Explained: Why Kotak Mahindra Bank share price fell over 6% today

India Today

6 days ago

Kotak Mahindra Bank shares slid sharply by 6.5% on Monday, touching a day's low of Rs 1,977.20 on the Bombay Stock Exchange (BSE). Around 9:43 am, shares of the private lender were trading 6.48% lower at Rs 1,987.35. The decline came after the private lender posted a weaker-than-expected set of results for the April–June quarter. The stock decline comes in the wake of a 7% year-on-year drop in standalone net profit to Rs 3,282 crore, even though the bank reported steady growth in core lending activity.advertisementWhile net interest income (NII) for Q1FY26 rose 6% to Rs 7,259 crore, from Rs 6,842 crore in the same quarter last year, profitability took a hit due to the absence of a one-time windfall that had inflated last year's base.
In the year-ago period, the bank had booked a significant gain from the sale of its general insurance business, pushing unadjusted profit to Rs 6,250 crore. That gain is missing this time, as Kotak General Insurance ceased to be a wholly owned subsidiary on June 18, 2024, and has since been reclassified as an associate.Despite the hit to net profit, operational metrics showed continued strength. Net advances grew 14% year-on-year to Rs 4.45 lakh crore, while average total deposits climbed 13% to nearly Rs 4.92 lakh crore. Loan growth was led by the corporate and secured retail segments, although unsecured lending remained soft.BUY OR SELL?Brokerage house Antique said the earnings miss was driven by a sharper-than-expected margin decline and higher credit costs. Margins came under pressure due to rapid repricing of External Benchmark Lending Rate (EBLR) loans and a lower share of unsecured credit. Asset quality, too, weakened slightly, with the bank's gross non-performing asset (GNPA) ratio rising to 1.48% from 1.39% a year earlier. Stress was visible in the microfinance and retail commercial vehicle loan books.The bank also increased provisions to cover potential bad loans during the quarter, contributing further to the profit dip. That, along with the margin compression, has prompted several analysts to temper their near-term expectations.Antique has cut its FY26 and FY27 earnings estimates by 6% and 3% respectively, but still finds the stock reasonably valued at 2.2x one-year forward price-to-book. Return ratios remain healthy, with RoA projected at 2.2% and RoE at 14% over FY26–28.At least eight analysts have lowered their price targets following the Q1 results, bringing the median target to Rs 2,340, down slightly from Rs 2,350 last month, according to LSEG data.While the market reaction reflects near-term disappointment, analysts remain broadly positive on the lender's longer-term outlook, especially if unsecured credit revives in the coming quarters.advertisement(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)- Ends