Morgan Stanley expects large private banks to have better performance compared to public sector banks. 

What The Brokerage Said: The global brokerage firm sees large private banks having higher relative valuations. It argues that it is time to be selective in the financial sector.

The margin and asset quality are set to normalise in the next few years. It will also drive divergence in profitability based on franchise strength, the brokerage added.

Morgan Stanley advises a shift away from mid-sized private banks and public sector banks to large private banks based on these arguments.

In state-owned banks, the brokerage firm sees a big trade-off between growth and profitability. The mid-sized private sector banks are structurally more challenged in this cycle due to high competitive intensity.

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Brokerage Calls: ICICI Bank, Kotak Mahindra Bank and Axis Bank remained key picks with marginal target cuts. Here are the ratings and price target changes for other lenders:

The research firm downgraded Federal Bank to "underweight" and slashed the target price to ₹185. 

It maintained an "underweight" call on RBL Bank and cut its target price to ₹210. 

SBI had an "equal weight" call with its target price slashed to ₹800. 

Bank of Baroda also had an "equal weight" call with its target price reduced to ₹265. 

Punjab National Bank got an "underweight" call with its target price cut to ₹73.

Bank of India also got an "underweight" call with its target price slashed to ₹110. 

Canara Bank also had an "underweight" call with its target price reduced to ₹83. 

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