Kotak Revamps Portfolio, Eyes 41% Upside in Bajaj Finance

Introduction to Portfolio Changes

Kotak Institutional Equities announced significant adjustments to its model portfolio on March 13, 2026, signaling a strategic shift in its investment approach amid recent market volatility. The brokerage firm has completely removed its exposure to IndusInd Bank and reallocated the capital to increase its holdings in Bajaj Finance and the tech platform Eternal. This move is based on the firm's assessment of the current market correction, which it views as an opportunity to invest in companies with stronger growth potential.

Rationale for the Strategic Shift

The decision was detailed in a note by analyst Sanjeev Prasad, who explained that the recent market downturn, influenced by geopolitical tensions in West Asia, has created dislocations in stock prices. Kotak sees this as a chance to add what it terms "better" stocks while shedding "narrative" stocks and reducing positions in expensive consumer and cement sectors. The firm exited its entire 220 basis points exposure in IndusInd Bank. While acknowledging that the lender's stock is "inexpensive" at a 1x one-year forward price-to-book value, Kotak stated that it finds more compelling opportunities elsewhere in the market following the sharp correction in other stocks.

Detailed Portfolio Adjustments

The capital freed up from the IndusInd Bank exit has been strategically redeployed. The key changes are as follows:

• Bajaj Finance: Allocation has been increased by 160 basis points, bringing its total weight in the portfolio to 480 basis points.
• Eternal: Exposure has been raised by 60 basis points, resulting in a new total allocation of 210 basis points.

This reallocation underscores Kotak's confidence in the non-banking financial company (NBFC) and technology sectors over traditional banking at this juncture.

Market Performance and Price Targets

The timing of Kotak's move is notable, as both Bajaj Finance and Eternal have seen their stock prices decline recently. Since the onset of the West Asia conflict on February 27, shares of Bajaj Finance have fallen by 11%, while Eternal's stock has dropped by 10%. These corrections have brought the stocks back to what Kotak perceives as attractive entry levels. The brokerage has set ambitious 12-month price targets for both companies. It projects a target of ₹2,500 for Bajaj Finance, which suggests a potential upside of 41% from current levels. For Eternal, the price target is ₹375, implying an even greater upside of 70%.

Contrasting Analyst Perspectives

While Kotak is bullish, the broader market holds varied opinions, particularly on Bajaj Finance. Some analysts have issued 'Sell' ratings on the stock, citing concerns over its high valuation and negative technical indicators, despite its strong long-term performance. The company's low interest coverage ratio has also been noted as a point of caution. This contrasts sharply with Kotak's optimistic growth outlook.

On the other hand, sentiment around Eternal appears more uniformly positive. Jefferies recently added the stock to its India model portfolio, labeling it an "FPI favourite" and setting a street-high target price of ₹480, which implies a 75% upside. Jefferies cited the company's strong growth, improving margins in both food delivery and quick commerce, and a more favorable macro backdrop following a new India-US trade deal. Similarly, Bajaj Broking has recommended Eternal as a top pick for 2026, with a target price of ₹323, pointing to a favorable risk-reward setup after a recent corrective phase.

Financial Health Snapshot

A look at the financials provides context for Kotak's decision. IndusInd Bank, despite its low valuation, has shown concerning metrics, including a negative P/E ratio and a high cost-to-income ratio of 60.15%. In contrast, Bajaj Finance, a leader in the NBFC space, trades at a P/E ratio between 29.4 and 32.6 and boasts a substantial market capitalization of around ₹5.45 Lakh Crore. Eternal has also demonstrated strong financial performance, reporting a 73% year-over-year jump in consolidated net profit to ₹102 crore in its Q3 FY26 results.

Conclusion and Forward Outlook

Kotak Institutional Equities' portfolio reshuffle represents a clear pivot towards companies it believes are better positioned for growth in the current economic environment. By moving away from an inexpensive but challenged banking stock and into a leading NBFC and a high-growth tech platform, the firm is betting on resilience and market share gains. However, the strategy, especially the aggressive target for Bajaj Finance, comes with risks, as highlighted by more cautious views from other market analysts. Investors will be closely watching whether these strategic bets can deliver the significant upside Kotak anticipates over the next year.