PNB shares slide 5% in 2 days after Q3 results. Should you buy, sell or hold?

Punjab National Bank’s shares extended their post-results slide for a second straight session, falling as much as 2% on Tuesday to Rs 125.50 on the BSE, as investors digested margin pressure and a cut in the lender’s net interest margin guidance even as headline profit beat estimates. The stock has declined about 5% over the past two trading sessions since the December-quarter results were announced on Monday.

The selloff comes despite the state-run lender reporting a 13% year-on-year rise in December-quarter net profit to Rs 5,100 crore, supported by recoveries, treasury gains and improving asset quality. For the market, however, the sharper focus has been on weakening margins, softer core operating performance and what brokerages see as limited levers to arrest the decline in net interest margins.

Citi's view

Citi said PNB’s net interest margin contracted 8 basis points quarter-on-quarter to 2.52%, below its estimates, prompting the bank to cut its FY26 NIM guidance to 2.6% from an earlier 2.8-2.9%.

While return on assets held up at 1.06%, Citi attributed this to treasury gains, recoveries from written-off accounts and tax reversals rather than core operating strength. The brokerage noted that floating provisions of Rs 9.6 billion were created towards the expected credit loss transition, with credit cost at 39 bps.

Asset quality continued to improve, with gross NPAs declining 26 bps sequentially to 3.19% and slippages remaining below 0.7%. Loan growth was sustained at about 10% year-on-year, led by MSMEs and corporate loans, and the sanction pipeline remained strong at Rs 21.02 trillion.

Citi said it revised FY26 and FY27 earnings upward but maintained its 'Sell' rating, citing persistent margin pressure and limited levers to support NIMs.

Morgan Stanley's view

Morgan Stanley highlighted that PNB’s third-quarter profit after tax beat estimates by 12%, driven by higher recoveries and lower provisions. However, it flagged weakness in the core business, with pre-provision operating profit missing estimates by 10% due to weaker net interest income and higher operating expenses.

The brokerage said NII rose just 1% quarter-on-quarter, while NIM declined 8 bps to 2.52%, led by a 21 bps fall in loan yields, partly offset by an 8 bps decline in funding costs. Fee income was a bright spot, rising 15% year-on-year and coming in 5% above estimates.

Asset quality trends remained favourable, with slippages at Rs 219.0 billion, or 0.7% on an annualised trailing basis, and gross NPAs declining 3% quarter-on-quarter to 3.19%. Net credit cost turned negative at minus 18 bps, supported by recoveries of Rs 19.5 billion from written-off accounts, while gross credit cost stayed stable at 49 bps.

Morgan Stanley also pointed to moderating business growth and a marginal weakening in capital adequacy, with CET-1 slipping to 12.5% from 12.8% in the first quarter of FY26.

Motilal Oswal's view

Motilal Oswal Financial Services struck a more constructive note, maintaining a Buy rating with a target price of Rs 145. The brokerage described the quarter as modest, with NIMs declining 8 bps sequentially, but said other income supported earnings while asset quality remained robust.

Motilal Oswal flagged the reduction in NIM guidance and the creation of floating provisions of Rs 9.6 billion, but said the bank expects global NIM at 2.6% and domestic NIM at 2.7%, which could provide some visibility going forward.

Market view

PNB’s December-quarter numbers showed steady improvement in asset quality, with gross NPAs at 3.19% and net NPAs at 0.32%, and return on assets improving to 1.06%. Operating profit rose 13% year-on-year to Rs 7,481 crore, while loan growth remained in double digits, led by retail, MSME and agriculture advances.

Yet, the sharp focus on margin compression and lower guidance has weighed on investor sentiment, pushing the stock lower over the past two sessions. With brokerages divided between margin-led caution and asset-quality-driven optimism, the near-term trajectory for PNB shares is likely to hinge on whether the bank can stabilise NIMs even as credit growth moderates.

(Disclaimer: The recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times.)