Federal Bank share price jumps 8% in biggest single-day gain in a year after Q2 results. Should you buy?

Maintaining their stellar run, shares of Federal Bank rallied another 8% in early trade on Monday, October 20, hitting a fresh all-time high of ₹229.49 apiece, following the company’s September quarter performance.

Though the bank’s net profit declined, the improvement in asset quality, lower credit costs, and its focus on achieving double-digit loan growth in the second half of FY26 drove the stock to record its biggest single-day surge in a year.

September quarter performance

The private sector lender, on Saturday, reported a 9.5% year-on-year decline in net profit to ₹991.94 crore, as a sharp rise in provisions weighed on its bottom-line performance.

The bank’s core net interest income (NII) rose 5.4% to ₹2,495 crore, while the net interest margin (NIM) saw a slight compression of 6 basis points year-on-year to 3.06%.

On the lending side, loan growth remained muted at around 1% quarter-on-quarter and 6% year-on-year, as the bank continued to recalibrate its asset mix away from low-yield corporate and housing loans toward higher-yield segments.

While asset quality remained stable, the bank created an additional standard asset provision of ₹46 crore on retail exposures linked to connected borrowers as a proactive buffer, which led to higher credit costs.

Despite the rise in credit costs to 60 basis points in Q2, the figure was lower compared to 67 basis points in Q1, remaining in line with the full-year guidance of 55 basis points. Management noted that stress in the microfinance (MFI) segment has likely peaked, though it remains cautious until collections show sustained improvement.

The bank’s gross and net slippages stood at 97 basis points and 53 basis points, respectively, with the MFI segment continuing to face residual stress.

Should you buy Federal Bank shares post Q2 numbers?

Brokerage views remained mixed following Federal Bank’s September quarter results. JM Financial downgraded the stock to ‘Reduce’ from ‘Hold,’ even as it raised its target price slightly to ₹210 apiece from ₹190 apiece.

The brokerage noted that while the bank continues to execute well on its strategic priorities of improving margins and fee income, growth is expected to remain modest, and MFI asset quality has yet to fully stabilise.

“With limited near-term catalysts, including low loan growth, we see a balanced risk-reward at current levels. We build average RoA/RoE of 1.1%/12% over FY26E–27E and downgrade the stock to Reduce as per our new rating system,” JM Financial said.

Meanwhile, Morgan Stanley maintained an ‘Overweight’ rating on Federal Bank and raised its target price to ₹220. The brokerage said the bank’s NIM came in above estimates, supported by strong CASA growth, slower expansion in lower-yielding assets, and a decline in high-cost liabilities.

It also highlighted the improving asset quality and raised FY26E EPS estimates by 5%.

Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.