Punjab National Bank shares extended their decline for a second consecutive session, falling 2% to ₹125.50 on Tuesday, as investors weighed margin pressures against strong profit performance in the December quarter results. The stock has declined approximately 5% over the past two trading sessions since the quarterly results announcement on Monday.

Financial Performance Overview

Despite the market reaction, PNB reported robust headline numbers for the December quarter. The state-run lender posted a 13% year-on-year increase in net profit to ₹5,100 crore, supported by recoveries, treasury gains, and improving asset quality metrics.

Margin Pressure Concerns

The primary concern driving the stock decline has been the contraction in net interest margins. PNB's NIM fell 8 basis points quarter-on-quarter to 2.52%, prompting the bank to revise its FY26 NIM guidance downward to 2.6% from the earlier range of 2.8-2.9%.

Net interest income rose just 1% quarter-on-quarter, with loan yields declining 21 basis points, partially offset by an 8 basis point reduction in funding costs.

Asset Quality Improvements

On a positive note, asset quality metrics continued their improvement trajectory. Gross non-performing assets declined 26 basis points sequentially to 3.19%, while net NPAs stood at 0.32%. Slippages remained controlled below 0.7% on an annualized basis at ₹219.0 billion.

Brokerage Views

Analyst opinions remain divided on the stock's prospects. Citi maintained its 'Sell' rating despite revising FY26 and FY27 earnings upward, citing persistent margin pressure and limited levers to support NIMs. The brokerage noted that floating provisions of ₹9.6 billion were created towards expected credit loss transition.

Morgan Stanley highlighted that while profit after tax beat estimates by 12%, the core business showed weakness with pre-provision operating profit missing estimates by 10% due to weaker net interest income and higher operating expenses. However, fee income provided a bright spot, rising 15% year-on-year and exceeding estimates by 5%.

In contrast, Motilal Oswal Financial Services maintained a 'Buy' rating with a target price of ₹145, describing the quarter as modest but noting that other income supported earnings while asset quality remained robust.

Business Growth Metrics

Loan growth remained healthy at approximately 10% year-on-year, led by MSME and corporate loans. The sanction pipeline remained strong at ₹21.02 trillion, indicating sustained business momentum. However, there were concerns about moderating business growth and a marginal weakening in capital adequacy, with CET-1 ratio slipping to 12.5% from 12.8% in the first quarter of FY26.

CLSA has maintained its positive stance on Punjab National Bank by assigning an Outperform rating to the public sector lender. The global brokerage firm has set a target price of ₹145 for PNB shares, indicating their confidence in the bank's growth trajectory.

CLSA's Rating and Price Target

The brokerage's Outperform rating reflects a positive outlook on Punjab National Bank's operational performance and strategic positioning in the banking sector. CLSA's analysis has resulted in the following recommendation:

Investment Implications

CLSA's Outperform rating suggests that the brokerage expects PNB to deliver superior returns compared to the broader market or banking sector peers. The ₹145 target price provides investors with a benchmark for evaluating the stock's potential upside from current levels.

The positive rating from CLSA, a prominent global brokerage, adds to the investment community's assessment of Punjab National Bank's prospects. Such ratings typically influence investor sentiment and can impact trading activity in the stock.

About the Rating

Brokerage ratings like CLSA's Outperform designation serve as important guidance tools for institutional and retail investors. These ratings are based on comprehensive analysis of financial metrics, business fundamentals, and market conditions affecting the company's performance outlook.