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Nuvama Institutional Equities has downgraded Axis Bank to a ‘Hold’ rating, slashing the target price to ₹1,180 from ₹1,400 — implying a downside of ₹220 or nearly 16%. The brokerage cited a sharp miss on asset quality and weaker-than-expected margins in the bank’s Q1FY26 results as key reasons for the downgrade.

Axis Bank reported gross slippages of ₹8,200 crore (or 3.1% of loans), a 72% increase QoQ, significantly exceeding Nuvama’s estimate of ₹6,000 crore. Core slippages, credit costs, and delinquencies were also up both sequentially and year-on-year. These trends, the brokerage said, underscore persistent volatility in asset quality, which continues to lag peers.

Margins too were a disappointment. Net interest margin (NIM) fell 17 basis points QoQ, despite Axis being the slowest among large banks to transmit rate cuts. Nuvama noted that this underperformance in spreads comes at a time when the bank should be better positioned, adding that loan growth in Q1FY26 was driven largely by corporate and SME segments, with retail growth remaining flat.

The brokerage also lowered FY26E/FY27E earnings per share (EPS) estimates by 5% and 6%, respectively, on what it already considers an “under-consensus base.” It believes Axis Bank still has a long way to go in terms of rate transmission catch-up, and this — coupled with asset quality swings — could lead to a widening valuation discount to private banking peers.

Nuvama now values the stock at 1.7x FY26E book value versus its earlier multiple of 2x, reflecting a more cautious stance amid ongoing volatility.