Kotak Mahindra Bank Upgraded to Buy on Improved Valuation and Solid Fundamentals

Valuation: From Expensive to Fair

The primary catalyst for the upgrade is the shift in Kotak Mahindra Bank’s valuation grade from expensive to fair. The bank currently trades at a price-to-earnings (PE) ratio of 31.24, which, while higher than some peers, is now considered reasonable given its growth prospects and risk profile. Its price-to-book (P/B) value stands at 3.38, reflecting a fair valuation relative to its asset base. This contrasts favourably with Axis Bank, which remains expensive despite a lower PE of 17.79, and aligns more closely with HDFC Bank and ICICI Bank, which trade at PEs of 19.12 and 20.42 respectively.

Despite a PEG ratio of 0.00, which typically indicates no expected earnings growth or data unavailability, the bank’s dividend yield remains modest at 0.12%, consistent with its reinvestment strategy. The valuation upgrade recognises that Kotak Mahindra Bank’s stock price now better reflects its intrinsic value, especially when considering its return on equity (ROE) of 10.81% and return on assets (ROA) of 1.91%, which are solid indicators of profitability and asset utilisation.

Quality: Strong Fundamentals and Capital Adequacy

Kotak Mahindra Bank’s quality metrics remain robust, supporting the positive rating change. The bank boasts a high capital adequacy ratio of 20.93%, well above regulatory requirements, providing a strong buffer against credit and market risks. Its net non-performing assets (NPA) to book value ratio is a manageable 1.20%, signalling effective asset quality management in a competitive private banking sector.

Long-term fundamentals are further bolstered by an average ROA of 2.23%, indicating efficient utilisation of assets to generate profits. The bank’s net interest income, excluding other income, has grown at an annualised rate of 15.45%, while net profit has expanded at 15.62% annually, underscoring consistent earnings growth despite recent quarterly flat performance. These factors collectively affirm the bank’s strong operational quality and resilience.

Financial Trend: Mixed Signals but Long-Term Growth Intact

While Kotak Mahindra Bank’s recent quarterly financial performance has been flat, the longer-term financial trend remains positive. The bank’s profit after tax (PAT) for the nine months ended December 2025 stood at ₹9,981.15 crores, reflecting a decline of 22.62% year-on-year. This contraction is partly attributed to a high proportion of non-operating income, which accounted for 62.09% of profit before tax (PBT) in the quarter, indicating volatility in earnings quality.

Despite this, the bank’s stock has delivered a 7.97% return over the past year, closely tracking the Sensex’s 10.29% gain. Over longer horizons, Kotak Mahindra Bank has generated a 249.61% return over ten years, nearly matching the Sensex’s 258.10%, demonstrating sustained value creation for shareholders. However, the bank’s five-year return of 12.13% lags the Sensex’s 61.20%, highlighting some challenges in recent years.

Technicals: Stable but Slightly Negative Near-Term Momentum

From a technical perspective, Kotak Mahindra Bank’s stock price has shown modest volatility. On 26 February 2026, the stock closed at ₹425.05, down 0.60% from the previous close of ₹427.60. The day’s trading range was ₹421.30 to ₹430.20, with the 52-week high at ₹460.31 and low at ₹378.98, indicating a relatively narrow trading band.

Short-term returns have been mixed, with a one-week decline of 0.29% contrasting with a one-month gain of 0.68%. Year-to-date, the stock is down 3.43%, mirroring the broader market’s slight weakness. Institutional holdings remain high at 62.24%, reflecting confidence from sophisticated investors who typically have a longer-term investment horizon and deeper fundamental insights.

Summary of Ratings and Scores

Kotak Mahindra Bank’s overall Mojo Score stands at 70.0, earning it a Buy grade, upgraded from Hold as of 25 February 2026. The market capitalisation grade remains at 1, indicating a large-cap status with strong liquidity and market presence. This upgrade reflects a balanced assessment of valuation, quality, financial trends, and technical factors, positioning the bank favourably for investors seeking exposure to the private banking sector.

Risks and Considerations

Investors should remain mindful of certain risks despite the upgrade. The bank’s flat quarterly results and the significant contribution of non-operating income to profits introduce some earnings volatility. The year-to-date profit decline of 5.7% also signals caution. Furthermore, the PEG ratio of zero suggests limited near-term earnings growth expectations, which could temper upside potential.

Nonetheless, Kotak Mahindra Bank’s strong capital buffers, healthy institutional ownership, and fair valuation provide a solid foundation for navigating these challenges. The bank’s consistent long-term growth in net interest income and net profit supports a positive outlook, making it a compelling choice for investors with a medium to long-term horizon.

Conclusion

The upgrade of Kotak Mahindra Bank Ltd to a Buy rating by MarketsMOJO reflects a nuanced reassessment of its valuation, quality, financial trends, and technical factors. The shift to a fair valuation grade, combined with strong capital adequacy and solid long-term fundamentals, outweighs recent earnings volatility and near-term technical softness. For investors seeking exposure to a well-capitalised private sector bank with a track record of steady growth and institutional backing, Kotak Mahindra Bank now presents an attractive investment opportunity.

Only Rs. 9,999 - Get MojoOne for 1 Year + 3 Months FREE (60% Off) Start Today