Axis Bank's shares are under scrutiny following a reported 26% drop in net profit for the second quarter of the fiscal year 2025-26. The bank's standalone net profit for the quarter ending September 2025 stood at ₹5,090 crore, a significant decrease from ₹6,918 crore during the same period last year. This decline has prompted investors and analysts to re-evaluate their positions on the stock, leading to questions about whether to buy, hold, or sell.

Key Financial Highlights

The primary reason for the profit decline was a one-time standard asset provision of ₹1,231 crore, as advised by the Reserve Bank of India (RBI), for two discontinued crop loan variants. Despite this setback, the bank's net interest income (NII) saw a marginal increase of 2% year-on-year, reaching ₹13,745 crore. However, the net interest margin (NIM), a crucial profitability metric, moderated to 3.73% compared to 3.80% in the previous quarter.

Other key financial figures include:

• Total Income: Increased by 1.4% year-on-year to ₹39,769.85 crore.
• Operating Profit: Declined by 3% year-on-year to ₹10,413 crore.
• Gross Non-Performing Assets (NPA): Stood at 1.46%, a decrease of 11 basis points from the previous quarter but an increase of 2 basis points year-on-year.
• Net NPA: Increased to 0.44% compared to 0.34% in the same period last year.
• Provisions and Contingencies: Rose to ₹3,547 crore, up 61% year-on-year.
• Advances: Grew 12% year-on-year to ₹11,16,703 crore.
• Deposits: Increased 11% year-on-year.

Segment-Wise Loan Growth

Axis Bank has experienced varied growth across different loan segments:

• Retail Loans: Increased by 6%.
• Small Business Banking (SBB): Grew by 14%.
• Loans Against Property: Showed strong growth at 22%.
• SME Loans: Increased by 19%.
• Corporate Loans: Grew by 20%.

Analyst Recommendations

Despite the dip in net profit, several brokerage firms have maintained a positive outlook on Axis Bank. JM Financial has a 'Buy' rating with a target price of ₹1,330, citing an estimated loan CAGR of approximately 12% during FY25-FY27 and an average return on equity (RoE) of around 14% during FY26 and FY27. Trendlyne reports an average share price target of ₹1,302.77, suggesting an upside of 11.39% from the last price. Jefferies has also maintained a 'Buy' call, raising the target price to ₹1,430 from ₹1,370. However, Nuvama Wealth Management has adopted a more cautious stance, retaining a 'Hold' rating with a target price of ₹1,180.

Factors to Consider

• RBI Provisioning Impact: The one-time provision significantly affected the bank's profitability. However, Axis Bank expects to write back this provision to the profit and loss account once the outstanding loans are recovered or closed by March 31, 2028.
• Asset Quality: While gross NPAs have slightly increased year-on-year, there has been a sequential improvement.
• Loan Growth: The bank has demonstrated healthy loan growth across various segments, indicating strong business momentum.
• Market Dynamics: Heightened activity in put options suggests a complex interplay of market dynamics, with the stock navigating a challenging performance landscape.

The Verdict

The decision to buy, hold, or sell Axis Bank shares depends on individual investment strategies and risk tolerance. The bank's long-term prospects appear promising, with analysts projecting continued loan growth and improved RoE. The one-time provisioning impact is expected to be temporary, and the bank's asset quality is showing signs of improvement.

• Buy: Investors with a long-term horizon may consider buying Axis Bank shares, taking into account the potential for future growth and the positive outlook from some brokerage firms.
• Hold: Investors who already hold Axis Bank shares may opt to hold, especially if they believe in the bank's long-term potential and are willing to weather short-term volatility.
• Sell: Investors with a shorter investment horizon or those concerned about the bank's recent performance and increased provisions may consider selling, especially if they have alternative investment opportunities.

Ultimately, investors should conduct thorough research and consult with financial advisors before making any investment decisions.