Indian financial stocks are heading into the first-quarter earnings season with an improving operating backdrop, but Morgan Stanley sees a wide divide between stocks offering attractive risk-reward and those where valuations, margin pressures or structural concerns could weigh on performance.
The brokerage has an ‘Attractive’ industry view on India financials and expects another strong operating quarter for retail non-banking financial companies, improving growth trends for banks, a mixed performance from life insurers and muted sequential growth for asset managers.
Financial sector: Morgan Stanley’s top picks
Within banks, Morgan Stanley’s preferred names are ICICI Bank, HDFC Bank, Axis Bank and Kotak Mahindra Bank, all rated ‘Overweight’. Among large and mid-cap NBFCs, its key ‘Overweight’ ideas are Shriram Finance, Bajaj Finance and Aditya Birla Capital, while Aptus Value Housing Finance, Home First Finance and PNB Housing Finance are its preferred affordable housing finance stocks.
SBI Life Insurance is Morgan Stanley’s preferred life insurance stock, followed by ICICI Prudential Life Insurance. The brokerage also has ‘Overweight’ ratings on HDFC Life Insurance, AU Small Finance Bank, Multi Commodity Exchange of India, Muthoot Finance, REC, Power Finance Corporation, HDFC Asset Management Company and Can Fin Homes.
The brokerage is equally selective on the other side. It has ‘Underweight’ ratings on PB Fintech, SBI Cards and Payment, L&T Finance, Bank of Baroda, Canara Bank, YES Bank, Punjab National Bank, Bank of Baroda and LIC Housing Finance, with its price targets implying downside for these stocks.
Morgan Stanley expects the first quarter of FY27 to bring an improvement in growth for banks, while retail NBFCs are likely to remain the strongest group on its estimates. At the same time, net interest margins, credit costs, the monsoon, geopolitical developments and the interest-rate outlook remain important variables for the sector.
Morgan Stanley on ICICI Bank: ‘Overweight’
Morgan Stanley has a target price of Rs 1,705 on ICICI Bank, implying 23% upside potential.
ICICI Bank sits at the top of Morgan Stanley’s order of preference. The brokerage expects the bank’s loan growth to accelerate to 17% year-on-year in the first quarter of FY27 from about 15.8% in the March quarter.
It expects the net interest margin to compress by 4 basis points sequentially, making the margin trajectory and management’s outlook important for investors.
The stock also reflects Morgan Stanley’s broader preference for large private banks, which it sees as better placed amid macroeconomic uncertainty because of their business models, valuations and improving fundamentals.
Morgan Stanley on HDFC Bank: ‘Overweight’
Morgan Stanley has a target price of Rs 1,025 on HDFC Bank, implying 26% upside.
For the June quarter, Morgan Stanley expects HDFC Bank’s net interest margin to compress by 2 basis points sequentially. Management commentary on how margins progress from current levels is therefore one of the key factors to watch.
Investors are also likely to focus on management’s expectations for loan growth relative to the broader banking system and seek clarity around the chief executive officer’s reappointment.
HDFC Bank remains part of Morgan Stanley’s preferred group of large private banks, which the brokerage favours for the upcoming results season and beyond.
Morgan Stanley on SBI Life Insurance: ‘Overweight’
Morgan Stanley has a target price of Rs 2,340 on SBI Life Insurance, implying 31% upside opportunity.
SBI Life is Morgan Stanley’s preferred life insurance stock.
The brokerage expects SBI Life and ICICI Prudential Life Insurance to report mid-teens growth in value of new business in the first quarter of FY27. For SBI Life, investors are likely to focus on guidance for annualised premium equivalent growth and the value of new business margin.
Potential changes to commission regulations and solvency requirements are also important issues for the sector. Investors are additionally likely to assess the implications of the Reserve Bank of India’s norms governing the sale of financial products by regulated entities.
“Investors will look for APE growth and VNB margin guidance amid macro uncertainty and volatility,” Morgan Stanley says.
The brokerage expects sustained strength in retail protection to remain a positive for life insurers and considers valuations attractive after weakness in the stocks during 2026.
“SBI Life (OW) is our preferred pick. IPRU Life is at very attractive valuations despite Prudential’s supply overhang and is next in our order of preference,” Morgan Stanley adds.
Morgan Stanley on Axis Bank: ‘Overweight’
Morgan Stanley has a target price of Rs 1,575 on Axis Bank, implying 20% upside.
