Analysts are divided in their views on the SBI stock, with some giving a buy call, others downgrading it, and a few giving a sell call.
This divergence in views comes despite the bank recording a 15 per cent increase in net profit and logging highest net interest margins among public sector banks in the October-December 2011 period.
Though the stock took a hit on Monday, when the results were declared, and tanked by two per cent on the BSE, it bounced back on Tuesday to rise by over three per cent.
Some brokerages dubbed this flip-flop as an “overreaction by the market” on Monday and short-covering on Tuesday.
“We believe the bank's biggest problem of ballooning NPAs has peaked out and the outlook looks quite positive after the management indicated that the worst was over on this front. Keeping this in view, we have given a ‘buy' rating on it,” said Mr Dipen Shah, Senior V-P, Private Client Group Research, Kotak Securities.
Being the largest bank, SBI can weather any further slowdown better than the other banks. Overall, the stock should do well with the only concern being on inflation and possible competition on savings bank interest rates leading to increase in lending rates, he added. Standard & Poor's Ratings Services also said stated that its rating on SBI is not affected by the “significant slippage in the bank's loan quality.”
“We anticipate that SBI's credit provisioning costs for the fiscal year ending March 31, 2012, will not be significantly higher than the projected credit losses based on our risk-adjusted capital framework. The bank's credit losses have been significantly higher than domestic peers' so far in fiscal 2012,” said their statement.
“Nevertheless SBI's stand-alone credit profile (SACP) has adequate cushion to absorb some slippage in loan quality. We, therefore, believe it is unlikely that the SACP will fall to ‘bb', which is our downward rating trigger,” added the S&P statement.
However taking a different view, Nirmal Bang Institutional Equities said: “The Street remains sceptical despite better-than-expected performance as asset quality has deteriorated sharply. Going forward, we believe the current uncertain macro-economic environment coupled with weak demand and high interest rates would put greater stress on asset quality as well as profitability.”
“We retain our sell rating on the stock with a target price of Rs1,520 per share, down 28 per cent from the current market price,” added their report