SBI: Declining trends of bad loans nightmare ?

Technically, SBI (CMP: 282) need to sustain over 279 for an immediate target of 295-305. Consecutive closing above 305, SBI may target 315 & 336-341 in the short to medium term. In the long term, sustain above 336, it may scale 365-415 zone (FY:17-18), under bullish market scenerio.

On the downside, sustain below 273, SBI may fall to 267-255-248 area. Consecutive closing below 248, it may crash to 228-219 zone in the bear case scenerio.

Bottom Line (Cyclical Trading Levels):

	SL</>3	FROM SLR
		SBI	CMP	282
			T1	T2	T3	T4	T5	T6	T7	SLR
Strong >	279		286	296	305*	312	315	322	336	<273
Weak <	273		267	259	255*	248	239	228	219	>279

Although, yesterday's Q4 result of SBI is well above market expectations, but a quantum jump in restructured loans/CDR apparently spoiled the party. Net profit supported by lower cost of funds & lower provisioning and higher other income (treasury gains & core fee income). Both gross & net NPA level showed some improvement, thanks to higher recoveries in March QTR.

However, with gross NPA levels of around 56730 cr & fresh CDR of around 11885 cr, SBI has indeed raised some concern. But this (fresh restructuring) may be an one time exceptional item & accounting tricks. as it used special dispensation window provided by RBI (up to March'15) for lower provisioning.

Going ahead, SBI's as well as other PSU Bank's massive stressed assets improvement will largely depend upon on the pace of economic recovery in India in the next few quarters. Like all other PSU Banks, it has also some recapitalization issues & the bank is waiting for right time to issue QIP also, which may dilute net EPS. But overall. SBI is certainly ahead of other PSU Banks in terms of asset quality and operational performance. But the market may look for another two/three quarters to confirm the declining trend in net NPA(s) for SBI and other PSB(s).

It will be better for overall Indian economy to have a lower real rate of interest. Forget about DM's & US's Central Bank's interest rate, look at China's interest rate of around 5.1% against India's current 7.5%. How, Indian corporates & SME"s compete with their counterpart in EM & DM's by taking funding from Indian Banks ? Minimum RBI rate of 7-6% may be required along with full transmission by banks within next 2-3 QTRS for a visible change in sentiment & gradual economic recovery along with other macro economic factors.

As par BG metrics, current median valuation of SBI is around 270 and projected valuation may be around 300-330 (FY:16-17) under the current market conditions.

SCRIP	EPS(TTM)	BV(Act)	P/E(AVG)	LONG TERM	SHORT TERM	MEDIAN VALUE	200-DEMA	10-DEMA
SBIN	22.76	197.4	11.45	267.83	272.33	270.08	275.25	284.58

SBIN

28.16

227.01

11.45

297.91

302.92

300.41

275.25

284.58

SBIN 33.8 261.06 11.45 326.38 331.87 329.12 275.25 284.58