The public sector bank hit a fresh record high of Rs 586 on 25 October. It has rallied nearly 2% in a week, and over 8% in a month.
SBI is one of the strongest stocks in the banking space and is expected to report strong results for the quarter ended September this week on 5 November.
The stock is available at reasonable valuations, and long-term investors who are looking to add banking stocks can look at SBI for a target above Rs 600 in the next 12 months, suggest experts.
SBI has demonstrated strong improvement in asset quality over the past few quarters. Fresh slippages have moderated to a low of 1%, beating private peers, while the Provisioning Coverage Ratio (PCR) has improved to 75%.
Improved PCR, coupled with controlled restructuring and low Special Mention Accounts (SMA) book will drive a sustained reduction in credit cost to 0.8% for SBI which is our top pick,” Sneha
, AVP, Fundamental Research, , said.
“We have already seen strong numbers from various large banks and expect SBI to report robust numbers on November 5th. In Q2FY23, we expect SBI to report healthy 19% YoY loan growth, with margins improving to ~3.1%,” she said.
Strong retail growth along with a pick-up in the SME/Corporate book will support the loan growth. Stable margin, deployment of liquidity, and reversal in the rate cycle as ~75% of loans are floating in nature, will enable recovery in the net interest income (NII), she added.
“SBI has one of the best liability franchises with CASA mix of ~45%, which puts it in a better position to manage funding cost in a rising rate regime,” highlighted Poddar.
She further added that SBI is available at a reasonable valuation of 1.4x FY24 Adj P/B with high growth visibility of ~30% earnings CAGR over FY22-24.
“Currently, we have a target of Rs 625 which is likely to get revised post its results,” she recommends.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)