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The global research firm also said that it expected the credit cycle to remain benign and sees credit cost undershooting in the coming years.
Morgan Stanley said that it was ‘overweight’ on Bank of India and raised its price target to Rs 125 from Rs 95 earlier.
The global investment bank was also ‘overweight’ on Bank of Baroda as well, with a new target price of Rs 220 compared with Rs 195 earlier.
India's largest lender also commands an overweight rating from Morgan Stanley. However, its price target was unchanged at Rs 715.
However, the brokerage is underweight on Canara Bank but raised its price target to Rs 345 from Rs 280 earlier.
The firm cited the lender's high exposure towards the MSME, agri and BBB-and-below rated corporates as the reason behind its underweight stance. Although it called Canara Bank's valuations to be inexpensive, it chose to go with banks with better balance sheets and profitability.
Reacting to the development, shares of most PSU banks are trading with gains on Tuesday. The PSU Bank index is up 1.7 percent and is outperforming the benchmark indices.