The Indian banking sector is experiencing strong profitability and significant credit growth, with net profits reaching record levels and NPAs substantially reduced. However, challenges remain, including risks associated with infrastructure lending, rising interest rates, and cybersecurity concerns.
Here’s a list of banking stocks that Morgan Stanley has downgraded, urging caution:
With a market capitalization of Rs.46,604 crore, Federal Bank Ltd’s share price is trading at Rs.190 per share on Wednesday morning, down 2.36 percent from its previous close.
Global brokerage firm Morgan Stanley has downgraded Federal Bank shares from ‘Equal Weight’ to ‘Underweight’ and reduced its price target to Rs.185 per share from Rs.200 apiece.
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RBL Bank Limited
With a market capitalization of Rs.13,496 crore, RBL Bank Ltd’s share price is trading currently at Rs.221.1 per share, down 2.17 percent from its previous close.
Morgan Stanley has downgraded RBL Bank shares from ‘Equal Weight’ to ‘Underweight’ and reduced its price target to Rs.210 per share from Rs.260 apiece.
Furthermore, on September 3, 2024, Morgan Stanley Asia (Singapore) Pte. sold 9,28,070 shares of RBL Bank at Rs.227.79 each, and Citigroup Global Markets Mauritius Pvt Ltd bought the same quantity at the same price.
Bank of India
With a market capitalization of Rs.53,448 crore, Bank of India’s share price is trading currently at Rs.117.05 per share, down 1.56 percent from its previous close.
Morgan Stanley has downgraded Bank of India shares to ‘Underweight’ and reduced its price target to Rs.110 per share.
Punjab National Bank
With a market capitalization of Rs.1.25 lakh crore, Punjab National Bank’s share price is trading currently at Rs.113.3 per share, down 1.95 percent from its previous close.
Morgan Stanley has downgraded PNB shares to ‘Underweight’ and reduced its price target to Rs.73 per share.
Canara Bank
With a market capitalization of Rs.98,779 crore, Canara Bank’s share price is trading currently at Rs.108.5 per share, down 2.56 percent from its previous close.
Morgan Stanley has downgraded Canara Bank shares to ‘Underweight’ and reduced its price target to Rs.83 per share.
Overview
Morgan Stanley’s report advises investors to be more selective, predicting that margins and asset quality across the banking sector will normalize in the coming years, leading to varied profitability based on each bank’s strength.
Large private banks are expected to outperform and secure higher valuations. In contrast, mid-sized private and State-Owned Enterprise (SoE) banks might see profitability decline before the Non-Performing Loan (NPL) cycle improves.
The trend is shifting from SoE and mid-sized private banks to stronger large private banks. SoE banks face a tough choice between growth and profitability, while mid-sized private banks face structural challenges due to intense competition.
Written by – Siddesh S Raskar
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