Shares of State Bank of India (SBI) surged 3.5 percent to hit its 52-week high on Thursday after global brokerage house Morgan Stanley reiterated its bullish stance on the stock and raised its target price.

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The brokerage has an 'overweight' call on the stock and raised its target to Rs 600 per share from Rs 525 earlier. It further stated that the bull case target for the stock is Rs 765 per share implying a 90 percent upside.

The stock surged as much as 3.5 percent to its 52-week high of Rs 426.45 on the BSE.

MS added that the lender has much option value in earnings and multiples and looks well placed in the current cycle among peers.

"In the bull case, we build in over 1 percent RoA for SBI and see an increasing risk of this being achieved over the next two years," said the brokerage.

As the macro cycle turns, it sees upside risk to earnings from three sources: 1) higher margins as excess liquidity decreases and rates move higher; 2) lower cost to income ratio – the wage hike cycle has ended, and the rate cycle is turning, which could drive slower cost growth; 3) lower credit costs, helped by moderation in corporate NPLs and lumpy recoveries.

It believes that SBI's corporate/retail loan book, which is 65 percent of overall loans, has the potential to surprise positively over the next two years. MS also expects NII growth to reflate sharply over the next few years, helped by higher margins.

"Further, we believe interest rates have bottomed and as they move

higher, margins will benefit. This will also be reflected in corporate

banking, where disintermediation by bond markets increases as rates

move lower, and hence corporate spreads come under pressure," it stated.

For the December quarter, the country's largest lender reported a net profit of Rs 5,196.2 crore in the third quarter of fiscal 2021, down 6.9 percent from Rs 5,583.4 crore in the year-ago period.

Net interest income (NII) for the firm in Q3FY21 rose 3.7 percent to Rs 28,820 crore from Rs 27,779 crore, YoY, in line with the poll estimates. The domestic net interest margin was flat on a sequential basis at 3.34 percent.

On the asset quality front, gross non-performing assets (NPA) fell 6.4 percent to Rs 1.17 lakh crore from Rs 1.25 lakh crore, while net NPA declined 20.4 percent to Rs 29,031.7 crore from Rs 36,450.7 crore, QoQ.