Kotak bullish on SBI among the PSU bank pack, raises price target

SBI is better placed than other PSU banks in terms of through-the-cycle credit cost, liability franchise asset franchise as well as digital enhancements, Kotak analysts have said

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The State Bank of India (SBI) stock, which has gained sharply in recent days, still has steam left, Kotak Institutional Equities has said, raising the target price to Rs 760, an upside of 18 percent from current levels.

The country’s largest is well-placed against other PSU banks, analysts at Kotak Institutional Equities said in a recent note as they retained the “buy” call on the stock.

In the past month, SBI, Bank of Baroda, Canara Bank and Union Bank of India have surged in 6-11 percent range as against an 8 percent rise in the Nifty PSU bank index.

Investors have been impressed by the PSU banks’ decline in slippages, which has been followed by a drop in gross non-performing assets (GNPAs).

ALSO READ: Chartist Talks | PSU Bank may continue to outperform in 2024, support rise in Bank Nifty

“We have now seen credit costs also decline as net NPA ratios for most PSU banks have converged to a level of 1 percent. The steady decline in credit cost has driven a steady improvement in return on equity (RoE) closer to mid-teen levels,” the brokerage firm said.

Asset quality for PSU banks has seen a steady recovery in the past few years toward the end of the corporate NPA cycle and even held up well through the Covid pandemic, contrary to popular expectations.

With increasing comfort in the outlook for asset quality and return ratios, Tier-2 PSU bank stocks valuation multiples were now closer to those of SBI, the analysts said.

ALSO READ: PSU banks set for re-rating, Motilal Oswal raises target prices for SBI, PNB, BoB

They, however, remain unsure if the tier-2 banks would be able to deliver superior return ratios for a longer period. This is the reason Kotak analysts think that SBI is better placed than other PSU banks.

“We retain a ‘buy’ rating for SBI as it remains our preferred stock within the PSU bank space,” they said.

They retained “add” rating for Bank of Baroda but downgrade Punjab National Bank to “reduce” from “buy” and Canara Bank and Union Bank to “add” for “buy”.

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