Axis Bank shares fell more than 4% on Monday despite the private sector lender reporting a 38% year-on-year rise in standalone net profit for the September quarter, as earnings fell short of market expectations and concerns over margins and operating costs remained.
The stock declined to Rs 1,232 on the BSE after Axis Bank reported a net profit of Rs 7,003 crore for the second quarter of FY27, compared with Rs 5,089 crore in the corresponding period last year. The profit was below the average estimate of Rs 7,124 crore, according to data cited in the report.
The reaction highlights why a strong rise in profit does not always translate into gains for a stock. Investors also assess whether earnings meet expectations, how sustainable growth is and whether the bank can improve profitability in the coming quarters.
Axis Bank’s net interest income (NII), the difference between interest earned and interest paid, rose 12% year-on-year to Rs 15,371 crore. However, its net interest margin (NIM), a measure of the profitability of its lending business, stood at 3.36%, down 10 basis points sequentially.
One concern is the pressure on margins. Centrum Broking noted that the bank’s NIM declined sequentially, partly due to heavy foreign currency non-resident bank (FCNR-B) flows. Adjusting for these flows, the brokerage said NIM improved marginally to 3.47%.
The bank’s profit also saw a sequential decline of 1.5%, with weaker treasury gains and higher operating expenses weighing on performance, according to Centrum.
Dolat Capital also flagged a decline in sustainable margins, while 360 One WAM noted that lower other income and higher operating expenses had affected the results.
The trajectory of retail lending will also matter. Centrum said the sustainability of retail loan growth remains important for margin improvement, while Dolat Capital argued that continued retail growth would be needed to improve margins and return on assets.
There were, however, positives in the results. Axis Bank’s advances grew 23% year-on-year and 9% quarter-on-quarter. Its operating profit increased 6% year-on-year to Rs 11,083 crore, while core operating profit rose 11% to Rs 10,998 crore.
Asset quality also improved. The gross non-performing asset ratio fell 30 basis points year-on-year to 1.16%, while the net NPA ratio declined 9 basis points to 0.35%. The net slippage ratio fell 30 basis points to 0.75%.
Brokerages remain broadly positive on Axis Bank, although their target prices reflect different views on the bank’s earnings outlook and margin recovery.
Jefferies maintained its ‘Buy’ rating and a target price of Rs 1,700 per share, identifying Axis Bank as one of its top picks. The brokerage said better revenue performance and lower provisions supported the results, while improving asset quality could help profitability.
It also said better NIMs and lower credit costs could lift return on equity next year. However, Jefferies factored in a potential impact on bancassurance fees from FY28 as regulatory clarity remains awaited.
Centrum Broking retained its ‘Buy’ rating but cut its target price to Rs 1,530 from Rs 1,630. Dolat Capital maintained its ‘Accumulate’ rating while reducing its target to Rs 1,470 from Rs 1,525, citing concerns over sustainable margins.
360 One WAM retained its ‘Buy’ rating and raised its target price to Rs 1,590. It said loan growth was driven largely by overseas, small and medium enterprise (SME) and corporate segments, while the bank remained confident of a recovery in NIM in the second half of FY27.
The brokerage target prices range from Rs 1,470 to Rs 1,700, compared with the stock’s previous close of Rs 1,290. These targets are estimates, not assured returns, and may change as earnings and market conditions evolve.
For investors, the key question is whether Axis Bank can sustain loan growth while recovering margins and controlling operating costs. Improving asset quality and strong loan growth are positives, but margin pressure and higher expenses remain risks to watch.
Investors considering the stock should assess their investment horizon, risk appetite and valuation expectations rather than buying solely because the share price has fallen. The stock’s decline does not, by itself, make it cheap.
(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)