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UBS downgraded SBI from a “buy” rating to a “sell,” lowered the target price from Rs. 740 to Rs. 530, and increased credit charges by 10 basis points. The downgrading is a result of the assumption that RoA and Return on Equity (RoE) will drop by FY25. These possible decreases are thought to be caused by the bank’s declining profitability and rising lending expenses.
October 13. This is the lender’s first “Sell” rating. The target price for the same was significantly reduced, from Rs. 740 to Rs. 530, suggesting their pessimistic assessment of the bank’s stock performance.
UBS, which cited a number of factors for changing their rating, also highlighted rising worries about the bank’s potential performance in the future. The strongest financial indicators for SBI may already be in the rearview mirror, according to an analysis by UBS. Return ratios are expected to peak in FY24 and fall in FY25, according to their forecast.
According to the research, SBI may face higher credit expenses in FY25 as a result of expectations that retail loan delinquencies would grow, notably in the unsecured lending category. A considerable rise in credit costs was also predicted by UBS, with estimations indicating that they will reach 85 basis points (bps) in FY25, up from 56 bps in FY23 and their earlier prediction of 65 bps for FY24.
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The UBS analysts predict that SBI’s margins would remain restricted close to present levels, mostly as a result of elements including increased loan costs and a difficult economic climate.
By FY25, SBI’s Return on Assets (ROA) and Return on Equity (ROE), which represent a less favorable outlook, are anticipated to moderate to 0.72% and 11.7%, respectively.
“SBI’s Common Equity Tier 1 (CET1) capital ratio stands at 10.8%, leaving limited room for man oeuvre in the event of regulatory tightening,” UBS stated.
Axis Bank and UBS have set a price goal of Rs 1,100, down from Rs 1,150
After the international brokerage company cut their ratings due to worries about an increase in credit losses, while Axis Bank plunged by more than 2 percent. “Indian banking sector’s risk-reward is turning equal,” UBS reported.
The price objective for the Axis Bank shares has been decreased from Rs. 1,150 to Rs. 1,100, and the stock has been downgraded to “neutral.” Credit costs are close to their lowest point while private lender profits are at their highest point. According to UBS, its RoA is expected to decline in FY25. Net interest income (NII) is predicted to climb by a single digit percentage during the upcoming three quarters. The firm believes that the stock has just little upside potential.
The Axis Bank stock has increased by over 24 percent over the past year, above the 14 percent growth of the Nifty Bank index. SBI, a public sector lender, outperformed Nifty Bank last year, increasing over 10%.
Key straddle position at 19,700 strike as Nifty breaks gaining run
The benchmark market indices are currently trading in the red, snapping their two-day winning streak. While the real estate index is up 1%, the IT, electricity, and bank sectors are down 0.5–1 percent.
According to V K Vijayakumar, Chief Investment Strategist of Geojit Financial Services, “the market is susceptible to two main macrotrends. While the domestic trend is mostly good, the global trend is marginally negative. Retail inflation in the US for September came in at 3.7 percent, which was somewhat higher than anticipated.
This greater inflation tendency has the effect of lengthening the time it will take to reduce US inflation to its long-term objective of 2%. As a result, rates will continue to be higher for longer. This will prevent the stock market from rising.
On the other hand, domestic dynamics have changed dramatically for the better, with the IIP for August climbing impressively to 10.3 percent and the CPI inflation inching down sharply in September to 5.02 percent. This suggests that the MPC may wait out the remaining months of FY 24 before considering a rate drop in Q2 of CY 24.
Although this is good for the economy, the results of the big IT companies, who are having trouble with weak revenue projections for the next fiscal year (FY) 24 and a lack of certainty over growth recovery, are expected to drag down the market. The market can continue to be supported by reputable financial brands.