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On Monday, BofA Securities adjusted its stance on Axis Bank (NSE:AXBK) Ltd. (AXSB:IN), moving the rating from Buy to Neutral. Along with the downgrade, the firm also reduced the price target for the bank’s shares from INR1,350.00 to INR1,300.00. The revision follows an analysis of the bank’s near-term prospects, where growth and asset quality (AQ) performance are expected to remain subdued.
The BofA Securities analyst cited several factors influencing the downgrade, including the anticipation that net interest margins (NIMs) and return on assets (RoAs) could face challenges due to the ongoing rate cut cycle. Over 60% of Axis Bank’s loan book is based on floating rates, which could be impacted by the rate changes.
Despite acknowledging the positive impact of improving liquidity conditions and regulatory support, the analyst expressed concerns that Axis Bank needs to enhance its growth differential relative to its Big 4 peers to drive a sustainable re-rating. The lack of this improvement led to a more cautious outlook on the bank’s stock.
In the report, the analyst also mentioned an adjustment to the Cost of Equity used in their evaluation, which has been slightly reduced from 13% to 12.8%. This change reflects a more conservative estimate of the risks associated with the investment.
The revised price target of INR1,300.00 represents BofA Securities’ current expectation for the value of Axis Bank shares, taking into account the various headwinds and the bank’s potential performance in the near term.
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