SBI shares set to rise over 20% - Here's why you should buy the stock now

Among banking sector, the largest lender State Bank of India (SBI) is now seen as a standout performer. On Tuesday, with just a few minutes left for markets to close, SBI share price was at Rs 364.20 per piece, up by nearly 1% on Sensex. However, so far in the trading session, SBI has touched an intraday high and low of Rs 364.25 per piece and Rs 360.35 per piece respectively. SBI is one of the most important stocks on the market, and now, notably, it is seen as the best player when it comes to recovery from credit cycle. In last quarter of FY19, the bank also recorded a major revival in terms of asset quality and loan book especially post merger. 

HDFC Securities in its research note said,"Within the PSU banking space, SBI remains the best play to benefit from the recovery in the credit cycle. Healthy recoveries/write backs from the NCLT accounts and decline in incremental slippages would drive further improvement in asset quality. RWA (Risk Weighted Assets) is coming down due to the high focus on quality corporates."

The bank is focusing on improvement in overseas book through relocating to other international geographies where it can manage higher yields. The management has guided for 12%-14% credit growth in FY20 and NIMs and RoA of 3.25% and 0.75%-1% respectively. 

The note added, "Pick-up in loan growth and resilient margins are likely to keep revenue growth buoyant. GoI support for infusing capital provides comfort. Subsidiaries growth and presence in key areas provides value unlocking possibilities. Post the expected consolidation and shakeout in the space, SBI could emerge even stronger."

However, the note also highlighted that, in case slippages continue from other areas (Retail, Agri, MSME etc) and/or there is undue delay in recovery from NCLT cases, the stock price of SBI could underperform.

What should an investor do? 

HDFC Securities expert in the note said, "We feel investors could buy the stock at the CMP, and add on dips to the Rs 314-318 band (1.0x FY21E Core ABV+ Sub value Rs 94) for sequential targets of Rs 405 (1.4x FY21E Core ABV+ Sub value Rs.94) and Rs 438 (1.55x FY21E Core ABV+ Sub value Rs 94). At the CMP of Rs 360.9, the stock trades at 1.2x FY21E Core ABV+ Sub value Rs 94."