SBI shares: ‘High conviction buy’, stock jumps 9% in 5 days; gradual economic recovery to aid

State Bank of India (SBI) share price surged nearly 9 per cent in the last five sessions to a hit day’s high of Rs 215.90 apiece on BSE. In May this year, the stock quoted a 52-week low of Rs 149.55 apiece, since then it has rallied over 44 per cent. State Bank of India is a ‘high conviction buy’ pick of brokerage firm Motilal Oswal Financial Services, with up to 36 per cent upside. According to the brokerage firm, SBI indicated that lending is reverting to normal levels and it has witnessed higher growth since Jun’20, with rural demand remaining resilient. “Among PSU banks, SBIN remains the best play on the gradual recovery in the Indian economy,” it said in the report.

Motilal Oswal has pegged a target price of Rs 285 apiece, which translates to 35.71 per cent upside. The firm believes that India’s largest PSU bank does not have exposure to any large-ticket corporate accounts which is why the slippages and restructured book together will remain within 2.5 per cent of total loans. Currently, the bank has no stressed accounts with exposure greater than Rs 1,500 crore. SBI believes opportunities through subsidiaries monetisation, lower growth in RWA (risk-weighted asset), and pressure on overall credit growth does not necessitate immediate capital raise for the bank.

Around 2 PM, State Bank of India shares were trading 2.26 per cent higher at Rs 214.60 apiece, as compared to a 0.25 per cent rise in the benchmark S&P BSE Sensex. The market capitalisation of the bank stood at Rs 1.91 lakh crore, at the time of writing this report. According to the brokerage firm among PSU banks, SBI remains the best play on the gradual recovery in the Indian economy, with a healthy provision coverage ratio, robust capitalization, a strong liability franchise and improved core operating profitability. “It reported strong operating performance in a challenging environment,” Motilal Oswal said.

Moody’s concern on baseline credit

Earlier this week, Moody’s Investors Service affirmed the long-term local and foreign currency deposit ratings of SBI at Baa3. The rating agency downgraded SBI’s Baseline Credit Assessment (BCA) and adjusted BCA to ba2 from ba1. Moody’s said that given the negative outlook, it was unlikely the rating would be upgraded in the 12-18 months though the rating outlook could be changed to stable if India’s rating outlook is changed to stable. “Moody’s has maintained SBI’s rating outlook, where applicable, as negative, in line with the outlook on India’s sovereign rating,” it said in a note.

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