Morgan Stanley turns "overweight" across all private sector lenders in India, after previously having that stance for only HDFC Bank, Housing Development Finance Corp, ICICI Bank, and Axis Bank.
The investment bank, in a report on March 10, said it expects a re-rating across the sector as the bad-loan cycle could be "close to the end" if the economy remains stable.
Morgan Stanley forecasts an improving economy, as indicated by a narrowing current account deficit and a stable currency, while also noting that liquidity has improved and real deposit rates have turned positive.
Expectations for an improving economy and a pause in the RBI's rate-hiking campaign have sparked a rally in the sector. After falling 10% in January, NSE bank sub-index has surged 5.2% in February and 11.7% so far in March.
The Sensex briefly hits a record high on the back of continued strong foreign buying in blue chips such as HDFC Bank, but edges lower soon afterwards on profit-taking and because of falls in regional shares.