Analyst optimism peaks in 17 years for India’s largest lender
(Bloomberg) – Market watchers haven’t been so bullish on the State Bank of India for nearly two decades, as they are betting on improving the quality of the lender’s assets to help it weather the pandemic.
Of the 48 analysts who cover the stock, 47 recommend buying and only one has a hold rating – a ratio of 98% which is the highest since June 2004, according to data compiled by Bloomberg. The 12-month consensus price target calls for an 18% gain, almost double that of the benchmark S&P BSE Sensex.
Strategists expect India’s reputable lenders to weather the impact of a slowing economy with robust provisioning and new measures that will allow them to mask the true extent of their bad loans until 2022. This could boost the performance of the sector – which has been average – the pack this quarter – in a stock market that looks beyond the economic impact of a surge in Covid-19 cases in India as the index hits new records.
State Bank of India earnings are likely to keep pace as the balance sheet cleanup is largely complete, said Gautam Duggad, head of research at Motilal Oswal Financial Services Ltd. The quality of retail assets is “impeccable with slippages significantly lower than those of its peers,” he added. .
The publicly listed bank, which controls one-fifth of the country’s lending market, posted record profit above estimates in the last quarter, helped by lower provisions for bad debts. He reported a decline in newly soured assets – the slip ratio – as well as gross non-performing assets for the year through March.
Return on equity could rebound by around four percentage points to exceed 12% in fiscal 2022 due to better asset quality, Bloomberg Intelligence analyst Diksha Gera wrote in a note that no ‘does not include a rating on the share.
That said, the bank has not given guidance on its slippage ratio due to the uncertainty surrounding the pandemic. The quality of its assets will remain under pressure after the removal of restrictions on the classification of bad debts in March.
Yet even strategists at Societe Generale SA, who downgraded Indian stocks to underweight on Friday, see the bank as a bright spot. Banks have been “cautious about lending to individuals and small businesses, the two most vulnerable segments,” and have raised more than $ 11 billion in equity over the past year, which has contributed to the ratios. provisioning for loan losses, according to the SocGen note.
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