Time to buy? UBS upgrades SBI, Bank of Baroda stocks, raise target prices

SBI share price: Among the two, however, UBS is more bullish on Bank of Baroda stock due to inexpensive valuations

UBS upgrades SBI, Bank of Baroda: Global brokerage UBS has upgraded ratings on two public sector banks (PSBs) – State Bank of India (SBI) and Bank of Baroda (BoB) – on expectations that the likely monetary policy easing by the Reserve Bank of India (RBI) in the coming months could improve the lenders’ growth outlook.

 

Besides, the recent underperformance of SBI and BoB stocks has improved their risk-reward outlook, UBS said.

 

Among the two, however, UBS is more bullish on Bank of Baroda stock due to inexpensive valuations.

 

Over the past 12 months, Bank of Baroda share price has delivered negative returns of around 16 per cent as against the benchmark Nifty’s around 8-per cent rally. It has, also, underperformed the Nifty Bank Index by roughly 24 per cent in the past one year owing to growth and margin pressure.

 

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"At 0.8x September, 2026, P/BV estimates, the risk-reward appears attractive given the improving growth outlook which, along with stable asset quality trends and better NIM outlook, can enable steady return ratios over the medium term," said UBS in its recent report.

 

As for SBI, the analysts at the brokerage pointed out that the stock trades at 1.0x September, 2026, P/BV estimates, which is 20 per cent higher than BoB’s valuation, as the Street is factoring-in higher than system growth.  ALSO READ | DMart falls 5% after Q4 update; Citi says margins key to sustain valuations

 

"We, however, believe capital raise remains an overhang. That apart, there is limited scope for the return on asset (RoA) ratio to expand from here as core operating profit to assets ratio remains range bound. We believe the risk reward is balanced at current valuation levels and there is limited upside from here," it said.

 

What UBS said on SBI share price target, outlook?

While upgrading SBI stock to 'Neutral' from 'Sell', UBS said that SBI could benefit from low cost of funds amid high liquidity in the system, and tax rebate announced by the government in Budget 2025.

 

That apart, the public sector bank, it said, has relatively low External Benchmark Lending Rate (EBLR) which could limit net interest margin (NIM) decline in a rate cut cycle. Thirdly, credit costs may remain steady as the corporate asset quality cycle is benign at present.

 

"That said, we estimate sub-1 per cent RoA levels for FY26/27E. Any material re-rating will depend upon sustaining NIMs in our view. We raise our share price target on SBI to ₹840 (from ₹760) as we believe risk reward is balanced at current valuation levels," UBS said.

 

Financially, State Bank of India reported a 13.8-per cent year-on-year growth in loans in 9MFY25, compared to 11.5 per cent Y-o-Y growth for the industry. The bank's deposits were up 9.8 per cent while CASA was down 190 basis points.  ALSO READ | High dividend yield stocks: 10 companies to watch for passive gains

 

SBI has an EBLR book of around 40 per cent vs 45-60 per cent for private peers. The CET-I for the bank stood at 11 per cent at the end of the December quarter of the previous financial year (Q3FY25) compared to 16-17.5 per cent for HDFC Bank and ICICI Bank. Calculated Cost of funds for SBI is at 5.1 per cent vs 5 per cent for ICICI Bank and 5.7 per cent for HDFC Bank.

 

UBS upgrades Bank of Baroda to 'Buy'

Striking a rather optimistic note about Bank of Baroda, UBS said the RBI has been constantly introducing measures to improve liquidity in the system, which has resulted in a liquidity surplus of ₹80,000 crore as of March-end vs peak deficit of ₹3.3 trillion.

 

This, coupled with repo cut of 25bp and other regulatory easing, bodes well for the overall growth environment for Bank of Baroda.

 

“"Domestic loan growth for Bank of Baroda has been healthy at 12 per cent Y-o-Y, driven by the Retail and MSME segment. This, along with modest loan-deposit ratio (LDR; 83 per cent) and liquidity coverage ratio (LCR; 130 per cent) provides leeway for growth. A higher MCLR book at 47 per cent vs peers should support margins. Moreover, a lower mix of unsecured loans and stable asset quality in the MSME segment should also keep the credit cost controlled," UBS said.  ALSO READ | HDFC Bank shares up 2% on reporting 14% rise in period-end deposits YoY

 

The brokerage has upgraded Bank of Baroda stock to 'Buy' from 'Neutral' with a higher share price target of ₹290 (from ₹270).

 

Going ahead, UBS estimates BoB’s loan growth at 12 per cent over FY26-27E on easing supply side constraints. Further, it has lowered its credit costs estimate by 20-25bp to 70-75bp for the period and expects RoA/RoE to remain steady ~0.9 per cent/13 per cent over FY26-27E. The brokerage's EPS (earnings per share) has been increased by 8 per cent/15 per cent for FY26/27E.