How are energy investors positioned?
On Thursday, Morgan Stanley (NYSE:MS) downgraded Indusind Bank Ltd (IIB:IN) stock from Equalweight to Underweight and reduced its price target to INR700.00 from INR755.00. The downgrade reflects the firm’s cautious outlook on the bank’s earnings recovery and concerns regarding its management transition.
Morgan Stanley analysts pointed out that while the chairman of Indusind Bank has committed to a comprehensive review and all identified irregularities have been accounted for, the road to recovery in terms of return on assets (RoA) is expected to be gradual. The bank’s focus is to enter the financial year 2026 with a clean slate.
The analysis by Morgan Stanley highlights the decline in the share of higher-margin loans, such as microfinance (MFI), consumer unsecured loans, and medium & heavy commercial vehicles (MHCVs). This trend is anticipated to continue affecting the bank’s net interest income (NII) as well as fee income recovery. The starting point for the net interest margin (NIM) is considered weak, currently standing at 3.47%.
Morgan Stanley’s outlook for Indusind Bank includes a gradual earnings recovery from a weak starting point. The valuation at 0.9 times the estimated book value for the financial year 2026 is deemed not inexpensive, especially in the context of the 7-10% return on equity (RoE) that the firm expects the bank to achieve over the next two years. This assessment has led to the decision to downgrade the stock to Underweight.
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