Analysts bullish on Federal Bank as growth to sustain under new leadership

Emkay Global Research, JM Financial, and Elara Capital hiked target price of Federal Bank.

Brokerages have hiked the target price on Federal Bank following its better performance in the third quarter of the current financial year (Q3FY26). Most brokerages believe the private lender may continue to report steady growth, braving some near-term challenges under new management.

 

Emkay Global Research liked the new Managing Director’s approach, which entails calibrated growth with a focus on delivering healthy and sustainable return on assets (RoC) and return on capital (RoC), led by margin and fee upticks.

 

The brokerage hiked the target price on Federal Bank stock to ₹320 from ₹285. The current target price indicates an upside potential of 16.79 per cent from current price. The brokerage maintained a ‘Buy’ rating for the stock.   Federal Bank remained Emkay Global Research’s preferred stocks. The brokerage also sees further re-rating scope for the stock due to an improvement in the return on asset (RoA) of 1.3-1.5 per cent versus an estimated 1.1 per cent return on assets (RoA) for the current financial year.  

Emkay raised the earnings estimate for the financial years 2027 and 2028 by 4-9 per cent, as they factored in the anticipated capital infusion, growth acceleration, and steady margin improvement.  ALSO READ | TechM shares jump after 'all-around beat' in Q3 show; check stock outlook 

 

Federal Bank is raising capital up to ₹6,200 crore through the issuance of preferential warrants to Blackstone. The final regulatory approval is pending. 

Noting the positive tractions and potential capital infusion, analysts at JM Financial upgraded the stock to ‘Add’ from earlier ‘Reduce’, and also raised the target price to ₹290 from ₹240. The current target price implies an upside of 5.84 per cent from current price. “We expect the bank’s structurally stronger balance sheet and granular deposit franchise to sustain earnings resilience,” the brokerage said

 

Federal Bank improved its profitability with increased margins and higher income fees. The net interest income (NII) grew 6 per cent on year during the December quarter (Q3FY26), as low cost of funds and Cash Reserve Ratio (CRR) cut supported, JM Financial said. The private lender also maintained a strict cost discipline as reflected in the stable cost-to-income ratio. 

 

Federal Bank is delivering well on its stated strategy of changing the loan portfolio mix toward medium-to-high yielding assets, improving the current account and savings account (CASA) ratio, and a focus on product pricing to drive-up margin, Emkay Global Research said. 

 

Meanwhile, Elara Capital believes that the ongoing changes to loan and deposit growth will likely cause some near-term volatility. The transition may also bring earnings variability.

 

Elara Capital downgraded Federal Bank to ‘Accumulate’ from ‘Buy’, noting recent outperformance. The brokerage, however, hiked the target price to ₹290 from ₹250.   ALSO READ | Elara Capital downgrades DB Corp to 'Accumulate', cuts target on Q3 miss

Potential Risks:

While the Federal Bank seems to be managing the transition well,  delivery on core profitability will be a key monitorable. Durability of growth and margin trajectory will also be under watch, according to Elara Capital.

 

Emkay Global Research sees a slower-than-expected growth in margins and fees and fresh Non-Performing Asset risks in the small, micro enterprises (SME) portfolio due to the US trade disruption as key risks to Federal Bank’s growth outlook.

Federal Bank share price today:

Federal Bank share price rose as much as 1.92 per cent to ₹275.45 on the National Stock Exchange (NSE). The scrip was trading 1.54 per cent at ₹274 as of 9:48 AM, compared to 0.52 per cent decline in the Nifty 50 index.       

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