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Investing.com - Morgan Stanley has upgraded Federal Bank Ltd (NS:FB) from Underweight to Equalweight, raising its price target to INR220.00 from INR165.00, representing a 33% increase.
The upgrade follows Federal Bank’s successful navigation of challenges over the past year, with the financial institution prioritizing profitability over growth. Morgan Stanley highlighted the bank’s second-quarter fiscal 2026 earnings, which demonstrated strong improvement in CASA growth, NRE deposit growth, and remittances market share.
The research firm expects limited downside risk to net interest margin going forward, noting that potential rate cuts will likely be offset by CRR cuts and lower funding costs, some of which reprices with a lag. Morgan Stanley has raised its earnings forecast for Federal Bank by 5% for fiscal 2026.
Morgan Stanley believes the current valuation at 1.3x fiscal 2027 estimated core price-to-book is fair, considering the bank’s 11-12% average return on equity and likely growth acceleration ahead. The firm identified stronger than expected loan growth as a potential catalyst for the stock.
The upgrade reflects Morgan Stanley’s view that "the worst is behind" for Federal Bank, with earnings progression expected to improve in the coming periods. The firm noted that one downside risk would be slower than expected moderation in asset quality stress.
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