Axis Bank Target Price: Morgan Stanley Sees 25% Upside, Initiates ‘Buy’ — What Indian Investors Need to Know
Morgan Stanley has raised its target price on Axis Bank Ltd., citing the turnaround story as the bank has taken significant additional steps over the past year and should get traction as the macro climate improves.
Turnaround Story Unfolds
In its latest note, Morgan Stanley has raised its target price to Rs 1,450 from Rs 1,325 while maintaining an ‘overweight’ rating on the scrip. The stock is currently trading at Rs 1,161.40. This move by Morgan Stanley signals a potential 25% upside for Axis Bank, making it an attractive opportunity for investors looking to capitalize on the bank’s growth story.
Macro Climate Improvement
The brokerage noted that the bank should get traction as the macro climate improves. ‘Expect re-rating relative to large private banks to be gradual,’ it added. This suggests that while the improvement in the macroeconomic climate will benefit Axis Bank, the re-rating of the stock in comparison to its larger private bank peers will be a gradual process.
Key Drivers for Growth
Morgan Stanley further added that trends in all three drivers – i.e., NIMs (Net Interest Margins), growth, and credit costs – are expected to turn positive. This indicates a comprehensive improvement in the bank’s core operations, which could lead to sustained growth and increased profitability.
Strategic Decisions and Valuation Gap
The brokerage highlighted that the extent of the bank’s growth will be linked to the pace of macro recovery. ‘Benefits of the bank’s strategic decisions could be visible over the next 2-3 years. But until then, expect the valuation gap to remain wide,’ it added. This implies that while Axis Bank has made strategic decisions to improve its operations and profitability, the full benefits of these decisions may take a few years to materialize, and the valuation gap between Axis Bank and its larger peers may persist in the short term.
Narrowing Retail Deposit Growth Differentials
Key drivers for structural re-rating will be the narrowing of retail deposit growth differentials and loan spreads versus large banks. This means that as Axis Bank improves its retail deposit growth and reduces the gap in loan spreads compared to larger banks, it could lead to a re-rating of the stock, making it more attractive to investors.
Implications for Indian Investors
For Indian investors, the initiation of a ‘buy’ call by Morgan Stanley on Axis Bank presents an opportunity to consider investing in a bank with a potential turnaround story. However, it’s crucial for investors to conduct their own research and consider their risk tolerance before making any investment decisions.
Conclusion
In conclusion, Morgan Stanley’s ‘buy’ call on Axis Bank, with a target price indicating a 25% upside, is based on the bank’s turnaround story and the expected improvement in the macro climate. As the bank’s operations continue to improve and it narrows the gap with its larger peers, Axis Bank could become an attractive investment opportunity for those looking to capitalize on the growth of the Indian banking sector.
