Market analysts anticipate SBI to outshine its counterparts in the PSU banking sector due to a noticeable convergence in valuation multiples.
Kotak Institutional Equities analysts have issued a ‘buy’ recommendation for State Bank of India (SBI) and revised the target price to Rs 850 from Rs 760, indicating a potential upside of 14% from the previous closing price. Their bullish stance is grounded on the assessment that SBI has navigated through prevailing concerns with limited ramifications on its earnings.
India’s largest lender, SBI, has seen its stock rise by more than 15% since the beginning of the year, outperforming the benchmark Sensex, which has shown a flat to positive movement during the same period. SBI shares reached a 52-week high of Rs 777 on February 21, reflecting investor optimism and confidence in the bank’s performance.
According to analysts at Kotak, there isn’t a specific catalyst in the short term that would lead to a re-rating for SBI. However, they anticipate SBI to outperform other PSU banks due to a significant convergence in multiples. Kotak values SBI at 1.4x book and 10x earnings for a return on equity (RoE) of 15 percent.
Compared to large public banks, SBI’s premium over Bank of Baroda and other mid-tier public banks has notably decreased and is currently closer to its peak levels. Analysts at Kotak commend SBI for its ability to maintain its market share on liabilities, while also performing better than expected in underwriting.
Conversely, analysts note that SBI’s discount compared to HDFC Bank has also significantly reduced. While they anticipate that outperformance with private banks may progress at a slower pace, they believe there is still room for growth.
“We anticipate that the extent of the difference in return ratios, loan growth, net interest margins (NIM), and credit costs is unlikely to vary significantly in the medium term, unless there is clear evidence of weak underwriting from these players. Until then, relative performance is likely to carry more weight in stock ideas,” they added.
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