Analysts turn bullish on SBI, ICICI Bank after apex court’s verdict in Essar Steel case

Battered banking stocks suddenly found favour with analysts and brokerages. According to them, the reasons for the change in sentiment towards banking stocks, especially SBI and ICICI Bank, are the recent verdict of the Supreme Court in Essar Steel case upholding IBC resolutions and easing of stress in the telecom sector.

For SBI, the upcoming initial share sale of its card division is an added booster, they said.

According to UBS, three positives for SBI will offset three risks for the next 12 months. “IBC resolutions likely to offset recent stress; SBI seems well positioned for recoveries due to IBC resolutions over the next six months that we believe would offset pressure from recently stressed large corporates.

“The recent Supreme Court judgment supporting the claim of financial creditors over operational creditors (link) is likely to enable faster resolution of future National Company Law Tribunal (NCLT) cases. Value-unlocking in its cards and AMC business would also support its overall valuation. SBI (banking business) is trading at 0.9x FY21E P/BV (the past five-year average) and it has already made provisions for a large part of its NPLs.”

However, the major risk “to our thesis is further deterioration in SME and mid-corporate asset-quality and large telecom exposure,” it said while maintaining its ‘buy’ rating and raising the price target to ₹450 from earlier ₹350.

According to JP Morgan, Essar Steel was one of the largest outstanding NPAs in the system and a resolution here albeit delayed (850 days vs 330 day timeline set by NCLT) bodes well. “We believe the event is a positive for SBI and ICICI Bank specifically, given the large amount of provision writebacks likely for these two banks,” it added. Brokers are also advising buying SBI ahead of the IPO of SBI Cards and Payment Services, as they would be eligible to receive shares of the latter under a special category.

Edelweiss, in its report said, ICICI Bank, after more than a decade, hosted an analyst day showcasing its digital/data analytics prowess, focussed execution strategy, robust credit/risk management framework and ability to seize the entire customer ecosystem opportunity.

“The bank’s cultural alignment was reflected in the entire top and middle management team reiterating unwavering focus on risk calibrated core operating profit growth underpinned by the ‘One Bank, One RoE, One KPI’ narrative,” it said, and reiterated its high-conviction ‘buy’ with SOTP-based target price of ₹606 .