Shares of countryтАЩs largest lender State Bank of India (SBI) are expected to give 39% returns in a year, says a report by financial services firm Motilal Oswal. In the last one year, the SBI stock has gained 7% compared to a minor return of 0.92% in the 30-stock Sensex. On the other hand, BSE bankex and Bank Nifty have delivered 9.20% and 10.20% returns, respectively during the period. However, the state-backed lender has lagged behind its peers in returns in one year.
While shares of Bank of Baroda have delivered 56.75% returns in a year, Union Bank is the top gainer with returns of 67.48% during the period. Shares of PNB and Canara Bank have clocked 33.47% and 10% returns, respectively in a year.
In the current trading session, SBI shares fell marginally to Rs 518.45 against the previous close of Rs 521.50 on the BSE today. The stock has been falling for the last two sessions. SBI stock has lost 15.55 per cent since the beginning of this year. Market cap of the bank stood at Rs 4.63 lakh crore on BSE. Total 0.43 lakh shares changed hands amounting to a turnover of Rs 2.20 crore on BSE.
In terms of technicals, the relative strength index (RSI) of SBI stands at 41.4, signaling it’s trading neither in the overbought nor in the oversold zone. SBI stock has a one-year beta of 1.1, indicating very high volatility during the period. SBI shares are trading lower than the 5 day, 20 day, 50 day, 100 day and 200 day moving averages.
Motilal Oswal sees an upside of 39% in the SBI stock with a target of Rs 725. The average target price of Rs 706 on the counter, as per publicly available data with Trendlyne, suggests a 35 per centr potential upside for the stock.
The global banking system has been facing challenges primarily due to liquidity issues rather than asset quality. The portfolio duration and concentration of loans/deposits under various categories have also caused problems. That said, the domestic banking system has remained quite resilient thanks to active supervision and higher governance standards set by the RBI, said the report.
HereтАЩs a look at three factors, which are likely to push the SBI stock to new target of Rs 725.
No fund raising in near term
The brokerage said the bank was confident of meeting the growth requirement via internal accruals and Tier 1 bonds and does not expect any capital raise in the near term.
Strong performance in term loans segment
SBI has a strong pipeline of sanctions and its undisbursed term loans are falling (26%QoQ), which signals that the utilization is increasing. Higher interest rates have not yet affected the growth environment. Mortgages have seen a sanction of 24% over 9MFY23, said the report.
Low NPAs
The gross non-performing assets ratio (GNPA) ratio in the retail segment is 0.67%, while average loan to value (LTV) ratio stands at 55-60%, and thus the bank does not expect any challenges going ahead. LTV ratio is calculated by taking the loan amount and dividing it by the value of the asset or collateral being borrowed against. The focus remains on keeping the credit cost at 50 bps, said the report.
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