BFSI Q2 Earnings Preview— Dolat Capital Projects Weak Quarter; Lists Kotak, ICICI Bank, Aptus Among Top Picks

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Dolat Capital Report

Earnings in Q2 FY26 will be impacted by continued moderation in net interest margin, sluggish growth, and muted treasury gains (which had been a savior in Q1 for several banks). Credit costs are expected to remain benign for the larger banking sector, barring some pockets with MFI exposure. Sequential NIM decline should be lower than in Q1, and margins are expected to bottom out in Q2, aided by re-pricing of term deposits and CRR cuts, which should help NIM in the subsequent quarters.

Net interest income is expected to be flattish YoY for coverage banks, while pre-provision operating profit to decline by 3% YoY (-14% QoQ) as treasury gains are muted (unlike Q1). Core PPoP to remain flattish YoY/QoQ. PAT is expected to decline by 5% YoY as credit costs normalize at slightly higher levels across large banks.

We do not anticipate any significant stress from bank MSME portfolios as exposure is mainly towards > 5 million ticket size, though the segment remains an area of watch.

We expect a slight slowdown in growth for affordable housing financiers (5% QoQ/20% YoY), with sequentially higher spreads (by 10-20 bps) and continued normalization in credit costs.

Early delinquency trends, however, should improve QoQ. For gold financiers, gold loan growth is expected to be strong at 10% QoQ as higher gold price, healthy new customer acquisitions, and slowdown in unsecured credit aid growth.

We expect some yield moderation, which should be offset by improved operating leverage. However, non-gold portfolio mix will continue to moderate, with elevated stress levels across most segments.

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