The brokerage sees the possibility of an upside surprise in net interest income, although it expects the impact on consensus earnings estimates to remain largely unchanged.
Morgan Stanley expects Axis Bank’s net interest margin to compress by 8 basis points sequentially, partly because of the trailing impact of strong corporate loan growth. However, it believes the Street and investors may be underestimating growth in average interest-earning assets.
The brokerage estimates average interest-earning asset growth of 7% sequentially, helped by back-ended growth in the fourth quarter of FY26. Strong average deposit growth of more than 6% sequentially also supports this view.
The magnitude of margin compression and management’s guidance for margins from the second quarter onward remain the key factors to watch.
Morgan Stanley on Shriram Finance: ‘Overweight’
Morgan Stanley has a target price of Rs 1,260 on Shriram Finance, implying 24% upside.
Shriram Finance is one of Morgan Stanley’s key large and mid-cap NBFC picks, and the brokerage expects the company to report a strong first quarter.
Loan growth remains a key focus following the completion of the MUFG transaction. Morgan Stanley expects the loan book to grow 4% sequentially and 15.4% year-on-year in the first quarter, compared with 14.8% year-on-year growth in the March quarter.
Investors are likely to focus on whether the company can move towards the 18% loan-growth milestone. Morgan Stanley expects growth to improve gradually to 16% in FY27 and 18% in FY28, while geopolitical and monsoon-related developments remain risks to the outlook.
Credit costs and asset quality are the other key variables. The brokerage projects credit costs of 195 basis points on average assets under management for the first quarter.
Morgan Stanley on Bajaj Finance: ‘Overweight’
Morgan Stanley has a target price of Rs 1,175 on Bajaj Finance, implying 16% upside.
Bajaj Finance is another of Morgan Stanley’s preferred large and mid-cap NBFC stocks.
The brokerage expects a sequential pick-up in assets under management growth in the first quarter and sees credit costs moderating year-on-year in line with guidance. It estimates credit costs at 163 basis points.
Morgan Stanley believes Bajaj Finance has one of the most attractive FY27 earnings-growth outlooks among large-cap financial companies, although geopolitical developments could create downside risks.
The first-quarter performance and management’s FY27 earnings outlook remain important for investor confidence in the growth trajectory.
Morgan Stanley on Kotak Mahindra Bank: ‘Overweight’
Morgan Stanley has a target price of Rs 500 on Kotak Mahindra Bank, implying 35% upside.
The stock offers the highest implied upside among Morgan Stanley’s four preferred large private banks.
For the first quarter, the brokerage expects Kotak Mahindra Bank’s net interest margin to moderate by about 13 basis points sequentially. The scale of the compression and management’s outlook remain key swing factors.
Investors are also likely to seek an explanation for the moderation in the bank’s loan and deposit growth relative to the industry and look for further information on chief executive succession.
Despite these near-term issues, Kotak Mahindra Bank remains in Morgan Stanley’s preferred large private bank group.
Morgan Stanley on ICICI Prudential Life Insurance: ‘Overweight’
Morgan Stanley has a target price of Rs 670 on ICICI Prudential Life Insurance, implying 39% upside.
The stock offers one of the highest potential upsides in Morgan Stanley’s financials coverage.
The brokerage sees ICICI Prudential Life’s valuation as attractive despite the share-supply overhang from Prudential plc and ranks the company second after SBI Life among its preferred life insurers.
Morgan Stanley expects ICICI Prudential Life and SBI Life to report mid-teens growth in value of new business during the first quarter.
Investors are likely to focus on guidance for annualised premium equivalent growth and the value of new business margin, as well as potential changes to commission regulations. The market is also expected to seek clarity on potential additional share supply from Prudential plc and its implications for the business.
“We expect both to report mid-teens VNB growth for F1Q27,” Morgan Stanley says, referring to SBI Life and ICICI Prudential Life Insurance.
Morgan Stanley on HDFC Life Insurance: ‘Overweight’
Morgan Stanley has a target price of Rs 745 on HDFC Life Insurance, implying 34% upside.
The brokerage expects the company’s value of new business margin to be broadly in line with expectations, although it sees the possibility of a modest downward revision to consensus earnings estimates.
Investors are likely to seek an explanation for muted annualised premium equivalent growth over the past couple of months.
Management’s views on potential commission and solvency regulations are also important, along with the impact of the Reserve Bank of India’s norms on the sale of financial products by regulated entities.
