The firm also highlighted that the lender’s profit after tax was 47% above its estimates – a trend that was also led by asset quality improvement as well as other factors such as strong fee income, recoveries and low credit cost, with provisions for bad loans falling nearly 58% year-on-year to Rs 441 crore.
Despite all the green flags, Morgan Stanley retained the underweight rating.
The firm’s main concern is around future earnings. Morgan Stanley believes Bank of India’s profitability has likely peaked and that once credit costs normalise, the lender’s return on asset metrics are going to face increased pressure.
Keeping all these factors in mind, Morgan Stanley suggests that the stock’s valuation, despite trading at 0.6x FY27 price to book, does not offer an attractive risk-reward profile.
