Federal Bank shares crack over 4% post Q4 results: Should you buy, sell or hold now?

Federal Bank shares slipped over 4 per cent in intraday trade on Friday, May 2, to hit a low of Rs 188.2 on the NSE, even after the lender reported a healthy 13.7 per cent year-on-year rise in net profit to Rs 1,030.2 crore for Q4 FY25. The fall was primarily driven by muted loan growth, pressure on margins and cautious commentary from brokerages.

Key triggers behind the sell-off

• Muted NII growth: Net interest income rose only 8.3 per cent YoY to Rs 2,377.4 crore, with a soft topline due to slower average loan growth, partly impacted by strategic portfolio adjustments.

• NIM pressures: Net interest margin (NIM) for Q4 stood at 3.12 per cent. Brokerages including Nomura and IIFL flagged possible NIM compression going ahead, citing higher funding costs and expected repo rate cuts.

• Operational caution: Loan-to-deposit ratio declined and ROA pressures were noted, with some brokerages cutting EPS estimates for FY26–27.

• Profit beat but concerns remain: While the bank beat PAT expectations due to lower credit costs, the operating metrics showed signs of strain in the near term.

What brokerages are saying

• Motilal Oswal retained its Buy rating with a target price of Rs 230, citing long-term growth potential under new leadership.

• Investec raised its target to Rs 225, highlighting strong CASA growth and improving asset quality but expects 20 bps NIM compression in FY26.

• IIFL and Nomura maintained Buy ratings but trimmed targets due to weaker operational trends.

• Nuvama called it the “safest mid-sized bank” and raised its target to Rs 230, although it too acknowledged NIM pressures.

Asset quality remains a bright spot

• Gross NPA fell to Rs 4,375.5 crore and Net NPA dropped to Rs 1,040.4 crore.

• GNPA ratio improved to 1.84 per cent and NNPA ratio to 0.44 per cent.

• Provision coverage ratio stood strong at 75.37 per cent.

Outlook

Federal Bank remains a fundamentally sound mid-tier bank with consistent improvement in asset quality and deposit growth. However, near-term stock performance may stay range-bound due to soft NIM outlook and operational headwinds. Investors with a long-term view may consider accumulating on dips post-Q4 commentary clarity.