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Investing.com - Morgan Stanley has raised its price target on AU Small Finance Bank Ltd (AUBANK:IN) to INR1,000 from INR860 while maintaining an Overweight rating on the stock.
The investment bank expects an earnings inflection for AU Small Finance Bank after the second quarter of fiscal year 2026, citing potential improvement in net interest margins (NIMs).
Morgan Stanley analyst Sumeet Kariwala noted that AU Bank has faced NIM challenges over the past two years due to elevated interest rates, as the bank maintains a fixed rate loan book funded by relatively higher cost deposits.
The bank’s NIMs were further pressured in recent quarters by up-front repricing of its loan book despite the interest rate cycle turning, but Morgan Stanley expects this trend to reverse over the next six quarters with NIMs potentially improving by 30-50 basis points.
According to the investment firm, AU Small Finance Bank appears best positioned among its coverage banks in the falling rate cycle given its asset liability mix, and the bank has room to cut savings deposit rates if repo rate cuts exceed expectations.
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