Morgan Stanley’s Bullish View on Kotak Mahindra Bank: NIM Recovery in Sight
About Morgan Stanley’s Updated Banking Outlook
Morgan Stanley has reaffirmed its positive stance on Kotak Mahindra Bank, maintaining an Overweight rating with a target price of ₹2,600. The brokerage believes the bank’s earnings trajectory and asset quality resilience support a potential re-rating over FY26–28, even as near-term margin pressure persists.
Loan Growth Broad-Based Across Segments
Kotak Mahindra Bank reported loan growth of 15% YoY, led by strong traction in the corporate and mid-corporate segments. The share of unsecured loans moderated to 9.2% (from 9.7% last quarter) due to a regulatory embargo and cautious stance on microfinance and credit cards. Despite this, retail momentum remained healthy, and overall balance-sheet growth outpaced the industry average.
Morgan Stanley noted that deposit growth and CASA ratio stability provide a solid funding base for future expansion, especially as the bank focuses on higher-margin SME and retail assets over the next two quarters.
Margins and Asset Quality Trends
Net Interest Margin (NIM) declined by 11 bps QoQ to 4.54%, reflecting higher funding costs and a temporary shift in loan mix. However, Morgan Stanley expects Q2FY26 to mark the NIM trough, with gradual recovery ahead as loan repricing benefits flow through in the second half of FY26.
Net slippages fell sharply to ₹900 crore (from ₹1,300 crore last quarter), while credit cost eased to 88 bps (from 110 bps), signaling improving asset quality. The brokerage believes that Kotak’s prudent underwriting and controlled exposure to unsecured segments limit downside risks.
Earnings Outlook and Valuation Comfort
Morgan Stanley projects core PPoP growth above 18% CAGR over FY26–28, supported by stable fee income and operating leverage gains. The brokerage expects RoA of ~1.9% and RoE near 15%, aided by credit-cost normalization and NIM recovery. Kotak’s capital adequacy and liquidity coverage ratios remain among the strongest in the private banking sector.
The firm believes that consistent execution on asset quality and loan diversification could trigger a valuation re-rating. The stock trades at attractive multiples versus long-term averages, offering favorable risk-reward for medium-term investors.
Morgan Stanley’s analysis highlights that Kotak Mahindra Bank’s current phase of margin compression is cyclical and not structural. As the funding mix stabilizes and unsecured share normalizes, profitability should improve from Q3FY26 onward.
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Investor Takeaway
Morgan Stanley’s continued Overweight stance on Kotak Mahindra Bank underlines confidence in its stable earnings visibility, conservative balance-sheet approach, and margin recovery potential. With credit costs moderating and broad-based loan growth resuming, Kotak stands out as a quality compounder in the private banking space. Read more expert insights at Indian-Share-Tips.com, which is a SEBI Registered Advisory Services.
SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.
