Federal Bank, AU Small Finance Bank stocks jump 8% after Q2 results; Bank Nifty hits record high

Share Market

Shares of Federal Bank and AU Small Finance Bank surged sharply on Monday, emerging as the top gainers on the Bank Nifty index, after both lenders posted resilient earnings for the July-September quarter (Q2 FY26) with stable margins and improved asset quality. The upbeat sentiment in other financial stocks too helped the Bank Nifty touch a new all-time high of 58,242.5, up 0.92 percent for the day.

Federal Bank stock soars on healthy NII, improved asset quality

Federal Bank’s share price climbed 8 percent to Rs 229.49 even after the private sector lender’s Q2 results drew positive brokerage reactions for their margin strength and improving balance sheet quality. The bank reported a 9.6 percent year-on-year decline in standalone net profit to Rs 955.3 crore, even as analysts noted steady core performance and operating resilience.

Despite the dip in profit, net interest income (NII) rose 5.4 percent year-on-year to an all-time high of Rs 2,495 crore, aided by stable margins and steady loan growth. Asset quality improved, with the gross non-performing asset (GNPA) ratio easing to 1.83 percent from 2.09 percent a year earlier, and net NPA declining to 0.48 percent from 0.57 percent. Fee income touched a record Rs 886 crore, up 13 percent, while deposits and advances grew 7.4 percent and 6.2 percent, respectively.

Brokerages turned bullish on the stock. Morgan Stanley maintained an equal-weight rating but raised the target price to Rs 220, noting a “strong NIM surprise” aided by growth in low-cost CASA deposits and moderation in high-cost liabilities. DAM Capital retained its buy call with a Rs 250 target, citing operational improvement and better balance sheet. It expects a rebound in earnings from the second half of FY26 as NIMs, operating costs and provisions normalise.

AU Small Finance Bank hits record high after resilient performance

AU Small Finance Bank shares also jumped 8.2 percent to Rs 857.20, marking a new lifetime high, after its Q2 results were met with positive brokerage commentary on margins and asset quality. The lender’s net profit declined 1.8 percent year-on-year to Rs 561 crore, but came in ahead of Street estimates, underscoring its ability to sustain performance despite higher provisions.

Total income rose nearly 15 percent to Rs 5,224 crore, while provisions surged 29 percent to Rs 481 crore. Asset quality remained stable, with gross NPA at 2.41 percent and net NPA at 0.88 percent, supported by a comfortable capital adequacy ratio of 18.78 percent.

Brokerages expressed optimism about the lender’s outlook. Morgan Stanley raised its price target to Rs 1,175 from Rs 1,000, citing a positive surprise on net interest margins and asset quality. Jefferies echoed the view, noting that improvement in NIMs and stability in asset quality indicated healthy underlying momentum.

Banking sector sentiment upbeat

The strong showing by mid-tier lenders added to the bullish sentiment across the banking space. With leading stocks such as HDFC Bank, Kotak Bank, Axis Bank and SBI also trading firm through the day, the Bank Nifty extended its record run, trading near the 58,250 mark.

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