Bank stock in focus: 32% upside! Nuvama recommends two stocks to buy, one to reduce after Q2 results - check target prices

Bank stock in focus: Brokerage firm Nuvama has maintained Buy ratings on IDFC First Bank and Kotak Mahindra Bank, with a potential upside of around 32 per cent to 28 per cent. However the brokerage has adopted a cautious stance on AU Small Finance Bank, cutting its target price.

Following the second-quarter results for FY27, Nuvama has said that there is pressure on net interest margins (NIMs) due to foreign currency non-resident (FCNR) deposits and higher funding costs. However, improving credit growth and the possibility of margin recovery over the coming quarters could support selected private sector lenders.

Here is what the brokerage said about the three bank stocks.

IDFC First Bank share price target

Nuvama has maintained its Buy rating on IDFC First Bank with a target price of Rs 95 per share, compared with the reference market price of Rs 72. This implies a potential upside of around 32 per cent.

The bank mobilised $3.6 billion through FCNR deposits to support its credit growth ambitions. However, the higher funding costs put pressure on profitability during the September quarter.

IDFC First Bank's NIM declined by 32 basis points QoQ to 5.6 per cent in Q2 FY27. Higher provisions against standard assets also weighed on earnings, with the bank reporting a net profit of Rs 1,040 crore. Its return on assets (RoA) stood at 0.9 per cent.

Nuvama expects the bank's RoA to reach 1.1 per cent - 1.3 per cent and return on equity (RoE) to reach 9 per cent -15 per cent during FY27–FY29.

Kotak Mahindra Bank share price target

Nuvama has maintained its Buy rating on Kotak Mahindra Bank with a target price of Rs 550 per share, against the reference market price of Rs 430. This indicates a potential upside of around 28 per cent.

The bank recorded credit growth of 25 per cent during the quarter. However, pressure from FCNR-related funding costs led to a 22-basis-point QoQ decline in NIM to 4.3 per cent.

Despite higher provisioning, Kotak Mahindra Bank reported a profit of Rs 420 crore and an RoA of 1.9 per cent.

Nuvama expects margins to improve over the next two to three quarters as the funds raised through FCNR deposits are deployed into loans.

The brokerage also sees scope for stronger growth under the bank's new management. It expects RoA to reach 2.0 per cent - 2.1 per cent and RoE to reach 12 per cent - 15 per cent.

AU Small Finance Bank share price target

Nuvama has maintained a Reduce rating on AU Small Finance Bank and cut its target price to Rs 925 from Rs 950 per share. Against the reference market price of Rs 934, the revised target indicates a downside of around 1 per cent.

The bank recorded annual growth of 25 per cent in assets under management (AUM). However, higher funding costs weighed on profitability, with NIM declining by 10 basis points QoQ to 5.8 per cent in Q2 FY27.

AU Small Finance Bank reported a profit after tax (PAT) of Rs 860 crore, while its RoA stood at 1.7 per cent. The brokerage also flagged concerns about asset quality, particularly in tractor financing, where fresh slippages increased to 3.3 per cent.

The bank's provision coverage ratio (PCR) declined to 60 per cent, helping support reported profitability but leaving asset-quality concerns in focus.