Bank Stocks: Shares of this state-owned bank will see a surge! UBS recommends 'buying', here's the target..

Investors' confidence in public sector bank shares is steadily increasing in the stock market. In this context, UBS, a globally renowned brokerage firm, has placed a significant bet on public sector giant Canara Bank. In its report released on Wednesday, October 8th, UBS gave Canara Bank a 'buy' rating.

UBS has set a price target of ₹150 for Canara Bank shares. This represents a potential upside of approximately 19% from Wednesday's closing price of ₹126.11. This report comes at a time when the banking sector is experiencing significant changes and investors are seeking stocks with strong fundamentals.

Why is UBS bullish on Canara Bank?
According to the UBS report, Canara Bank is in a strong position to deliver consistent and stable loan growth in the future. There are several compelling reasons for this. First, the clouds of several major crises looming over the banking sector are now clearing, making it easier for the bank to conduct business. Second, the bank has sufficient liquidity (cash), which gives it the ability to aggressively disburse loans.

UBS rated Canara Bank as good on both these parameters in its report. The brokerage acknowledged that falling interest rates may cause some pressure on the bank's margins in the short term. However, the long-term outlook is very positive.

Bank Margins to Improve
The report estimates that the bank's margins will gradually improve during FY 2027-28. This will be driven by the reset of interest rates on deposits and an increase in the share of loans with marginal cost of funds-based lending (MCLR). Furthermore, the bank's credit costs (provisions for bad loans) are also expected to remain under control, as the bank has disbursed fewer unsecured retail loans.

Given this, the bank's return on assets (RoA) is projected to remain stable at 1% and return on equity (RoE) at 16% from FY2026 to FY2028, which is a very impressive indicator. What's particularly interesting is that despite these strong fundamentals, the bank's stock is trading at a forward price-to-book value of 0.9 times, which UBS describes as "reasonable."

Listing of Subsidiary Companies Will 'Unlock Value'
Another major positive news for Canara Bank is the listing of its subsidiaries. UBS describes this as a major avenue for 'value unlocking'. Two of Canara Bank's key units, Canara Robeco Asset Management Company (AMC) and Canara HSBC Life Insurance, are launching their initial public offerings (IPOs) next week.

Canara Robeco's IPO will open on October 9, while the life insurance unit's IPO will be available for subscription on October 10. When these companies are listed on the stock exchange, they will each have their own market value. This will directly benefit the parent company, Canara Bank, as the value of its holdings will increase.

Delivered 28% Return in 2025
Canara Bank's stock has proven to be a multibagger for investors so far in 2025. This stock has already delivered a robust 28% return this year. It is the second-best performing stock of 2025 on the Nifty PSU Bank Index. In first place is Indian Bank, which has seen a meteoric rise of 43%. Of the 21 experts covering Canara Bank, 15 have a 'buy' recommendation, four have a 'hold' recommendation, and two have a 'sell' recommendation.

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