Axis Bank Stock Falls on Shrinking Margins, Analysts See Significant Upside

Axis Bank's stock pulled back about 2% on Friday, reversing earlier gains. This followed the bank's Q4 FY26 results, which showed shrinking profit margins and slower deposit growth compared to rapid loan expansion. While the bank secured a $500 million offshore loan, market attention is on its ability to manage funding costs and attract deposits to support future lending.

Funding Challenges and Margin Pressure

Axis Bank achieved strong loan growth in Q4 FY26, with disbursements rising 18.5% year-on-year to ₹12.3 trillion, driven by corporate (+38%) and SME (+24%) segments. However, total deposits grew at a slower 13.9% year-on-year to ₹13.35 trillion. This gap means the bank relies more on external funding, including a recent $500 million loan from MUFG. While this offers immediate liquidity, it can be costly. Net interest income grew 4.7%, but net interest margins (NIMs) decreased by 35 basis points year-on-year and 2 basis points quarter-on-quarter. Net profit also dipped 0.9% year-on-year. These margin pressures mean efficiency and cost control are key. The stock's technical trend is currently down, with ₹1,268 and ₹1,253 as key support levels to watch.

Analyst Views and Sector Comparison

Axis Bank trades at a Price-to-Earnings (P/E) ratio of about 15.21, lower than peers like HDFC Bank (P/E ~20.78) and ICICI Bank (P/E ~20.34). This discount likely reflects investor concerns about Axis Bank's deposit base and margin stability compared to larger rivals. The Indian banking sector as a whole is experiencing margin pressure due to interest rate changes. Analysts expect credit growth of 11-13% in the first half of 2026, mainly from retail and SME loans, but acknowledge margin compression is a sector-wide issue. Global factors like geopolitical tensions and rising oil prices are increasing market volatility and making foreign investors cautious, impacting the Nifty Bank index. Despite these broader market trends, Axis Bank's stock has outperformed the S&P BSE 100 Index by 9.65% in the last six months, showing strong operational performance.

Key Risks for Axis Bank

A key challenge for Axis Bank is reviving deposit growth. If loans continue to grow faster than deposits, the bank must rely more on expensive wholesale funding, hurting profits and margins. Failing to attract enough low-cost deposits could make its loan growth targets difficult to maintain. The stock also faces short-term pressure from its current downtrend. Competition from banks like HDFC Bank and ICICI Bank, with their large deposit bases, remains a hurdle for gaining market share. Wider economic instability and geopolitical risks could also lead to further foreign investor withdrawals, affecting the entire banking sector.

Analyst Outlook Remains Positive

Despite the challenges, analysts largely remain positive on Axis Bank. Most firms maintain 'Buy' or 'Strong Buy' ratings, with average 12-month price targets ranging from ₹1,576 to ₹1,625. This suggests a potential upside of 20-24% from current stock prices. Firms like PL Capital and Mirae Asser Sharekhan have increased their price targets, citing strong loan growth and a more stable balance sheet. Analysts expect that lower deposit costs and a shift towards higher-yield loans could help offset current margin pressures and support a stock recovery.