Why has CLSA upgraded the Bank of Baroda stock?

One of the leading sell-side brokerages globally and in India, CLSA, has upgraded Bank of Baroda from an outperform rating to buy rating. The brokerage has also raised the target price for Bank of Baroda from Rs.80 to Rs.125. The upgrade comes in the light of the benign corporate credit cycle ahead. CLSA believes that the corporate NPA cycle may have more or less bottomed out for BOB and that should work in their favour.

However, CLSA is also quick to point out that this upgrade is only on the grounds that the worst maybe over and not a structural story. In fact, BOB has lost market share over time and hence may not exactly qualify as a structural story. However, since corporate NPAs contributed 75% of slippages in the last five years, the worst may be over. However, BOB is not the top pick in banking for CLSA and it still prefers SBI or Axis bank in that space.