SBI stock set for good times ahead: Share drops by 2.5%, will rise by 16%
In ICICI Securities view, SBI has been underperformer in past few years due to slower economic growth, muted credit demand from corporate and asset quality concerns.
The largest lender State Bank of India (SBI) is defined as gladiator stock, as it is seen to make investors richer ahead. On Tuesday, the share price of SBI was trading at Rs 266.55 per piece, down by 1.35% on Sensex at around 1356 hours. However, the overall drop in SBI was about 2.51% when the bank clocked an intraday low of Rs 263.25 per piece. Interestingly, an advice to investors is that, one should buy the stock when it is trading at its low-levels. Why? Because analysts believe, SBI is set to give nearly 16% return in near term. Research Analysts at ICICI Securities have given a buy rating with a target of Rs 305 per piece ahead.
In ICICI Securities view, SBI has been underperformer in past few years due to slower economic growth, muted credit demand from corporate and asset quality concerns. In addition, merger of subsidiaries was an overhang as GNPA from subsidiaries and higher employee cost burden was to be provided.
However, analysts also explained that, given the improving overall credit growth and a possible shift of business from NBFCs, SBI is best placed to ride this opportunity and we expect a sharp improvement in its earnings trajectory.
Currently, SBI has high CASA ratio at ~45% and lower CD ratio at 73.7%.
Thereby, ICICI believes that, it is best placed to generate higher credit growth at 11% vs 3-5% in past. Shift of deposits from low yielding investments towards high yield loan to lead to improvement in NIM’s from 2.82% in H1FY19 to ~3% ahead.
Further, it was highlighted that, asset quality concerns are gradually fading off. With ~15-18% exposure to NCLT accounts and 10% exposure in stressed power asset, the bank is poised to benefit from faster resolution of NCLT accounts. Bulk of these pains are already recognized and incremental slippages are expected to be lower. The provisioning for these is healthy with existing PCR of ~70% in NCLT list and 40% in power.
Hence, ICICI said, “Faster resolution of troubled assets coupled with higher credit growth to drive earnings. Hence, we maintain our BUY rating on the stock.”
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