March 10, 2014 / 5:32 AM / 3 years ago

Morgan Stanley turns 'overweight' on private banks

An employee arranges currency notes at a cash counter inside a bank in New Delhi June 8, 2010.Mukesh Gupta/Files

Reuters Market Eye - Morgan Stanley turns "overweight" across all private sector lenders in India, after previously having that stance for only HDFC Bank(HDBK.NS), Housing Development Finance Corp(HDFC.NS), ICICI Bank(ICBK.NS), and Axis Bank(AXBK.NS).

The investment bank, in a report dated March 10, says 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.

Private sector lenders extend gains: Bank Nifty is up 1.1 percent at 9:13 a.m., helping the broader Nifty briefly hit a record high earlier in the session.

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 percent in January, the NSE bank sub-index has surged 5.2 percent in February and 11.7 percent 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.

Reporting by Indulal P

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