Bank Stock to Buy Now for an Upside of 22%; Do You Own It?

Synopsis: A leading private lender posts strong loan and deposit growth in Q4FY26, but core profitability disappoints – and a top brokerage still sees room to run.

This large-cap Bank’s fourth quarter results for FY26 presented a split picture, robust business momentum on one side, and a softer-than-expected core earnings performance on the other.

JM Financial, in its latest note on Axis Bank, has maintained a ‘Buy’ rating with a target price of Rs 1,575 i.e. an upside potential of about 22% from its current levels.It acknowledged the uneven quarter but held firm on its positive outlook, flagging improving asset quality and a stronger balance sheet as reasons to stay constructive on the stock.

Growth Where It Counts: Loans and Deposits Hold Up

Business growth remained a clear bright spot in the quarter. Advances climbed 19% year-on-year and 6% quarter-on-quarter, driven largely by the corporate and SME segments – a sign that demand from larger borrowers continued to hold up even as the broader credit environment remained selective.

Deposits mirrored that strength, rising 14% year-on-year and 6% quarter-on-quarter, with healthy CASA traction adding to the quality of the liability franchise. For a bank that has been steadily building its deposit base over the past few years, these numbers signal that the effort is bearing fruit.

The Pressure Points: Margins and Core Profitability

Despite healthy volume growth, profitability metrics told a more complicated story. Net interest income grew only 5% year-on-year as net interest margins declined 8 basis points sequentially – a squeeze JM Financial attributed to asset-side repricing and a tilt toward wholesale-led growth, both of which tend to compress spreads.

Core pre-provision operating profit also undershot estimates, weighed down by muted fee income, a treasury loss, and elevated operating expenses. Profit after tax came in flat year-on-year, though it rose 9% quarter-on-quarter -a recovery supported more by lower provisions and a reversal of excess tax provisions than by underlying operating strength.

Asset Quality Improves; Bank Builds Buffers

One area where Axis Bank delivered without ambiguity was asset quality. Gross NPA and net NPA ratios improved 17 basis points and 6 basis points quarter-on-quarter respectively, a meaningful sequential improvement that reinforces the narrative of a cleaner book.

The bank also chose to go beyond the minimum, creating an additional standard asset provision of ₹200 crore as a prudential buffer. It is a conservative call, but one that reflects management’s intent to build resilience into the balance sheet ahead of potential macro uncertainty.

Why JM Financial Still Backs the Stock

JM Financial’s investment case rests on a combination of structural and cyclical factors coming together over the next two years. The brokerage points to the sustained strength of Axis Bank’s deposit franchise, the ongoing improvement in liability quality, and lower normalised credit costs as the key drivers of an eventual earnings recovery.

Acting on that conviction, JM Financial has raised its FY27 earnings per share estimate by 10%. Looking further out, the brokerage projects return on assets and return on equity at 1.6% and 14% respectively – numbers that, while not spectacular, reflect a bank that has largely completed the heavy lifting on its balance sheet clean-up.

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