Morgan Stanley stays bullish on SBI; revises target price upward for these other public sector lenders

Global financial firm Morgan Stanley continues to prefer State Bank of India (SBI) over other public sector lenders. However, it upgraded Bank of Baroda and Punjab National Bank to ‘Equal Weight’ from ‘Under Weight’, citing cheap valuations.

Morgan Stanley revised the price target of Bank of Baroda (BoB) upwards by 55% to Rs 100 and Punjab National Bank by 36% to Rs 48. Shares of BoB traded 0.47% higher at Rs 86 in the morning trade on March 4, while PNB was almost flat at Rs 43.55.

“We raise earnings or price targets to factor in higher PPOP and lower credit costs and lower dilution. Our preferred state owned (SOE) bank is SBI,” the overseas firm said, while maintaining target price of Rs 600 for the bank.

On the other hand, it also upped the target price of Bank of India to Rs 80 from Rs 50 earlier. Morgan Stanley also revised the target price of Canara Bank to Rs 155 from Rs 120. However, it maintained ‘Underweight’ on both of these banks due to low profitability.

“There could be near term upside but we prefer large private banks and SBI to play the corporate recovery cycle. For SOE banks (excluding SBI), we see structural challenges which will keep return ratios muted-limiting any significant re-rating potential beyond the short cyclical upswing,” Morgan Stanley said in a report.

In order to turn constructive on SOE banks (excluding SBI), it requires a sharp macro recovery, Morgan Stanley added.