SBI hits over 3-month high ahead of Q4 results; stock gains 8% in one month

SBI is a sector proxy that benefits from its strong liability franchise and continued favourable sector tailwinds

Shares of State Bank of India (SBI) hit over three-month high of Rs 590.10, up 1.4 per cent on the BSE in Tuesday's intra-day trade, ahead of its January-March quarter (Q4FY23) earnings. The largest state-owned back is schedule to announce its Q4 results on Thursday, May 18, 2023. The stock had hit a record high of Rs 629.65 on December 15, 2022.

Currently, SBI is trading at its highest level since January 25, 2023. In the past one month, the stock has outperformed the market by surging 8.5 per cent. In comparison, the S&P BSE Sensex and Nifty50 gained 3.8 per cent, while the Nifty PSU Bank index gained 4.2 per cent during the period.

SBI is the largest public sector bank in India with strong retail portfolios and best operating metrics in the PSU banking space. The bank has witnessed continued improvement in asset quality coupled with healthy PCR.

A higher share of floating rate loans to support margins trajectory, continued healthy performance on growth and asset quality, coupled with scope for value unlocking in large subsidiaries, remain key fundamental strengths of SBI, according to analysts.

Sharekhan believes the Indian banking sector is expected to remain resilient despite recent local/ global macro concerns. SBI, it said, is a sector proxy that benefits from its strong liability franchise and continued favourable sector tailwinds.

"SBI's operating metrics continue to see improvement with healthy loan growth, margin improvement, and lower slippages leading to lower core credit costs, which should sustain in the near to medium term. Balance sheet is strong, and the bank is well-positioned to gain market share on the business front. SBI's strong deposit franchise and better performance from subsidiaries are likely to favour the business," Sharekhan said in March month report.

SBI is an attractive play on the fast-growing Indian economy, with a healthy PCR, strong liability franchise, improving retail mix, higher-rated corporate loans, sustaining lower credit cost along with lower slippages, and improving asset-quality matrix.

In the past two years, results indicate its business strength and past few years’ efforts that have stood the bank in moving towards improving return profile. "We believe credit growth would be driven by both retail and corporate segments as capex intensity increases. We see upside risk to margins in the near term. Strong PPoP growth and lower credit cost given the benign credit cycle should lead to improvement in the return ratio profile," the brokerage firm said.

Meanwhile, in Q4FY23, SBI's credit growth is expected at 15 per cent year-on-year (YoY) to Rs 31,591 billion basing out post strong 18-20 per cent growth in last two quarters.

Overall net interest income (NII) growth to stay strong at around 23 per cent YoY to Rs 38,500 crore. Expect slippages at around Rs 4,000 crore with overall NPA provisions seen at Rs 4,500 crore. Expect strong profit growth trend to continue with a surge of 65 per cent YoY and 6.4 per cent sequentially to Rs 15,114 crore, the brokerage firm ICICI Securities said in result preview.