Synopsis : Banking stocks remained under pressure after Q1FY27 earnings, with HDFC Bank and Axis Bank falling nearly 5% in today's trade. Despite the weakness, Motilal Oswal continues to remain bullish on select lenders, seeing upside potential of up to 28%.
Banking stocks started the week on a weak note after several lenders announced their June quarter (Q1FY27) earnings over the weekend.
Selling pressure was visible across most banking counters, dragging the Nifty Bank index nearly 1.5% lower during the session. While HDFC Bank and Axis Bank emerged among the biggest losers, select public sector banks managed to outperform.
Despite the near-term weakness, Motilal Oswal believes the long-term outlook for several banking stocks remains intact and continues to recommend a number of lenders with meaningful upside potential.
Here's what the brokerage is saying.
HDFC Bank: Buy | Target Price ₹1,050 | Upside Potential: 28%
Motilal Oswal has retained its 'Buy' rating on HDFC Bank with a target price of ₹1,050, implying an upside potential of around 28%.
Although the brokerage reduced its FY27 and FY28 earnings estimates by around 2%, it believes profitability should gradually improve as funding costs decline over the next two years.
The June-quarter performance was largely in line with expectations.
Loan growth remained healthy, supported primarily by SME and corporate lending, while retail loan growth remained relatively subdued.
The key disappointment was the Net Interest Margin (NIM), which contracted by 12 basis points sequentially.
However, Motilal Oswal expects margins to recover as nearly ₹400–500 billion of high-cost borrowings mature, lowering funding costs.
The brokerage believes healthy business growth and lower provisions continue to support the long-term investment case.
ICICI Bank: Buy | Target Price ₹1,750 | Upside Potential: 21%
Motilal Oswal continues to view ICICI Bank as one of its preferred banking stocks.
The brokerage maintained its 'Buy' rating while raising its earnings estimates by 4–5% following another strong quarterly performance.
ICICI Bank reported:
- Strong loan growth
- Stable asset quality
- Lower provisions
- Healthy fee income
Unlike many peers, the bank also reported a 4 basis point sequential improvement in NIM, highlighting the resilience of its business model.
Motilal Oswal expects ICICI Bank to maintain one of the strongest profitability profiles among private sector banks, projecting average:
- Return on Assets (RoA): 2.3%
- Return on Equity (RoE): 16.8%
over FY27-FY28.
Axis Bank: Neutral | Target Price ₹1,500 | Upside Potential: 13%
Motilal Oswal retained its 'Neutral' rating on Axis Bank despite acknowledging the bank's long-term growth potential.
The brokerage reduced FY27 and FY28 earnings estimates by around 2% after weaker-than-expected margins during Q1FY27.
Business growth remained healthy, driven mainly by corporate lending, while retail loan growth stayed relatively soft.
The biggest concern remained a sharp decline in Net Interest Margin, although lower operating expenses and provisions helped support earnings.
Management continues to guide for loan growth above industry averages over the medium term, and the brokerage expects stable asset quality to support earnings going forward.
Kotak Mahindra Bank: Buy | Target Price ₹470 | Upside Potential: 21%
Motilal Oswal maintained its 'Buy' recommendation on Kotak Mahindra Bank with a target price of ₹470.
The brokerage marginally increased earnings estimates after another stable quarterly performance.
It expects margins to improve gradually as Kotak increases exposure towards unsecured lending and commercial loans.
Management also indicated that the transition to the Expected Credit Loss framework is unlikely to materially affect the balance sheet.
Motilal Oswal believes stable asset quality, healthy loan growth and improving profitability should continue supporting earnings over the coming years.
Punjab National Bank: Buy | Target Price ₹135 | Upside Potential: 28%
Punjab National Bank remains one of Motilal Oswal's top public-sector banking picks.
The brokerage retained its 'Buy' rating with a target price of ₹135, implying an upside potential of approximately 28%.
It also raised FY27 earnings estimates by 8.5% and FY28 estimates by 4%.
The June-quarter performance reflected continued improvement in asset quality.
According to the brokerage:
- Slippages remained low.
- No significant stress emerged in the loan book.
- Margins improved marginally.
- Credit costs continued to decline.
Motilal Oswal expects the bank to sustain a Return on Assets above 1% during FY27.
Federal Bank: Buy | Target Price ₹400 | Upside Potential: 15%
Motilal Oswal maintained its 'Buy' recommendation on Federal Bank with a target price of ₹400.
The brokerage increased profit estimates after what it described as a strong June-quarter performance.
Key positives included:
- Healthy Net Interest Income growth
- Expansion in Net Interest Margin
- Lower credit costs
- Stable asset quality
Motilal Oswal believes improving profitability, healthy business growth and disciplined risk management should continue supporting earnings over the next two years.
RBL Bank: Buy | Target Price ₹425 | Upside Potential: 15%
Motilal Oswal also retained its 'Buy' recommendation on RBL Bank.
While Net Interest Income missed estimates during the June quarter, lower operating expenses helped earnings exceed expectations.
Margins declined because of lower lending yields and elevated funding costs.
However, the brokerage expects profitability to improve as high-cost borrowings gradually mature and are replaced with lower-cost funding.
Motilal Oswal also expects the bank to maintain loan growth above 20%, supporting earnings recovery over the medium term.
Conclusion
Although banking stocks witnessed broad-based selling following the June-quarter earnings season, Motilal Oswal believes the weakness does not alter the long-term investment case for several lenders.
Among its preferred banking stocks, HDFC Bank and Punjab National Bank offer the highest implied upside of around 28%, followed by ICICI Bank and Kotak Mahindra Bank with approximately 21% upside each.
The brokerage also remains positive on Federal Bank and RBL Bank, while maintaining a more cautious 'Neutral' stance on Axis Bank until margin pressures begin to ease.
Disclaimer : The stock ratings, target prices and earnings projections mentioned in this article are based on research published by Motilal Oswal and are intended solely for informational and educational purposes. They should not be construed as investment advice or a recommendation to buy, sell or hold any security. Equity investments are subject to market risks, and target prices or expected returns are not guaranteed. Investors should conduct their own research and consult a SEBI-registered investment advisor before making any investment decisions.
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