Banks under pressure: HDFC Bank, Axis Bank slide 5%, but Motilal Oswal sees up to 28% upside in these 7 stocks

At the time of writing, the Nifty Bank index was trading nearly 1.5% lower. HDFC Bank and Axis Bank emerged among the biggest losers, while a few public sector banks managed to buck the trend.

So, why are bank stocks falling despite the earnings? And which lenders continue to remain brokerage favourites after the June-quarter results?

Banking stocks under pressure

The weakness was broad-based across the banking space.

HDFC Bank declined nearly 5% in early trade, while Axis Bank also slipped around 5%. Kotak Mahindra Bank lost about 3%, Yes Bank fell over 3%, and Federal Bank also traded in the red.

ICICI Bank remained largely flat despite reporting another strong quarterly performance.

Among the gainers, Punjab National Bank rose nearly 5%, while Canara Bank, Union Bank of India and Bank of Baroda traded with gains, outperforming the broader banking pack.

In the latest report, Motilal Oswal believes the long-term fundamentals of many banking stocks remain intact

Let’s take a closer look at what Motilal Oswal is saying – 

Bank	Rating	Target Price	Upside
HDFC Bank	Buy	Rs 1,050	28%
ICICI Bank	Buy	Rs 1,750	21%
Kotak Mahindra Bank	Buy	Rs 470	21%
Punjab National Bank	Buy	Rs 135	28%
Federal Bank	Buy	Rs 400	15%
RBL Bank	Buy	Rs 425	15%
Axis Bank	Neutral	Rs 1,500	13%

HDFC Bank: Motilal Oswal retains ‘Buy’; sees nearly 28% upside

Motilal Oswal has reiterated its ‘Buy’ rating on HDFC Bank with a target price of Rs 1,050, implying an upside potential of around 28% from the current market price. 

While the brokerage trimmed its FY27 and FY28 earnings estimates by around 2%, it believes the bank remains well placed for gradual improvement in profitability as funding costs ease over the coming years.

According to the Motilal Oswal report, HDFC Bank delivered a largely in-line June-quarter performance. Loan growth remained healthy, supported mainly by the Small and Medium Enterprise (SME) and corporate segments, while retail lending continued to grow at a relatively slower pace. 

The biggest disappointment during the quarter was the Net Interest Margin (NIM), which contracted by 12 basis points sequentially. However, Motilal Oswal believes this pressure could gradually ease as nearly Rs 400-500 billion of high-cost borrowings mature over the next two years, reducing funding costs.

Motilal Oswal said, “HDFCB Bank reported a largely in-line quarter, supported by healthy business growth and lower provisions, although NIM remained the key miss.”

ICICI Bank: Top pick remains unchanged; brokerage sees 21% upside

Motilal Oswal has maintained its ‘Buy’ rating on ICICI Bank with a target price of Rs 1,750, indicating an upside potential of around 21% from the current market price. 

The brokerage has also raised its earnings estimates by 4-5% after the bank reported another strong set of quarterly numbers.

ICICI Bank continued to outperform many of its peers during the June quarter. The lender reported strong loan growth, resilient margins and stable asset quality, while provisions came in lower than expected, as per the brokerage report.

One of the key positives was the improvement in the Net Interest Margin, which expanded by four basis points sequentially despite pressure across the banking sector. Motilal Oswal expects margins to remain broadly stable during FY27 as credit costs remain under control.

The brokerage also pointed to ICICI Bank’s strong balance sheet, highlighting its healthy contingency provisions and one of the strongest asset quality profiles among private sector lenders.

Motilal Oswal noted that the bank is well positioned to deliver an average Return on Assets of 2.3% and Return on Equity of 16.8% over FY27-FY28.

Axis Bank: Neutral rating retained despite long-term growth plans

Motilal Oswal has retained its ‘Neutral’ rating on Axis Bank with a target price of Rs 1,500, implying an upside potential of around 13%. 

The brokerage reduced its FY27 and FY28 earnings estimates by nearly 2% after the bank reported weaker-than-expected margins during the June quarter.

Axis Bank’s earnings benefited from lower operating expenses and provisions. However, a sharp contraction in the Net Interest Margin remained the key concern. Business growth was largely driven by corporate lending, while retail loan growth stayed relatively muted.

Motilal Oswal expects the bank to continue expanding its loan book and has noted management’s guidance of growing advances faster than the overall banking industry over the medium term.

The brokerage said, “Axis Bank reported a weak quarter, with NIM witnessing a sharp contraction.”

The brokerage believes improving business growth and stable asset quality could support earnings over the longer term.

Kotak Mahindra Bank: Motilal Oswal stays bullish; sees 21% upside

Motilal Oswal has reiterated its ‘Buy’ rating on Kotak Mahindra Bank with a target price of Rs 470. This translates to an upside potential of around 21%. The brokerage has marginally increased its earnings estimates after the lender reported a stable June-quarter performance.

The brokerage also expects margins to gradually improve as the bank increases its exposure to unsecured and commercial lending. Management has indicated that the transition to the Expected Credit Loss framework is likely to have only a limited impact on the balance sheet.

Motilal Oswal noted that stable asset quality, healthy loan growth and improving margins should continue supporting Kotak Mahindra Bank’s earnings over the coming years.

Punjab National Bank: Motilal Oswal retains ‘Buy’; sees around 28% upside

Motilal Oswal has reiterated its ‘Buy’ rating on Punjab National Bank (PNB) with a target price of Rs 135. This suggests an upside potential of around 28% from the current market price. 

The brokerage has increased its FY27 earnings estimate by 8.5% and FY28 estimate by 4%, citing improving asset quality and lower credit costs.

The brokerage highlighted that asset quality continues to improve, with lower slippages and no major stress visible in the loan book. It also expects the bank to maintain a Return on Assets (RoA) above 1% during FY27.

Motilal Oswal said, “Punjab National Bank reported a mixed quarter, with earnings beat led by controlled provisions and opex, while margins improved 3bp QoQ.”

Motilal Oswal noted that lower credit costs and stable asset quality should continue supporting earnings in the coming quarters.

Federal Bank: Strong quarter keeps ‘Buy’ rating intact

Motilal Oswal has maintained its ‘Buy’ rating on Federal Bank with a target price of Rs 400, indicating an upside potential of around 15% from the current market price. The brokerage has also raised its profit estimates for FY27 and FY28 after the lender reported a better-than-expected June-quarter performance.

Motilal Oswal said, “Federal Bank reported a strong quarter, supported by healthy NII growth, robust NIM expansion and lower credit costs.”

The brokerage expects improving margins, healthy loan growth and controlled credit costs to support the bank’s profitability over the next two years.

RBL Bank: Motilal Oswal stays positive 

Motilal Oswal has retained its ‘Buy’ rating on RBL Bank with a target price of Rs 425. This translates to an upside potential of around 15% from the current market price. While the brokerage has made minor changes to its earnings estimates, it continues to remain positive on the bank’s medium-term outlook.

According to the brokerage report, RBL Bank reported a mixed June-quarter performance. Net Interest Income missed estimates, but lower operating expenses helped earnings come in ahead of expectations. The Net Interest Margin declined during the quarter due to lower lending yields and higher funding costs.

However, Motilal Oswal believes margins could recover over the coming quarters as high-cost borrowings are gradually replaced with lower-cost funding. The brokerage also expects the bank to maintain loan growth of more than 20%.

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