Global investment advisory firm Morgan Stanley has increased its price target of State Bank of India to ₹600 from ₹525 due to the lender’s strong retail franchise, sustained increase in deposit market share and progress on digitisation. Morgan Stanley, in a bull case scenario, has set a target price of ₹765 if return on assets rises more than one per cent in 2021-22 (April-March) and 2022-23. It retained its Overweight rating on the stock.

Following this, the stock registered an all-time high at ₹426.45 on the BSE.

Morgan Stanley expects a virtuous growth cycle in India and has also raised its GDP growth estimates for the country for the next two financial years.

“The current macro-economic condition reminds us of the economic backdrop for banks in early 2000 when banks had gone through a deep non-performing loans cycle and a fall in bond yields helped recapitalise their balance sheets,” it said in a report.

Against this backdrop, valuation of SBI has significant upgrade, the global brokerage firm said, and added that SBI has built a strong retail franchise and also sustained its deposit market share. Even on digitisation, the progress has surprised, unlike peer State-owned banks.

It also said SBI reminds it of China Merchants Bank, a well-run bank promoted by the state, as the China-based lender showed sustained improvement in its retail franchise compared to the country’s other state-owned banks and achieved better profitability.

Further, the brokerage expects SBI to generate loan growth of 10-12 per cent over the next two to three years on the back of excess liquidity in its balance sheet along with loan-deposit ratio at close to 60 per cent. The overall retail asset quality of SBI remains superior to its state-owned peers and is in line with large private banks, Morgan Stanley said.

However, higher margins due to decrease in excess systemic liquidity and increase in interest rates and lumpy recoveries are key risks to the upside target call, the international brokerage said.

Shares of SBI closed the day with a minor gain of 0.75 per cent at ₹415.

Published on February 18, 2021