On Friday, August 28, 2026, global brokerage Jefferies announced the initiation of coverage on SBI Funds Management Ltd. with a 'Buy' recommendation. The firm set a target price of ₹710 per share, indicating a significant 26% upside potential for the stock from its current trading levels.
Key Differentiators and Growth Projections
Jefferies highlighted several crucial factors underpinning its optimistic outlook for SBI Funds. Central to its analysis is the asset manager's exclusive partnership with the State Bank of India (SBI), the country's largest public sector bank. This association, according to Jefferies, provides a unique competitive advantage.
Other key differentiators include SBI Funds' market leadership in rapidly expanding lower-tier markets, a well-diversified scheme portfolio, and substantial institutional scale. These elements are expected to drive robust financial performance in the coming years.
Operating Profit and AUM Growth
- Jefferies forecasts a 15% compounded annual growth rate (CAGR) in operating profit for SBI Funds through FY29.
- This growth is primarily expected to be fueled by an 18% growth in mutual fund Assets Under Management (AUM) and enhanced operating leverage.
- The brokerage anticipates mutual fund average AUM to grow by 13% between FY26 and FY29, with closing AUM growth reaching 18%.
Valuation and Parent Bank Advantages
The target price of ₹710 is based on 40 times the estimated operating profit after tax (OPAT) for September 2028. This valuation multiple aligns with that of HDFC AMC, reflecting a similar earnings growth profile between the two asset management companies.
SBI Funds currently trades at 37 times its September 2027 estimated operating profit, placing it at a 5% discount to HDFC AMC and a 10-20% discount to peers like ICICI AMC and Nippon Life India Asset Management (NAM).
Strategic Benefits from SBI
Jefferies identified three primary advantages derived from SBI Funds' parent bank, State Bank of India:
- Expansion Opportunity: The average mutual fund AUM per SBI branch currently represents only 10% of its retail deposits, suggesting vast untapped potential for growth.
- Lower Distribution Costs: The cost of distribution for SBI Funds stands at 65 basis points, which is lower than the 68-69 basis points typically incurred by other banks.
- Customer Affinity: The strong affinity of SBI customers towards SBI Funds' schemes could mitigate performance-related risks, ensuring more stable growth.
New Opportunities and Future Outlook
Despite a projected slower PAT growth of 13% CAGR due to a one-time interim special dividend in FY26, SBI Funds' scheme performance has shown consistent improvement. In 2025/2026, two to five of its schemes ranked in the top tiers, a notable improvement from just one in 2024.
Looking ahead, SBI Funds is actively exploring new avenues for growth. Alternatives accounted for 4% of its FY26 revenue, and the asset manager plans to roll out new products across portfolio management services (PMS), alternative investment funds (AIFs), and specialized investment funds (SIFs) to cater to affluent customers. A near-term strategy includes entering the 'mutual fund-only PMS' category, offering a lower ticket size of ₹25 lakh to scale up its presence meaningfully.