SBI has crossed its decade-old resistance; set to hit Rs 800 levels

The stock hit a lifetime high of Rs 408 apiece in intraday deals on Friday, up 15 per cent on the BSE, as against a 0.7 per cent rise in the S&P BSE Sensex

State Bank of India (SBI) on Thursday reported better-than-expected results for the December 2020 quarter (Q3FY21) on the back of healthy asset quality, fewer fresh slippages, and lower-than-projected rise in provisions.

Most fundamental analysts remain bullish on the prospects of the bank, and expect it to do well in the coming years.

"On the back of lower credit costs, we raise FY22-23 earnings forecasts by 30 per cent and expect SBI to achieve return on equity (ROE) of 11 per cent. SBI is a preferred recovery play in India and we maintain our Buy rating with a revised price target of Rs 480 (Rs 340 earlier) based on 1.2x December 2022 adjusted price-to-book (PB)," wrote analysts at Jefferies in a post result note.

The stock hit a lifetime high of Rs 408 apiece on Friday, up 15 per cent on the BSE, as against a 0.7 per cent rise in the S&P BSE Sensex.

Those at CLSA, too, remain bullish on the stock. "SBI's asset quality is finally delivering better asset quality outcomes compared even to private banks. We revise up our earnings by 15-26 per cent and now expect return on equity (ROE) of 14 per cent by FY23CL. The bank has been a consistent market-share gainer over the last decade and, now, with a dual benign credit cycle from FY22CL, we expect SBI to re-rate materially beyond 1x book," CLSA said in its note dated February 4. READ ABOUT IT HERE

Technical view

This is nearly the fourth time in a decade that the counter is attempting to sustain above Rs 350 levels, as per the monthly chart. With the gap–up opening on February 5 2021, the counter shows more strength building in. This scenario reflects a breakout on the monthly chart, and can take the counter towards Rs 650 and then Rs 800 levels going ahead. CLICK HERE FOR THE CHART

Going forward, until the counter does violates the support of 350 and Rs 320 aggressively, the upside bias may witness the accumulation and addition on any corrective moves. 

The strong up move above the range of Rs 380 to Rs 350 also shows short covering. Sellers should stay on the sideline and make a comeback only if the decisive supports are broken, as per the weekly chart.

On the daily chart, SBI is witnessing buying momentum in the overbought territory of Relative Strength Index (RSI), which suggests that the counter will be resilient to a steep fall. However, minor corrections at regulr intervals cannout be ruled out, which should be used to accumulate the counter.  The Bollinger Band is also expanding and hinting at a big move that is supported by a steady rise in volumes.