Federal Bank shares could touch ₹320 in a year, says Parag Thakkar of Fort Capital

Parag Thakkar, Senior Fund Manager at Fort Capital, has expressed a strong bullish outlook on shares of private sector lender Federal Bank, distinguishing it as his top pick among recent financial sector deals. He projects that the bank's stock could reach a price target of ₹300 - ₹320 within the next year, driven by a strategic transformation under its new leadership and robust performance metrics.

Thakkar highlighted the growing interest from foreign and strategic investors in the Indian financial space, attracted by double-digit growth prospects and currently stable asset quality. India's financial sector has seen deals worth over $7.5 billion so far in 2025, with Federal Bank, RBL Bank, IDFC First Bank and others seeing major deals.

Within this landscape, Thakkar pointed to Federal Bank as a prime beneficiary. He spoke about the leadership of KVS Manian, noting that since his arrival as MD & CEO, the bank has embarked on a significant journey to improve its Return on Assets (ROA), a metric where it had historically lagged due to its conservative nature.

Despite the headwind of repo rate cuts, Federal Bank achieved a 15 basis points quarter-on-quarter (QoQ) improvement in its Net Interest Margins (NIMs) from the previous quarter. Thakkar attributed this to three primary factors. Firstly, a rare sequential improvement in its Current Account and Savings Account (CASA) ratio. Secondly, a strategic increase in lending towards mid-yielding assets such as gold loans, construction equipment, tractors, commercial vehicles, and business banking. Thirdly, a significant boost from fee income.

These strategic shifts led to the bank reporting an all-time high in both Net Interest Income (NII), which stood at approximately ₹2,490 crores, and fee income. Consequently, its Profit After Tax (PAT) reached 1% of total assets, also an all-time high. Further bolstering its position, an impending investment from Blackstone, which is set to acquire a 9.9% stake for ₹6,200 crores, will provide additional capital, although the bank is already comfortably placed with a Tier 1 capital ratio of 15.7%.

Looking ahead, Thakkar believes the bank's strategy of expanding into mid-yielding segments while simultaneously improving its CASA ratio is the right formula for success. He forecasts that this approach will steer Federal Bank towards an ROA of 1.4% by the financial year 2028.

Shares of Federal Bank are currently trading 0.2% higher on Monday at ₹234.5. Thakkar's price target implies an upside potential of up to 37% from current levels. Thakkar also added that despite the stock being at a 52-week high, he is adding the stock to his portfolio.