Morgan Stanley on Aditya Birla Capital: ‘Overweight’
Morgan Stanley has a target price of Rs 450 on Aditya Birla Capital, implying 17% upside.
The brokerage expects a healthy quarter from the company’s core NBFC business and sees scope for a modest increase in consensus earnings estimates.
Morgan Stanley expects net interest margins to remain broadly stable sequentially, while credit costs are likely to stay below the company’s stated normalised levels as it focuses on risk-adjusted returns.
Core NBFC profit after tax is expected to grow 25.5% year-on-year and 9% sequentially, while return on average assets under management is likely to improve from the previous quarter.
Morgan Stanley on AU Small Finance Bank: ‘Overweight’
Morgan Stanley has a target price of Rs 1,205 on AU Small Finance Bank, implying 16% upside.
The brokerage expects the bank’s net interest margin to compress by 26 basis points sequentially because of seasonality and elevated wholesale funding costs.
Any material deterioration beyond that assumption could become a swing factor for the stock. Credit costs also remain important as investors assess the extent of seasonal deterioration in the first quarter.
Management’s FY27 guidance is likely to be closely watched against the backdrop of geopolitical and El Niño-related monsoon risks.
Morgan Stanley on MCX: ‘Overweight’
Morgan Stanley has a target price of Rs 3,665 on Multi Commodity Exchange of India, implying 34% upside.
The brokerage expects MCX to report relatively weak sequential profit growth, although profit after tax is expected to nearly double from a year earlier.
“Average daily revenue trend, reported daily, is a bigger driver of stock price than results,” Morgan Stanley says.
The company is also likely to incur higher product licence fees following a higher share of revenue from energy products, including crude oil and natural gas, in the first quarter of FY27 compared with the fourth quarter of FY26.
Investors are also likely to focus on management’s assessment of the impact of the Reserve Bank of India’s norms on bank financing to capital-market intermediaries.
Morgan Stanley on Muthoot Finance: ‘Overweight’
Morgan Stanley has a target price of Rs 3,705 on Muthoot Finance, implying 20% upside.
Gold-loan growth remains the main metric to watch. Morgan Stanley expects growth to be flat sequentially in the first quarter as gold prices decline materially from their peak, even though average daily prices remain broadly flat from the previous quarter.
Investors are also likely to focus on underlying margins, competition in gold loans and any signs of asset-quality stress following the decline in gold prices from peak levels.
Morgan Stanley sees gold loans as a defensive segment during periods of macroeconomic uncertainty and believes Muthoot Finance could outperform peers on a relative basis.
Morgan Stanley on REC: ‘Overweight’
Morgan Stanley has a target price of Rs 430 on REC, implying 23% upside.
The brokerage expects loan growth of 3.2% year-on-year in the first quarter, up marginally from 3% in the previous quarter, and forecasts 7% loan growth for FY27.
Investors are likely to focus on whether loan growth begins to accelerate, the pace of loan-book run-offs, progress on bad-loan resolutions and recoveries, and the pace of disbursement growth.
Morgan Stanley considers REC’s valuation inexpensive relative to its return on equity and earnings-growth expectations.
Morgan Stanley on Power Finance Corporation: ‘Overweight’
Morgan Stanley has a target price of Rs 510 on Power Finance Corporation, implying 27% upside.
Loan growth and bad-loan resolutions remain the main focus areas.
Management has guided for 10% loan growth in FY27, while Morgan Stanley estimates growth of 7.5% for the full year and 6.7% year-on-year in the first quarter.
Investors are also likely to watch loan-book run-offs, progress on stressed-asset resolutions and recoveries, and disbursement growth.
Morgan Stanley sees PFC’s valuation as inexpensive in the context of its return on equity and earnings-growth outlook.
Morgan Stanley on HDFC Asset Management Company: ‘Overweight’
Morgan Stanley has a target price of Rs 3,065 on HDFC Asset Management Company, implying 15% upside.
The brokerage expects asset managers to report muted operating profit growth after quarterly average assets under management grow only 1-2%.
For HDFC AMC, revenue yields are likely to remain broadly flat sequentially because of muted growth in average equity assets under management amid geopolitical uncertainty.
“Yields are likely to be flattish QoQ on muted equity AAAUM growth amid geopolitical uncertainty,” Morgan Stanley says.
Other income, however, is expected to improve sharply from the March quarter because of better mark-to-market gains in equity markets.
