Buy State Bank of India; target of Rs 710: Sharekhan

Sharekhan's research report on State Bank of India

We believe the Indian banking sector is expected to remain resilient despite recent local/global macro concerns. SBI is a sector proxy that benefits from its strong liability franchise and continued favourable sector tailwinds. Loan growth trends are expected to remain healthy, led by broad-based credit growth across the retail (especially unsecured), SME, and corporate portfolio. Upside risk to margins persists – a) Transmission of MCLR rates (~185 bps passed on till now vs. 250 bps rate hike) on corporate loans is yet to happen, which provides sufficient headroom for NIM expansion, offsetting any increase in cost of deposits and b) delay in rate hike pause.

Outlook

We believe there is an investment case for gradual improvement in the core ROA trajectory in the near term. At the CMP, SBI trades at 0.8x/0.7x its FY2024E/FY2025 core ABV. We retain our Buy rating on SBI with an unchanged PT of Rs. 710. The bank is our top pick among PSU banks and is available at a bargain valuation.

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