Mumbai: Leading American investment bank Morgan Stanley on Wednesday said it maintains the "underweight" rating on State Bank of India, with a target price of Rs 1,425 a share, as it sees asset quality issues at the nation's largest lender.
The report comes after the i-banker had a meeting with the SBI management earlier in June and shortly after the state-run lender wrote to rating agency Moody's to revise upwards its rating, which had been lowered to near junk status last year.
However, investors ignored the 33 percent downside call from Morgan Stanley report as the SBI counter closed nearly flat at Rs 2113.40, or down 0.13 percent from yesterday's close of Rs 2116.10 on the BSE today after touching Rs 2138.55 intra-day on a choppy trade when the Sensex closed 61.18 points.
Maintaining the reason for the "underperform" outlook, a Morgan Stanley report released on Wednesday said, "asset quality pressures will intensify at SBI in the current fiscal" as "the flow of bad loans will be lumpy," as most of the bad loans will be coming in from corporates.
"We maintain out underweight rating on SBI. Our current forecast assumes credit cost of 112 basis points (PAT sensitivity of under 5 percent to 10 bps increase in credit cost) and margin decline of under 30 bps (PAT sensitivity of over 7 percent to 10 bps increase in margins) for SBI in FY13," the report said, adding it has a stock price target of Rs 1,425 in the medium term, which is a 33 percent downside to the current market price.
One basis point is one hundredth of a percentage point.
According to the investment bank, the SBI management had indicated gross and net new non-performing loan in Q1 of the fiscal year could be at Rs 5,000 crore and Rs 3,000 crore, respectively at a meeting with them recently.