Morgan Stanley on Aptus Value Housing Finance: ‘Overweight’
Morgan Stanley has a target price of Rs 395 on Aptus Value Housing Finance, implying 42% upside.
That is the highest implied upside among the ‘Overweight’ stocks in Morgan Stanley’s order-of-preference table.
The brokerage expects a strong acceleration in disbursement growth to 30% year-on-year in the first quarter from 17% in the March quarter.
Morgan Stanley also sees the valuation as attractive relative to peers, given a return on equity of about 20% in the fourth quarter and loan growth of more than 20%.
The combination of accelerating disbursements, high return on equity and attractive relative valuation underpins Morgan Stanley’s positive view.
Morgan Stanley on Home First Finance: ‘Overweight’
Morgan Stanley has a target price of Rs 1,585 on Home First Finance, implying 32% upside.
The brokerage expects a strong first-quarter financial performance, with loan growth of 25% and profit after tax growth of about 29%.
Investors are likely to focus on disbursement growth and the outlook for net interest margins and loan spreads.
Home First is one of Morgan Stanley’s preferred affordable housing finance stocks, alongside Aptus Value Housing Finance and PNB Housing Finance.
Morgan Stanley on PNB Housing Finance: ‘Overweight’
Morgan Stanley has a target price of Rs 1,250 on PNB Housing Finance, implying 17% upside.
The brokerage expects investors to focus on execution of the company’s strategy, particularly growth in affordable housing loans and disbursement yields.
Morgan Stanley expects affordable housing disbursements to rise 28% year-on-year in the first quarter, a sharp improvement from a 3% decline in the March quarter.
The progression of overall net interest margins also remains an important factor to monitor.
Morgan Stanley on Can Fin Homes: ‘Overweight’
Morgan Stanley has a target price of Rs 1,025 on Can Fin Homes, implying 15% upside.
The brokerage expects a possible downside surprise on net interest margins and forecasts a 12-basis-point sequential compression in the first quarter after the company surprised positively on margins and asset quality in FY26.
Disbursements remain another important metric. Morgan Stanley expects 25% year-on-year growth in the first quarter and 17% growth for FY27.
Despite the near-term margin risk, the brokerage considers the valuation reasonable relative to its return on equity and earnings-growth expectations and believes the stock could be viewed as defensive.
Morgan Stanley on PB Fintech: ‘Underweight’
Morgan Stanley has a target price of Rs 1,215 on PB Fintech, implying 22% downside.
The brokerage expects PB Fintech to report a decent quarter, with core revenue growth likely to be broadly in line with expectations.
Investor focus is likely to remain on management’s outlook for core new business premium growth and its commentary on potential regulations governing commissions.
“PB Fintech’s (UW) quarter should be decent; but risks on commission regulations and relatively expensive valuation are likely to dampen the stock,” Morgan Stanley says.
Morgan Stanley on SBI Cards: ‘Underweight’
Morgan Stanley has a target price of Rs 500 on SBI Cards, implying 15% downside.
Morgan Stanley expects credit costs to moderate further to 7.4% in the first quarter, from 7.7% in the previous quarter, and forecasts 7.5% for FY27.
However, the brokerage believes investor focus has shifted towards receivables growth, the revolver mix and the outlook for pre-provision operating profit.
Morgan Stanley sees the possibility of a downside surprise in pre-provision operating profit and expects consensus forecasts to be cut, potentially driving material earnings downgrades through FY27.
Morgan Stanley on L&T Finance: ‘Underweight’
Morgan Stanley has a target price of Rs 185 on L&T Finance, implying 41% downside.
This is the steepest downside implied by Morgan Stanley’s price targets among the stocks covered in its order-of-preference table.
The brokerage expects a healthy first quarter in terms of loan growth and credit costs. However, its FY27 earnings forecasts remain significantly below consensus estimates.
Morgan Stanley says consensus has already cut FY27 estimates by 10-11% during 2025-26, but it believes expectations for a material improvement in return on equity may still need to be pushed out.
Its thesis is that return on equity will take time to move above the cost of equity, while the valuation remains expensive.
Morgan Stanley on Bank of Baroda: ‘Underweight’
Morgan Stanley has a target price of Rs 225 on Bank of Baroda, implying 6% downside.
The brokerage expects the bank’s net interest margin to compress by 9 basis points sequentially. The magnitude of the decline remains a key swing factor because the fourth quarter of FY26 likely benefits significantly from interest on an income-tax refund, which management does not quantify.
