Brokerage UBS has come out with a bullish note on financials, where it has projected the profit pool of the sector to nearly double over five years, and has upgraded Kotak Mahindra Bank to a Buy from Neutral, with a target price of Rs 2450 per share.
The note said the non-lending businesses within the financial sector such as AMCs and wealth management are expected to grow up to 1.5-1.7 times faster than the lending businesses, showing strong outperformance.
Among NBFCs, UBS said it is bullish on Chola Finance and PFC, and prefers SBI Life among its play on insurers. The sector is expected to benefit from a structural shift in household saving and investment pattern.
The note added that it sees Paytm's margins improving going forward and raised its target on the stock to s 1250 per share from the previous Rs 1,100 per share.
On Kotak Bank, UBS believes the stock is the best way to play the financial services sector, supported by its various subsidiaries, expecting the re-rating in the stock to continue.
Kotak's key subsidiaries include Kotak Securities, Kotak AMC, Kotak Life, Kotak Alternate Assets and Kotak Prime.
Shares of Kotak Mahindra Bank are higher by over 1.3 percent in early trade on August 29, while the Nifty 50 is marginally in the green and the Bank Nifty is higher by 0.4 percent.
During its June quarter earnings call, Kotak Bank had told analysts that it expects the bank's Net Interest Margin (NIM) to stabilize over FY26, and the full benefit of RBI's repo rate cuts would accrue to borrowers in Q2FY26. The lender said it has reduced its unsecured advances from 11.6% to 9.7% by tightening underwriting norms, especially for unsecured business.
The bank added that it saw a sequential increase in slippages and credit cost due to its microfinance business and stress in retail commercial vehicle loans, along with a seasonal impact on the rural segment.
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