Kotak Mahindra Bank Range-Bound For Five Years — Can Earnings Growth Trigger A Re-Rating?

For the average Indian equity investor, the past five years have delivered returns above inflation despite recent volatility. The Nifty 50 index has returned 86%, while the Nifty Next 50 index is up 110% since December 2020.

However, investors holding Kotak Mahindra Bank in their portfolios have seen a different outcome. The experience has combined confidence in the business with frustration over the share price.

Over the past five years, the Kotak share price has gained less than 9%, translating into an annual return of under 2%. The stock has moved within a broad range, while peers and the wider market have moved to higher levels.

In value investing, a flat share price alongside rising earnings often signals a re-rating phase.

Advances are growing at nearly 16% year on year, and the bank’s digital strategy is gaining scale. These factors have renewed focus on whether the stock may move out of its long consolidation phase.

Before assessing growth, the bank’s risk profile remains central. Kotak Mahindra Bank has maintained a conservative approach to credit risk over several cycles. While other lenders have faced repeated stress from bad loans, Kotak has kept asset quality stable.

In the September quarter, gross non-performing assets—loans where repayments are overdue or unlikely—stood at 1.39%. This means that out of every Rs 100 lent, about Rs 1.39 is classified as stressed.

Net non-performing assets—loans unlikely to be recovered after provisions—were 0.32%.

A clean balance sheet allows profits to support growth rather than cover past losses.

The bank’s capital adequacy ratio—capital held as a buffer against potential losses—exceeds 22.5%. This level provides protection against economic stress and capacity to expand the loan book or pursue acquisitions without raising fresh equity.

A bank’s profitability depends on its cost of funds—the interest it pays to raise deposits. Lower funding costs support margins.

Kotak has reduced dependence on higher-cost deposits and shifted towards a more stable retail base. Its CASA ratio—current account and savings account deposits as a share of total deposits—stands at 42.3%.

The bank has reduced reliance on high-cost, floating-rate savings accounts. It is increasing fixed-rate deposits that offer stability and predictable costs. Chief Financial Officer Devang Gheewalla has said the bank is seeing higher average balances from retail customers.

This shift supports margins when competition for deposits intensifies.

Banks now operate as technology-led institutions with lending licences. Kotak launched its 811 digital platform early in this transition.

The Kotak 811 app ranks among the most downloaded banking apps in India and is placed third globally. The platform targets customers seeking digital-first loans, credit cards and investment products, reducing acquisition costs compared with branch-led models.

The digital platform improves efficiency—allowing high transaction volumes without proportional increases in staff or branches—and scalability, as the bank can offer additional products such as insurance and home loans within the same ecosystem.

Market attention has also focused on the possibility of acquisitions. There has been market discussion around Kotak’s interest in IDBI Bank, though management has not confirmed any transaction.

Chief Executive Officer Ashok Vaswani has said the bank has surplus capital after funding core operations and continues to review smaller acquisitions. Kotak earlier acquired Standard Chartered’s personal loan portfolio.

A large acquisition could provide scale closer to peers such as HDFC Bank and ICICI Bank. For investors, inorganic growth—expansion through acquisitions—remains a potential trigger for a re-rating.

Net interest margin—net interest income as a share of earning assets—has eased to 4.54%. Management attributed the decline to lower interest rates, with margins expected to remain under pressure in the near term.

The bank has begun repricing deposits. As most term deposits mature within nine to 12 months, lower funding costs are expected to reflect in earnings by late 2025 or early 2026.

During this transition, higher-cost deposits are being replaced with lower-cost funding, which could support profitability once the cycle completes.

Kotak’s non-bank businesses also add to earnings diversity. Kotak Mutual Fund reported 31% year-on-year profit growth. Kotak Institutional Equities has ranked first in the domestic market for three consecutive years. The alternative assets arm, KAAML, manages about $11 billion in investments.

These businesses provide income diversification alongside the core banking operations.

After five years of limited share price movement, investors continue to assess whether fundamentals are ahead of market pricing.

Book value per share stands at Rs 844, up 14% year on year. The stock trades at a trailing price-to-book multiple of 2.6 times, below its 10-year average of 4.1 times.

Analysts tracking the bank expect adjusted earnings per share to grow about 14% annually over the next three years.

The stock has spent several years in consolidation. In market terms, consolidation refers to a period where prices move within a range as expectations reset.

Consensus estimates in December 2025 suggest the stock trades at an 11% discount, as investor focus remains on growth delivery, margin recovery and any acquisition-led expansion.

The views expressed in this article are solely those of the author and do not necessarily reflect the opinion of NDTV Profit or its affiliates. Readers are advised to conduct their own research or consult a qualified professional before making any investment or business decisions. NDTV Profit does not guarantee the accuracy, completeness, or reliability of the information presented in this article.