Morgan Stanley expects asset quality and treasury gains to remain strong but sees scope for a modest downward revision to consensus earnings estimates.
Morgan Stanley on Canara Bank: ‘Underweight’
Morgan Stanley has a target price of Rs 103 on Canara Bank, implying 15% downside.
The brokerage expects the bank’s net interest margin to compress by 2 basis points sequentially, while asset quality and treasury gains remain strong.
Morgan Stanley sees the first-quarter performance as broadly in line but expects the likely impact on consensus earnings estimates to be a modest revision lower.
Morgan Stanley on Yes Bank: ‘Underweight’
Morgan Stanley has a target price of Rs 15 on Yes Bank, implying 36% downside.
The brokerage expects the bank’s net interest margin to remain largely stable, with an increase of 1 basis point sequentially.
The quarter is expected to be broadly in line, with consensus earnings estimates likely to remain largely unchanged. Management’s FY27 guidance remains important against the backdrop of geopolitical and El Niño-related monsoon risks.
Morgan Stanley on Punjab National Bank: ‘Underweight’
Morgan Stanley has a target price of Rs 88 on Punjab National Bank, implying 13% downside.
Morgan Stanley expects the bank’s net interest margin to remain stable sequentially, while asset quality and treasury gains remain strong.
Despite that, the brokerage sees the likely impact on consensus earnings estimates as a modest revision lower.
Morgan Stanley on Bank of India: ‘Underweight’
Morgan Stanley has a target price of Rs 115 on Bank of India, implying 15% downside.
The brokerage expects the bank’s net interest margin to remain stable sequentially and sees strong asset quality and treasury gains.
However, Morgan Stanley expects the likely impact on consensus earnings estimates to be a modest revision lower.
Morgan Stanley on LIC Housing Finance: ‘Underweight’
Morgan Stanley has a target price of Rs 460 on LIC Housing Finance, implying 13% downside.
The brokerage expects loan growth to continue moderating and remain in the low single digits, even if disbursement growth picks up.
Morgan Stanley sees risks to margins from higher competitive intensity, including pressure on loan yields, back-book attrition and an increase in incremental funding costs. These pressures could become more pronounced if there is no repo rate increase and bank lending rates remain stable.
The brokerage expects the net interest margin to potentially deliver a downside surprise and sees scope for a modest downward revision to consensus earnings estimates.
Why Morgan Stanley prefers select lenders
Morgan Stanley expects banks to show an improvement in growth during the first quarter of FY27. It forecasts aggregate loan growth for its coverage to rise to about 17% year-on-year from roughly 15% in the fourth quarter of FY26, while net interest income growth is expected to improve to about 10% from 7%.
Core pre-provision operating profit growth is expected to accelerate to 14% from 13%, while slippages and credit costs are likely to improve.
The brokerage expects both private and state-owned banks to report decent results, but its stock preferences remain selective. It favours large private banks for their business models, valuations and improving fundamentals, while the more cautious calls reflect stock-specific concerns around valuations, profitability or structural risks.
Retail NBFCs are expected to be the strongest group on Morgan Stanley’s first-quarter estimates. The brokerage forecasts assets under management, net interest income, pre-provision operating profit and profit after tax for its retail NBFC coverage to grow 19%, 22%, 23% and 31% year-on-year, respectively.
The sector outlook, however, remains sensitive to the broader macroeconomic environment. Geopolitical developments and the potential impact of El Niño on the monsoon are among the factors that could affect growth, credit costs and investor expectations.
Conclusion
Morgan Stanley’s financial-sector strategy combines an ‘Attractive’ industry view with sharp stock-level differentiation.
Its preferred large private banks are ICICI Bank, HDFC Bank, Axis Bank and Kotak Mahindra Bank, while Shriram Finance, Bajaj Finance and Aditya Birla Capital are its key large and mid-cap NBFC picks. In affordable housing finance, it prefers Aptus Value Housing Finance, Home First Finance and PNB Housing Finance, while SBI Life Insurance is its preferred life insurance stock.
Disclaimer: The stock ratings, target prices, and financial projections discussed in this article are sourced from a third-party brokerage report and do not constitute a direct offer, solicitation, or personal investment advice by this publication. Equity investments are subject to market risks, and projected upsides or downsides are not guaranteed. Readers are strongly advised to conduct their own due diligence and consult a SEBI-registered investment advisor before making any investment decisions.
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