Amid banking ruins, State Bank of India stays a top pick

MUMBAI: It’s well known that investors who take contrarian bets make more money than those who ride the tide. Going by the current mood, banks may be the bad boys of markets, but State Bank of India is looked upon differently, despite its chairman saying that the worst isn’t over for the bank.

According to Bloomberg data, about 29 brokerages out of 41 have given ‘buy’ call on SBI as they attribute the current performance of the bank more to cleaning-up of balance sheet, rather than anything else. Such recommendations have come since February 11, the day SBI announced its December quarter results.

SBI shares dropped about 6.5 per cent to close at Rs 156.40 on Tuesday on the BSE after its chairman Arundhati Bhattacharya predicted more pain for the next quarter. But the longterm outlook is bullish. Centrum Broking sees SBI shares surging more than 35 per cent in a year. "Except SBI and Bank of Baroda, hardly any state-owned bank is in a position to absorb the entire asset quality risk and still meet regulatory requirements," said Aalok Shah, banking & financial services analyst, Centrum Capital.

"Management asset quality review and recovery efforts along with capital position have mostly helped trigger buy calls on SBI shares." The bank’s return on equity (RoE), a key measure to judge shareholders’ worth, is now at 9.5 per cent against 0.50-0.60 per cent for most public sector banks.

Even if new bad loans, or slippages, go up by 2 per cent, RoE is not expected to fall below 7.4 per cent, shows an estimate by Centrum. The brokerages which are bullish on SBI shares from a long-term perspective include Kotak Securities, HSBC, Daiwa Securities, Axis Capital, HDFC Securities, India Infoline, Motilal Oswal Securities, Emkay Shares and Prabhudas Lilladher.

SBIndia has reported a 61 per cent drop in net profits at Rs 1,115 crore for the three-month period ended December 2015, which was way below Rs 3,270 crore, the figure that an ET Now poll had predicted.