Morgan Stanley doubles its overweight on banking sector

Mumbai: Morgan Stanley has doubled its overweight position on the financial sector to 600 basis points citing the emergence of multiple positive factors such as rising short rates, higher credit growth and peaking credit costs. The financial services firm has increased its bullish position on financials at the expense of the materials sector, which has been downgraded to underweight.

"Credit costs have peaked and credit growth will improve. This means the stars are aligned for stronger relative performance from financials, especially banks," said Morgan Stanley.

Besides financials, the firm is overweight on domestic cyclicals - both consumer and industrials, and underweight external-facing sectors. "A combination of higher short rates, lower credit costs and acceleration in credit growth will boost the banks. We expect large banks' earnings to compound at 20-30% over the next three years, compared to 24% for the BSE Sensex constituents. Overweight Axis Bank, ICICI Bank and SBI," the firm said.