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State Bank of India (SBI) has seen a boost in its stocks, becoming the second public sector company with a market cap over Rs. 6 trillion.
This surge is due to the Finance Minister's lower-than-expected borrowing plans, which could make existing bonds more valuable for banks like SBI.
Despite a drop in Q3 net profit, SBI's gross non-performing assets have reduced, and brokerage firms maintain a 'buy' rating on the stock, predicting controlled credit costs and robust returns.

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For Q3, SBI reported a 35.5% YoY drop in standalone net profit to Rs. 9,164 crore

SBI becomes second PSU company with over Rs. 6T m-cap

By Pratyaksh Srivastava

Feb 07, 2024

06:24 pm

What's the story

Shares of the State Bank of India (SBI) soared over 4% to all-time high of Rs. 675 each, raising its market capitalization above Rs. 6 lakh crore. SBI is now the second public sector undertaking (PSU) company, after Life Insurance Corporation, to attain this milestone. Apart from these two firms, Reliance Industries, TCS, HDFC Bank, ICICI Bank, Infosys, and Bharti Airtel have a market capitalization exceeding Rs. 6 lakh crore, per BSE.

Growth projection

Factors behind the surge in PSU bank stocks

PSU bank stocks are seeing a boost because Finance Minister Nirmala Sitharaman has set gross and net market borrowing for FY25 slightly lower-than-expected at Rs. 14.13 lakh crore and Rs. 11.75 lakh crore, respectively. Lower borrowing generally leads to lower bond yields, making existing bonds more valuable. This could benefit public sector banks heavily invested in government bonds. The anticipation of the RBI maintaining the repo rate and higher capital expenditure in the Budget is also supporting PSU banking stocks.

Q3 indicators

SBI's Q3 performance and provisions

For Q3, SBI reported a 35.5% YoY drop in standalone net profit to Rs. 9,164 crore. SBI expects lower wage provisions at Rs. 5,400 crore for Q4 FY24. The bank's gross non-performing assets (NPA) were reduced to 2.42%, down from 3.14% recorded YoY. Net interest income (NII) stood at Rs. 39,815 crore, missing estimates of Rs. 40,304 crore. However, the total interest earned increased 22% YoY to Rs. 1.05 lakh crore in Q3 FY24.

New targets

Brokerage firms' ratings and target prices for SBI

Following SBI's Q3 results, Motilal Oswal increased its FY25 earnings per share estimates by 4.6%, expecting controlled credit costs after completing wage and pension provisioning in FY24. It predicts a 1.1% and 19.6% RoA and RoE for FY25, maintaining a 'buy' rating with an unchanged target of Rs. 800 per share. Phillip Capital also kept its 'buy' rating on the stock and raised its target price to Rs. 720 per share from an earlier price of Rs. 660.