Why the PSU bank stock is Axis Securities’ top pick for this month


Amongst the PSU banks, State Bank of India (SBI) continues to be the best play on the gradual recovery of the Indian economy given the bank’s healthy PCR, robust capitalization, a strong liability franchise, and an improved asset quality outlook, highlighted domestic brokerage house Axis Securities. 

“We believe credit costs normalization and improved operational performance will lead to double-digit ROEs of +15% over FY22-24E,” the note stated. The brokerage has maintained its Buy rating on SBI shares, and has recommended as its top stock pick for the month of April 2022, with a target price of 720 share.

State Bank of India (SBIN) is the largest public sector bank in terms of assets, deposits, branches, number of customers, and employees and has a pan-India presence as well.

“We believe SBIN’s unsecured lending profile is robust with >90% comprising salaried government employees. Retail book traction at around 15% remains healthy. While it is supported by home loans and express credit, further improvements are likely in the forthcoming quarters,” said Axis Securities.

Further, the bank’s market share in Home loans and Auto Loans is over 20%. With contained stress formation, recoveries from legacy NPAs, and broad-based growth in the loan book, the bank’s ROAs are expected to recover to the historical range of 0.7%-1% after a 6-year down-cycle, as per the brokerage.

“Apart from core banking, SBI’s subsidiaries are expected to continue adding further value. The bank has a strong presence in various financial services operations such as credit cards, insurance (life and general), asset management, pension funds, investment banking, institutional, and retail broking, among others. Most of these financial services are generating stable returns and support the overall performance of the bank,” Axis Securities’ note added.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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