Broking firms cut price targets for SBI, but retain ratings

MUMBAI: Most leading broking firms cut their price targets for State Bank of India (SBI) shares while retaining their ratings, after the country's largest lender stunned investors and analysts with a unexpected drop in profits.

Analysts said worries about the impact of shrinking margins and bad debt in its agricultural loan portfolio on profits could weigh down the stock in the near term, but investors may resume purchases on further declines.

"Despite concerns on asset quality after the recent fall and underperformance, there could be a potential upside in the medium term," said Avendus Securities, in a report, post-results.

"We lower our net profit growth forecast for FY12f (forecast)-FY13f by up to 33%," the broking firm said.

Shares of SBI fell 2.4% to 2,355.70 on Wednesday, after falling almost 8% the previous day, when the bank announcedhe results.

While SBI has projected an expansion in net interest margins - the difference between banks' borrowing and lending costs - in the next financial year, some analysts are not buying this forecast.

"We expect NIMs to continue to come off - we are taking NIM down to 2.8% by F4Q12 in our model - and credit costs to be higher than our earlier estimates as we now build in revised RBI guidelines on provisioning on new non-performing loans (NPLs)," Morgan Stanley said in a report.