Kotak Mahindra Bank Shares Slide 7% as Sluggish Q1 Earnings Dent Sentiment

Shares of Kotak Mahindra Bank plunged over 7% on July 28, after the private sector lender reported a muted performance for the June quarter, weighed down by a sharp rise in provisioning and margin pressure.

The bank’s standalone net profit for Q1 FY26 came in at ₹3,282 crore, down 7% year-on-year after adjusting for a one-time gain from the sale of its general insurance business. Including that gain, the reported profit stood at ₹6,250 crore.

Provisioning and contingencies more than doubled on year to ₹1,208 crore due to stress in segments such as microfinance, retail commercial vehicles (CVs), and Kisan Credit Card (KCC) loans. The net interest income (NII) rose 6% to ₹7,259 crore, and credit growth remained steady at 14%. However, majority of that growth was led by low-yielding corporate loans, which added pressure to margins.

The net interest margin (NIM) contracted by 32 basis points sequentially to 4.7%, with management flagging further downside in Q2 before a likely recovery in the second half of the fiscal year. Deposit repricing, rate transmission, and cost control are expected to support margin stabilisation going forward.

While brokerage firm Nomura retained a ‘neutral’ call on Kotak Mahindra, it highlighted that concerns around asset quality and margin compression, when combined with current valuations, leave little room for a major upside.

On the other hand, Morgan Stanley struck a more optimistic tone, maintaining its ‘overweight’ rating with a target of ₹2,600. While it acknowledged disappointment around NIM compression and the rise in non-performing loans, the firm remains optimistic to see earnings momentum pick up in the latter half of the year as pressures ease.

Following cue, Motilal Oswal also remains constructive on the stock, and expects NIMs to bottom out in Q2FY26, supported by the full impact of repo rate cuts and lower cost of funds, with margin and growth expected to improve in the second half.

However, not all voices were bullish. Bernstein assigned a ‘market-perform’ rating with a target of ₹1,950, warning that elevated credit costs and soft asset quality could continue to weigh on valuations.

Moreover, PL Capital echoed a similar note of caution, cutting its loan growth assumption by 100 bps for FY26/27 to 16% and revising its margin and fee income estimates downward. It has trimmed its target price to ₹2,350 while retaining a ‘buy’ stance, citing slower-than-expected unsecured recovery and persistent stress in microfinance.

Nuvama Institutional Equities also revised its EPS estimates down by 7–8% for FY26 and FY27, citing unfavourable risk-reward relative to peers. Similar to PL Capital, Nuvama also slashed its target price for the lender to ₹2,020.

Despite that, Kotak Mahindra’s management expects a gradual recovery in margins and asset quality in the coming quarters. However, the sharp selloff in the stock suggests investor concerns over short-term earnings visibility, especially amidst a weak macro setup.