SBI share price down 6% this year so far; should investors buy, sell or hold it?

While SBI share price has significantly underperformed the Nifty Bank index and equity benchmark Nifty 50 this calendar year so far, experts have contrasting views on the stock. Some of them find this stock an attractive bet for the long term while some advise staying away from it.

In the calendar year 2023 so far, SBI share price is down over 6 per cent while the Nifty Bank index and the Nifty 50 are up 3 per cent and 9 per cent, respectively, for the same period.

SBI share price hit its 52-week high of ₹629.65 on the BSE on December 15 last year but it soon witnessed strong profit booking and touched its 52-week low of ₹499.35 on February 1 this year. As of the close of the previous session (October 13), the stock is 15 per cent up from its 52-week low but still 8.5 per cent down from its 52-week high.

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Buy or not?

Recently, global brokerage firm UBS downgraded the SBI stock to a 'sell’ from a ‘buy’ amid concerns over higher credit costs, narrowing margins and anticipated declines in return on asset (RoA) and return on equity (RoE) by the financial year 2025. The foreign brokerage has also slashed the target price of SBI to ₹530 from ₹740 earlier.

UBS expects retail loan delinquencies to rise, driving up credit costs in FY25. It also believes repricing of deposits will cap margins near current levels, thereby keeping the net interest income (NII) growth in line with loan growth of 11-12 per cent.

“While the current valuation does not appear expensive, an inability to deliver consistently high ROA/ROE could result in the stock's de-rating. We expect ROA to decline 24 bp YoY to 0.72 per cent by FY25 as we increase our credit cost estimates 10 bp to 0.85 per cent," UBS said.

It cuts FY24 and FY25 EPS estimates by 5 per cent each, which are 8 per cent and 22 per cent lower than consensus.

Also Read: UBS downgrades SBI to ‘Sell’, cuts target price on credit costs, margins concerns

On the other hand, brokerage firm HDFC Securities has a buy call on the stock and raised the target price to ₹790 from ₹750, implying a 37 per cent upside potential.

"Although we argue that the Q1FY24 RoA (return on assets) (1.3 per cent) and RoE (return on equity) (over 20 per cent) prints cannot be straight-lined, we believe SBI is on track to deliver a 1 per cent+ RoA on the back of a healthy core operating profitability run rate, driven by stable NIMs (despite near-term pressure), and sustained productivity and efficiency gains," said HDFC Securities in a recent report.

"We raise our two-year explicit period forecasts by 6-8 per cent each to factor in a superior asset profile and maintain buy with a revised target price of ₹790 (earlier ₹750; standalone bank at 1.4 times Mar-25 adjusted book value per share)," said the broking firm.

HDFC Securities' confidence in SBI stems from SBI's brand value and scale. Moreover, the brokerage firm underscored that SBI has gradually added other competitive moats, such as a prolific sourcing edge, a YONO-powered digital stack, a lean distribution model, and a potent combination of cross-sell focus and competencies.

The brokerage firm pointed out that SBI’s flagship digital banking platform YONO has emerged as India’s largest neo-banking channel and as of FY23, YONO powers nearly two-thirds of the savings accounts opened by SBI and one-third of the retail asset accounts.

"We believe that the potent combination of traditional strengths and newly added moats is reflecting in higher throughput, sustained efficiency gains, and high-quality new loan origination, translating into structurally lower credit costs and better return ratios," HDFC Securities said.

Technical analysts also divided?

Some technical analysts are cautious about the stock for the short term.

Jigar S. Patel, Senior Manager of Equity Research at Anand Rathi Share and Stock Brokers pointed out that on the weekly scale of SBI, bearish heads and shoulders are popping up, which might be an early sign of profit booking after clocking a high of approximately ₹620.

"As we advance, sell on-rise might be seen since we have overhead resistance near ₹600 levels. On the indicator front, there is a bearish crossover on the weekly MACD, which might create further bearish bias in the said counter. As of now, no fresh longs are advised. On the contrary, if someone has already bought, then try to book profits in the zone of ₹570–600 levels," said Patel.

Milan Vaishnav, CMT, MSTA, Founder and Technical Analyst of Gemstone Equity Research and ChartWizard FZE underscored that SBI had been trading in a large symmetrical triangle formation. It had shown a mild breakdown from it but found support at the important support of 200-DMA which is currently placed at ₹571.

Moreover, Vaishnav observed the PSU Bank index, per se, is inside the leading quadrant of the RRG and is set to relatively outperform the broader markets.

"With SBI enjoying significant weight in the PSU Bank index, it is likely to hold this mentioned support. Investors who are already invested in SBI can patiently hold on to their investment while those who are looking to enter afresh, can enter with a stop loss of ₹562," said Vaishnav.

Gaurav Bissa, VP of InCred Equities highlighted that the SBI stock has been in a consolidation for the last nine months which resulted in significant underperformance against Nifty as well as Bank Nifty.

"SBI is currently trading near the immediate support of ₹570 and a close below this can push it towards ₹550 levels. Traders are advised to wait for confirmation of the consolidation breakout in the stock before initiating buying. Investors can add the stock towards ₹540-550 levels for a target price of ₹650. However, the expected upside will be gradual with bouts of underperformance going forward," said Bissa.

Q2 expectations

Brokerage firm Phillip Capital believes SBI's loan growth may gain momentum as system-wide credit growth picks up. Phillip Capital expects the bank's NIM to remain stable sequentially as it expects a 13.2 per cent year-on-year (YoY) growth in revenue and 14.1 per cent YoY growth in profit after tax (PAT).

On the other hand, brokerage firm Nuvama Wealth Management expects a sharp fall in trading gains. "Loans may grow under 2 per cent quarter-on-quarter (QoQ) and NIM (net interest margin) is likely to decline by 6 bps," said Nuvama.

Motilal Oswal expects SBI's asset quality to improve further supported by low stressed asset pool. It also expects the bank's credit costs to remain in control.

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Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.