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Morgan Stanley Raises Price Target For Most PSU Banks; Shares Gain

Morgan Stanley said it expects PSU banks to see relatively higher margin expansion compared to many private banks over FY22-24.

<div class="paragraphs"><p>Bank of Baroda headquarters in Mumbai. (Source: BQ Prime)</p></div>
Bank of Baroda headquarters in Mumbai. (Source: BQ Prime)

Morgan Stanley raised earnings estimates and valuation multiples for most public sector banks, barring State Bank of India, citing continued strong performance over the next few years supported by higher margins and sustained loan growth.

SBI has already built these benefits given a better balance sheet and execution over the past two years, the global research house said.

And as recovery is sustained, the brokerage expects benefits to percolate to non-SBI PSU banks such as Bank of Baroda Ltd., Bank of India Ltd., Punjab National Bank Ltd. and Canara Bank Ltd.

"We expect current loan growth to be sustained as capex spending accelerates. This in turn fosters job creation, accelerates income growth, and drives more growth opportunities, even in the retail/SME segment," it said.

"Against this backdrop," the brokerage said, "the credit cycle will stay calm and credit costs will undershoot over the next few years."

Notably, Morgan Stanley said it expects public sector banks to see relatively higher margin expansion compared to many private banks over FY22–24, reflecting "a higher starting point of liquidity; sharp moderation in NPL formation, reducing interest income reversal, and lower share of wholesale deposits relative to select private banks."

Shares of public sector banks rose with Nifty PSU Banks been the only sectoral index to register gains, advancing 2.63% on Tuesday. That compares with a 0.40% decline in NIfty 50.