Kotak Mahindra Stock Drops After Profit Dip - Time to Sell or Hold?

Kotak Mahindra Bank shares tumbled by 6.5% to Rs.1,986.55 on the BSE after the bank reported a drop in profits for Q1 FY26. While there was a rise in net interest income (NII), overall profits took a hit due to the absence of one-time gains from the sale of its general insurance business.

Also Read: Bajaj Finance Shares Crash 5% After Q1 Results 2025 — Buy or Hold?

Muted Q1 Earnings Drag Down Share Price

For the June quarter, the private lender posted a standalone net profit of Rs.3,282 crore — a 7% drop from Rs.3,520 crore in Q1 FY25. This decline came despite a 6% year-on-year growth in NII, which rose to Rs.7,259 crore. Importantly, the same quarter last year had included a one-time boost from the divestment of Kotak General Insurance (KGI). This time, the bank's results did not benefit from such gains, leading to a more subdued bottom line.

Lending and Deposits Show Solid Growth

Despite the dip in profits, the bank reported strong growth in its core operations. Average advances surged 14% YoY to Rs.4.45 lakh crore, while average total deposits climbed 13% to Rs.4.91 lakh crore. These figures indicate robust business momentum, even as margin pressure continues to weigh on overall profitability.

Brokerages Trim Targets but Maintain Confidence

Brokerage firm Antique retained its ‘Buy’ rating on Kotak Mahindra Bank but revised the target price to Rs.2,440 (from Rs.2,540). The downgrade is due to higher credit costs and a sharper-than-expected fall in margins, especially within unsecured lending. The bank’s asset quality also saw weakness in the microfinance and commercial vehicle segments. However, analysts expect a recovery in unsecured lending by FY26/27, which could uplift future earnings.

Valuations Remain Reasonable

Despite near-term challenges, valuations appear fair at 2.2x one-year forward price-to-book. The bank is expected to deliver a Return on Assets (RoA) of 2.2% and a Return on Equity (RoE) of 14% between FY26 and FY28 — metrics that keep long-term investors hopeful.

Also Read: Adani Energy Solutions records solid performance in Q1FY26