Canara Bank shares slide over 6% after Q2 earnings. Buy, sell or hold the state lender?

ETMarkets.com

Net interest income (NII), the difference between interest earned and interest expended, rose more than 20% year-on-year to Rs 11,005 crore in Q2 FY27, compared with Rs 9,141 crore in the corresponding quarter last year.

Buy, sell or hold Canara Bank shares?

Morgan Stanley maintained its Underweight rating and target price of Rs 109, a downside of 12% from current levels. The brokerage said the bank’s Q2 profit after tax (PAT) exceeded estimates, driven by higher net interest income and lower operating costs. It revised its earnings per share estimates by 13% upwards for FY27, 6% upwards for FY28 and 2% downwards for FY29. However, Morgan Stanley believes the stock offers limited scope for a valuation re-rating at 0.8 times its September 2027 estimated price-to-book value.

Motilal Oswal has a Buy rating on Canara Bank with a target price of Rs 160, implying an upside of 28% from current levels. Analysts said the lender delivered a steady quarter, supported by improved margins, lower provisions and operating expenses, and continued improvement in asset quality. Net interest margins (NIMs) are expected to remain rangebound at 2.5-2.6% in FY27, aided by rate hikes. Loan growth remained healthy and broad-based, led by the retail, agriculture and MSME (RAM) segments.

However, deposit growth lagged credit growth, prompting the bank to focus on improving deposit granularity. Canara Bank retained its loan growth guidance of 11-12% and expects return on assets (RoA) to exceed 1% in FY27. Asset quality improved, with lower NPAs across asset classes. The bank will need to make additional provisions of Rs 120-150 billion for the expected credit loss (ECL) transition, with an estimated impact of 1.0-1.2% on its capital adequacy ratio (CRAR).

JM Financial has upgraded the stock to Buy and raised the target price of Rs 150 (20% upside). The company offers good growth momentum, steady margins and improving asset quality, the brokerage said. “It is also well-placed among peers on the IRDAI paper’s impact on insurance fee income with insurance contributing only 2.2% of PBT (versus 5.1% for our coverage). The stock has been flat over the past year despite a 14% increase in BV. Given cheap valuations and improving fundamentals, we upgrade Canara to Buy.”