Why SBI could give 16-40% returns in 1 year?

SBI, or State Bank of India, is a renowned name in the banking world. Incorporated in 1806, it is ranked as the 43rd largest bank worldwide. It is one of the oldest public sector commercial banks and has over 20 decades of servicing customers in and across the country. Not only India, but SBI has a presence with over 200 overseas offices in over 36 countries, including Bangladesh, Canada, the UK, Mauritius, Australia, SBI Sri Lanka, Nepal, Moscow, Kenya, and Seoul.

SBI share price at the time of writing is Rs. 553.50, and its market capitalization stands at Rs. 4,93,218.68 crore.Let us look at the highlights of Q1FY23 quarterly results that the bank recently announced:

1. The bank balance sheet size has crossed Rs. 50 lakh crore.
2. Credit growth is 14.93% YoY. Foreign offices’ advances increased by 22.39% YoY, while domestic advances increased by 13.66% YoY.
3. Domestic advances growth was driven by Retail Personal Advances by 18.58% YoY, out of which home lone grew by 13.77% YoY.
4. The corporate Loan book is up by 10.57%, and SME and Agri Loan have seen the growth of 10.01% YoY and 9.82% YoY.
5. CASA Deposit growth increased by 6.54% YoY, outpacing the overall bank deposit growth of 8.73% YoY. As of June 30, 2022, the CASA ratio was 45.33%.
6. Net Interest Income (NII) for Q1FY23 increased by 12.87% YoY.

SBI is expected to continue its outperformance as it has broken out above a bullish flag formation, indicating that the uptrend will continue and provide a new entry opportunity. The SBI share price has fully retraced its 19-week slide (from 549 to 431) in just seven weeks, which is an important finding. A faster retracement in less than half the time indicates strength and a robust price structure.

Weekly MACD (Moving average convergence/divergence) is in uptrends and can be seen diverging from its nine-period average, signalling an acceleration of the up move.The stock is to continue its upward trend and head towards Rs. 587 in current months, as it is the 138.2% external retracement of the February-June 2022 fall (Rs. 549 to Rs. 431).

Conclusion

With a balance sheet size of over 50 lakh crore, SBI is the largest bank in India and a public sector member. Its retail portfolio is strong, and among PSU banks, its operating indicators are the best. Strong subsidiaries increase the bank’s value.We continue to be encouraged by the overall robustness of the lending industry, the projection for growth in liabilities of 12–14%, and the well-provisioned book. Increasing return ratios, with RoE at around 12% and RoA at 0.7–0.8%, provide the company with long-term clarity.

Additionally, the recent quarter’s performance was decent on the business growth front, with advances growing 14.9% YoY, driven by the retail & corporate segment.A comfortable earnings trajectory is provided by prudent asset quality (GNPA at 3.9% and R/s at 0.9%) and adequate provision coverage (75%). Therefore, we anticipate an increase in RoE of 12% in FY24E, along with earnings growth of 11% CAGR in FY22–24E.