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Shares of State Bank of India rose more than 6 per cent to a 12-week high on Wednesday after the country's largest lender projected a recovery over the next two years following a record quarterly loss.
The lender’s shares rose as much as 6.2 per cent to Rs 269.7, their highest since March 1, and were headed for a third straight session of gains. The surge was also SBI's biggest intraday percentage gain since early November. The Nifty PSU bank index climbed as much as 5 per cent.
Top brokerages have welcomed SBI's move to clean up its accounts, recognising large part of its stressed assets that forced the Mumbai-based lender to report a quarterly loss of Rs 7,718 crore ($1.13 billion), the second highest in the country's banking industry.
The market may take solace that the gross stress has likely peaked, Jefferies said in a note, adding that core profitability should see a cyclical improvement through the second half of 2019.
SBI added Rs 33,670 crore of non-performing loans in the March quarter, taking its total to Rs 2.23 lakh crore, or 10.91 per cent of total loans. Deutsche Bank said it sees better future for SBI and expects core business trends to improve consistently from here on.
SBI is still among the preferred public sector picks because of stronger CASA franchise, better asset quality and capitalisation, CLSA said in a note.
The lender, which accounts for more than a fifth of India's banking assets, had said on Tuesday it aims to grow loans at an annual average of 12 per cent through March 2020, nearly halve its gross non-performing loan ratio, bring down the provisioning costs and improve margins.
Credit Suisse and Citi have cut their target price to Rs 322 and Rs 325, respectively, while Deutsche Bank has raised it to Rs 330 from Rs 320. Jefferies has cut its target price to Rs 355 from Rs 365, while CASA reduced it to Rs 340 from Rs 360.
About 37 brokerages out of the 45 covering the state-run bank rate it “buy” or higher, six “hold” and two “strong sell”. Their median price target is Rs 350, according to Thomson Reuters data.
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