Brokerages Are Bullish On SBI Stock Despite Huge Quarterly Loss: Here's Why?

Some of the brokerages including IIFL are bullish on the stock of SBI despite the industry's secod-large quarterly loss reported to the tune of Rs. 7,7178 crore for the quarter ended March 2018. The outlook is even fortified by the bank's chairman who highlights the fact that most of the NPAs are now recognized and the worst is now over for the bank.

Stock of PSUs including SBI tumbled by as much as 30-60% even when Sensex rose

The RBI's stressed assets ruling released in the month of February this year is one big reason for the fall in PSU bank stocks other than the huge NPA pile the counter faced. The ruling led to the classification of more accounts as NPAs which greatly pushed provisions by the bank and hence weighed on its profitability.

During the same time, as bond yields hardened bank's confronted huge mark to market losses and government came as a rescue to these lenders and allowed its spread over a comparatively larger timeframe.

Current situation affirm a positive outlook for SBI stock

After resolution of debt-ridden Bhushan Steel under IBC and its acquisition by the steel major-Tata Steel, the largest state-run lender has managed to recover some Rs. 10,000 crore in debt. And as more such stressed account resolutions are lined up, the PSU banking industry as a whole is likely to prosper who till now was laden with huge NPA pile.

Plus bank's head has also given his recovery plans over the next year and provided guidance on some of the important metrics exuding his confidence in the bank. In the short term, the bank wants to go slow and cautious in his corporate loan book and at the same time grew its credit line up by 10% in the FY2019 and by 12% in the next FY. With the host of the factors at hand, the bank aims to increase its NII to over 3%. Focus will be put on the retail segment with a drive towards lowering slippages and increasing return ratios.

Further, it will also work towards to improve its asset quality by bringing GNPA lower by 45% to less than 6% and net NPA to below 2.3%.

SBI stock which currently trades at around 260 can give you as much as 30% returns in one-year's time if brokerages are to go by. IIFL has placed its one-year target price for SBI stock at Rs. 320 while its 5-year price is set at Rs. 600. So, the investor's money can well be doubled through investment in the stock in as many as 5 years. Also, the current valuations of the stock are highly attractive and reasonable for an investor to put their bet on the stock.

Also, the recapitalization programme will be a boost for the bank and yield results in a matter of some time if not immediately.

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