Shares of the State Bank of India (SBI) recently dropped to a three-month low, reflecting a short-term downtrend for India's largest public sector lender. The stock hit Rs 979.90 in recent trading sessions, leading to a significant reduction in its market capitalization to Rs 9.04 lakh crore.
NSE IPO Size Reduction Impacts SBI
A primary factor contributing to the decline in SBI's share price is the National Stock Exchange's (NSE) decision to reduce the size of its initial public offering (IPO). The NSE has trimmed its planned IPO from an initial Rs 30,000 crore to approximately Rs 23,500 crore.
Consequently, SBI, which holds a stake in NSE, has also adjusted its stake sale in the IPO. The bank plans to sell around 0.7% of its holding, down from a previously anticipated 1%. This adjustment means SBI is now expected to receive up to Rs 2,851 crore from the IPO proceeds, a figure lower than earlier projections.
Despite the reduced proceeds, it's important to note that SBI stands to make a substantial profit from its investment in NSE. Records from the red herring prospectus (RHP) indicate SBI initially acquired shares at a mere Rs 0.8, while the upper end of the IPO price band is set at Rs 1,785 per share.
Rising Costs for FCNR(B) Deposits
Another element influencing market sentiment around Indian banking stocks, including SBI, is the projected increase in costs associated with Foreign Currency Non-Resident (Bank) or FCNR(B) deposits. According to industry reports, Indian banks are likely to face a surge of 15-20 basis points in costs for these deposits, over and above the interest already committed to depositors.
This increase stems from the need for banks to separately hedge the dollar liability arising from interest payments on FCNR(B) deposits. The cost of hedging this currency exposure is sensitive to forward premium levels and the interest rate differentials between currencies, adding a layer of financial burden for lenders.
Brokerage Outlook on SBI
Despite the recent downturn, some analysts maintain a positive long-term view on SBI. Brokerage firm Axis Securities, for instance, has reiterated a 'buy' recommendation for the SBI stock, setting a price target of Rs 1280. The firm highlights SBI's strong position to capitalize on India's economic growth, citing its dominant market presence, improving operational efficiency, robust capital base, and increasing involvement in emerging sectors such as renewable energy and data centers.
Axis Securities anticipates SBI will demonstrate strong financial performance into FY27, backed by healthy capitalization, solid asset quality, and sustained growth momentum. The brokerage projects a Credit/Deposit/NII/Earnings CAGR of 14%/11%/15%/9% respectively, over FY26-28E, with a consistent Return on Assets (RoA) of approximately 1%.