This is primarily due to interbank yield distortions and short-term liquidity deployment at lower yields.

• Rate cut impact deferred.
The recent 25-basis-point policy rate cut is expected to flow through largely in Q4FY26. While this may compress asset yields, the impact is expected to be offset by gradual repricing of term deposits.

• Management confident of NIM stability.
Despite near-term noise, management remains confident of sustaining NIMs at around 4.5–4.6%, supported by a strong liability franchise and calibrated loan mix.

Funding Costs Easing Through Liability Repricing

• ActivMoney sweep deposits gain traction.
Migration of balances into ActivMoney sweep deposits has helped cushion funding costs, even as reported savings account balances moderated.

• CASA franchise remains healthy.
The CASA ratio stands at approximately 42%, with improved granularity driven by growth in salary accounts, affluent customers, and NRI deposits.

• Term-deposit repricing to benefit margins.
While benefits from savings account repricing have largely flowed through, term-deposit repricing will take a few more quarters, gradually easing cost of funds.

Asset Quality Resilient Despite Unsecured Stress

• Credit costs expected to trend lower.
Credit cost, which peaked in Q1FY26 due to stress in unsecured segments, is expected to decline gradually toward 55–60 basis points over the medium term.

• Unsecured stress largely behind.
Stress in personal loans and microfinance has largely eased, with visible improvement expected from FY27 onward. Retail CV stress persists but remains manageable due to proactive pruning.

• Strong provisioning buffer.
The bank maintains a healthy provision coverage ratio of around 77%, providing comfort against potential asset-quality volatility.

Retail, SME, Agri, and Tractor to Drive Next Phase

• Retail and SME lending lead growth.
Over FY26–FY28, advances growth is expected to be led by retail mortgages, LAP, and SME lending, supported by urban housing demand and rising self-employed credit penetration.

• Agri and tractor segments remain strong.
A good monsoon and improving rural cash flows continue to support growth in agri and tractor financing.

• Credit cards remain calibrated.
The credit card portfolio is in a rebuilding phase, with management prioritizing profitability and portfolio quality over rapid growth.

Digital Leverage Enhances Operating Efficiency

• Branch expansion without headcount inflation.
Kotak continues to add 150–200 branches annually without proportional increase in staff, highlighting operating leverage from digitization.

• Kotak 811 matures into a relationship engine.
The digital Kotak 811 franchise is transitioning from acquisition-led growth to deeper customer monetization across investments, insurance, and lending.

• Cost discipline supports returns.
Digital investments and segmentation initiatives are improving cost efficiency and sustaining long-term return ratios.

Financial Performance and Outlook

Motilal Oswal estimates Kotak Mahindra Bank to sustain RoA of around 2% and RoE of about 12.7% by FY27E.

Valuation Remains Attractive for a Quality Franchise

• Reasonable valuation relative to history.
The stock trades at 2.5x FY26E book value, which Motilal Oswal considers attractive given Kotak’s balance sheet strength and earnings visibility.

• Subsidiaries add hidden value.
Subsidiaries including asset management, securities, insurance, and investment banking contribute approximately 31% of the target valuation.

• Capital strength provides flexibility.
With CET-1 capital above 21%, the bank retains ample flexibility for growth and potential inorganic opportunities.

Stock Levels and Investment Strategy

• Current Market Price (CMP): Rs 2,203
• Rating: BUY
• Target Price: Rs 2,500
• Upside Potential: ~14%
• Investment Horizon: 12 months

Key Technical Levels:

Immediate support: Rs 2,050

Strong accumulation zone: Rs 1,980–2,020

Near-term resistance: Rs 2,350

Breakout confirmation: Above Rs 2,420

Medium-term investor target: Rs 2,500

Key Risks to the Outlook

• Prolonged margin pressure.
Extended funding-cost pressures could delay margin normalization.

• Unexpected credit stress.
A sharper-than-expected rise in unsecured delinquencies could elevate credit costs.

• Slower economic growth.
Macroeconomic slowdown could impact loan growth and fee income.

Bottomline: A High-Quality Compounder With Cyclical Resilience

Kotak Mahindra Bank continues to demonstrate why it commands a premium among Indian private banks. While FY26 reflects near-term margin and credit-cost volatility, the bank’s disciplined growth philosophy, strong liability franchise, and digital execution underpin long-term resilience. Motilal Oswal’s BUY call reflects confidence in Kotak’s ability to sustain return on assets near 2% through the cycle. For investors seeking stability, capital protection, and measured upside, Kotak Mahindra Bank remains a compelling long-term holding.