The Indian banking landscape is witnessing a robust phase, particularly in the public sector arena. The State Bank of India (SBI), India’s largest lender, has emerged as a frontrunner with its stellar performance in the second quarter of FY24. Post these impressive Q2 results, brokerage houses have donned a super bullish stance, advocating investors to embrace the buying opportunity in PSU bank shares.
SBI, in Q2, has reported an 8% year-over-year increase in net profit, amounting to ₹14,330 crores. This financial feat is buttressed by a significant annual loan growth of 12% and a quarterly uptick of 3%, sustaining the growth momentum that has become synonymous with the banking giant.
Brokerage house Nuvama has been vocal in its support, recommending a strong buy on SBI stocks with a 12-month target price pegged at ₹705 per share. Following the closure of stock prices at ₹562 on November 3, 2023, investors are looking at a potential 25-26% return by the next Diwali, outlining a lucrative investment avenue.
Nuvama highlights that the bank’s quarterly performance has been robust, outperforming peers like the Bank of Baroda (BoB). While there has been a marginal dip in the net interest margin, the loan growth figures have aligned with predictions. The bank’s operating expenses exceeded expectations with a 20% quarter-over-quarter increase, attributable to an approximate ₹3,400 crore expense on wage hikes, marking a 14% increase in salaries from the previous 10%.
Motilal Oswal also exhibits a bullish outlook towards SBI, maintaining a buying stance with a target of ₹700. Sharekhan and Antique Stock Broking join the bullish bandwagon, setting targets at ₹710 and ₹725 respectively, reflecting confidence in SBI’s market trajectory.
The global brokerage landscape echoes this sentiment. CLSA retains a Buy rating with a ₹700 target, while JP Morgan upgrades their outlook to ‘Overweight’, increasing their target from ₹720 to ₹725. Goldman Sachs, albeit reducing their target from ₹746 to ₹710, maintains a buying recommendation. Jefferies takes an even more optimistic approach by increasing their target from ₹760 to ₹780. Similarly, Macquarie keeps its ‘Outperform’ rating with a target of ₹720.
SBI’s Q2 figures are testament to their operational strength, with net profits soaring to ₹14,330 crores from ₹13,264 crores the previous year. The operating profits might have seen an 8% decline, standing at ₹19,417 crores, but the net interest income experienced a 12.27% hike, reaching ₹39,500 crores.
Although there was a slight contraction in the net interest margin annually and quarterly, the bank maintained a stable return on assets at 1.01%. Asset quality significantly improved with gross NPA declining by 97 basis points to 2.55% annually. Net NPA also witnessed a decline, positioning at 0.64%.
Moreover, the bank’s capital adequacy ratio improved by 77 basis points to 14.28%, underscoring a strong capital base. However, there was a dip in the CASA ratio by 275 basis points, resulting in 41.88%. In terms of value, gross and net NPAs saw a decrease by 18.57% and 9.42% respectively.
SBI’s Q2FY24 outcomes have not only fortified its position in the banking sector but also sent a positive signal across the PSU banking stock market. With brokerage houses united in their bullish outlook, SBI is poised as a compelling stock to buy, potentially heralding a profitable year for investors and the banking industry alike.
