Bearish bets mount ahead of SBI numbers

Street eyes first earnings quarter under new chairperson Bhattacharya

Traders have mounted bearish bets on State Bank of India (SBI), the country’s largest bank, ahead of the announcement of the bank’s September quarter results on Wednesday. While traders are wagering on a weak performance by the state-owned lender, what is boosting their confidence is the recent change of guard at the bank.

This will be the first quarterly result announcement by Arundhati Bhattacharya, the bank’s recently appointed chairperson. Historically, SBI has seen poor results in the quarter following a change in management.

When O P Bhatt assumed charge as the bank’s chairman in June 2006, net profit fell 35 per cent. Again, when Pratip Chaudhuri took over from Bhatt, net profit fell 98 per cent.

However, the performance of the bank stock after the results has been mixed. After Bhatt announced the bank’s results as chairman for the first time, the stock gained one per cent on that day. In Chaudhuri’s case, the stock plunged about eight per cent.

This time, traders are hoping the stock would drop if the results disappoint, as investor aversion to public sector banks continues.

“The stock has seen short positions being created in the futures market in the past couple of months on the back of weakening asset quality and a change in management, which could undertake a clean-up of the balance sheet,” said Yogesh Radke, head of quantitative research, Edelweiss Securities. “Surely, the market is already prepared for some subdued results and the stock has corrected sharply in the past six months.”

Analysts said the open interest in SBI futures was about six million on Monday, compared with two million in April.

Shares of public sector banks have been witnessing heavy sell-offs in the last six months, owing to a poor economic outlook and rising non-performing assets. The CNX bank Nifty has declined six per cent since April.

“Whenever any PSU (public sector undertaking) bank reports poor numbers, we see an immediate reaction on the SBI counter because the belief is SBI will also post weak numbers. This has been happening for sometime now. However, the other way round isn’t true. Good numbers by PSU banks does not necessarily mean buying in the SBI counter,” said Alex Mathew, head of research, Geojit BNP Paribas Financial Services.

Since April, SBI shares have fallen 18 per cent. On Friday, the stock closed at Rs 1,705 on BSE, down 2.3 per cent from its previous close. Analysts believe the stock could correct to Rs 1,600-levels before the result announcement. The Bank Nifty could fall another per cent in the next two days, they said.

As SBI was the largest public sector bank, it would continue to underperform, they said, adding the outlook on the PSU banking space remained negative.

“The entire sector is still under pressure, as asset quality issues still persist. PSUs have huge capital requirement for meeting capital adequacy norms. With the government hard-pressed for capital at this point, it will be sometime before we see a turnaround in this sector,” said Vivek Mahajan, head of research, Aditya Birla Money.