Financial Trend: From Flat to Positive Momentum
One of the primary drivers behind Canara Bank’s rating upgrade is the marked improvement in its financial trend. The bank’s financial trend score has shifted from flat to positive, signalling a turnaround in operational performance. The quarter ended December 2025 saw Canara Bank report its highest quarterly profit after tax (PAT) of ₹5,155.11 crore and earnings per share (EPS) of ₹5.68, both record highs for the institution.
Key financial ratios underpinning this positive trend include a gross non-performing asset (NPA) ratio at a low 2.08% and net NPA at just 0.45%, reflecting robust asset quality. The credit-deposit ratio for the half-year stood at a healthy 77.09%, indicating effective utilisation of deposits for lending activities. Interest earned during the quarter reached ₹31,981.60 crore, underscoring strong core income generation.
However, some caution is warranted as certain metrics remain subdued. Cash and cash equivalents for the half-year were at a low ₹49,715.83 crore, and profit before depreciation, interest, and tax (PBDIT) for the quarter was ₹1,220.11 crore, the lowest in recent periods. Additionally, operating profit to net sales ratio was a modest 3.82%, and profit before tax excluding other income (PBT less OI) was negative at ₹-1,194.25 crore. Non-operating income accounted for 117.81% of profit before tax, indicating reliance on non-core income sources.
Despite these challenges, the overall financial trajectory is positive, supported by consistent quarterly profit growth over the last four quarters and a compound annual growth rate (CAGR) of 68.28% in net profits over the long term.
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Valuation: From Fair to Attractive
Canara Bank’s valuation grade has been upgraded from fair to attractive, reflecting its compelling price metrics relative to earnings and book value. The bank currently trades at a price-to-earnings (PE) ratio of 6.79, which is significantly lower than many of its public sector peers, such as Indian Bank at 9.76 and IDBI Bank at 11.43. This low PE ratio suggests the stock is undervalued relative to its earnings potential.
The price-to-book (P/B) value stands at 1.18, indicating the stock is trading close to its book value, which is reasonable for a bank with improving fundamentals. The price-to-earnings-growth (PEG) ratio is an attractive 0.27, signalling that earnings growth is not fully priced in by the market. Dividend yield is a healthy 2.72%, supported by a return on equity (ROE) of 17.38% and return on assets (ROA) of 1.08%, both indicative of efficient capital utilisation.
Net NPA to book value ratio is 4.70%, which is manageable and consistent with the bank’s improving asset quality. Overall, these valuation metrics suggest Canara Bank offers an attractive entry point for investors seeking value in the public sector banking segment.
Technical Analysis: From Bullish to Mildly Bullish
The technical outlook for Canara Bank has moderated slightly, shifting from a bullish to a mildly bullish stance. Weekly and monthly technical indicators present a mixed picture. The Moving Average Convergence Divergence (MACD) is mildly bearish on a weekly basis but remains bullish monthly, indicating some short-term consolidation amid longer-term upward momentum.
Relative Strength Index (RSI) on both weekly and monthly charts shows no clear signal, suggesting the stock is neither overbought nor oversold. Bollinger Bands indicate mild bullishness on both weekly and monthly timeframes, while daily moving averages also support a mildly bullish trend.
Other indicators such as the Know Sure Thing (KST) oscillator and Dow Theory present a nuanced view: mildly bearish weekly but bullish monthly. On-Balance Volume (OBV) shows no clear trend weekly but is bullish monthly, implying accumulation over the longer term despite short-term volatility.
Price action remains supported by a 52-week high of ₹160.80 and a recent trading range between ₹147.00 and ₹157.10, with the current price at ₹147.25. While the stock has experienced some short-term weakness, it continues to outperform the broader market over longer periods.
Quality Assessment: Strong Fundamentals and Market Position
Canara Bank’s quality grade remains robust, supported by its strong lending practices and improving asset quality. The bank’s gross NPA ratio of 2.08% is among the lowest in the public sector banking industry, reflecting prudent risk management. The net NPA ratio of 0.45% further confirms the bank’s ability to contain bad loans effectively.
Institutional holdings stand at 25.1%, with a quarter-on-quarter increase of 0.96%, signalling growing confidence from sophisticated investors who typically conduct thorough fundamental analysis. This institutional interest is a positive indicator of the bank’s quality and growth prospects.
Long-term returns have been impressive, with a 1-year stock return of 62.51% compared to the Sensex’s 8.49%, and a 5-year return of 381.05% versus the Sensex’s 66.63%. Such outperformance underscores the bank’s strong fundamentals and market positioning.
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Market Performance and Outlook
Despite some short-term volatility, Canara Bank’s long-term market performance has been exceptional. Over the past decade, the stock has delivered a return of 318.66%, significantly outperforming the Sensex’s 245.70% return. The 3-year return of 148.31% also dwarfs the Sensex’s 37.63%, highlighting sustained growth and investor confidence.
In the near term, the stock has experienced a slight pullback, with a one-week return of -4.85% compared to the Sensex’s 2.30%. However, this short-term weakness is overshadowed by the bank’s strong fundamentals and improving financial metrics, which support a positive medium- to long-term outlook.
Canara Bank’s current market capitalisation grade is 2, reflecting its sizeable presence in the public sector banking industry. The bank’s mojo score of 71.0 and mojo grade of Buy, upgraded from Hold on 3 February 2026, encapsulate the comprehensive improvement across quality, valuation, financial trend, and technical parameters.
Conclusion: A Buy Recommendation Backed by Strong Fundamentals and Attractive Valuation
The upgrade of Canara Bank’s investment rating to Buy is well justified by its improving financial trend, attractive valuation, and solid quality metrics. While some operational challenges remain, the bank’s ability to generate consistent profits, maintain low NPAs, and deliver strong returns to shareholders positions it favourably for future growth.
Technical indicators suggest a mildly bullish stance, supporting the case for accumulation at current levels. The bank’s valuation metrics indicate that the stock is attractively priced relative to earnings growth and book value, offering a compelling entry point for investors seeking exposure to the public sector banking sector.
Overall, Canara Bank’s upgrade reflects a balanced assessment of its strengths and challenges, with a clear tilt towards optimism given its recent performance and market positioning.
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