Recommendation: Buy
CMP = Rs 2,300
Price target: Rs 2,680
Key points:
- State Bank of India (SBI) has received the government's approval for its Rs 16,740 crore rights issue to be concluded this fiscal. The government is likely to invest Rs10,000 crore to maintain its 59.7% holding in SBI.
- The actual number of shares to be subscribed, the tenure of the securities and other modalities will be worked out by the government in consultation with the bank in due course of time. The government is expected to issue bonds (paying a coupon of 7.9% per annum) to fund its investment in the SBI rights issue.
- The public sector behemoth SBI remains one of our top picks in the banking space. We state below four reasons why I feel SBI should be a Buy at the current levels:
1. Upcoming rights issue—at a price far higher than envisaged earlier
2. New business initiatives—general insurance, private equity
3. Launch of PSU Bank Benchmark Exchange Traded Scheme (Bank BEES)
4. Other positive news flows and developments that are expected going forward - Based on these factors, I strongly recommend Buy call on SBI.
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