Late Ashwani Gujral picked SBI stock as good bet in both cash and F&O market amid Adani saga. Here’s what he said!

Just a few days ago, he spoke about the Adani saga which has rocked the Indian market currently.

Through his Youtube channel, Gujral picked a stock that has exposure in the Adani Group and has been impacted after the US short seller’s report in late January this year.

On 15th of February 2023, amidst the Adani saga, Gujral said, that one stock that was impacted in the collateral damage, as per him, would be State Bank of India (SBI).

He explained that SBI with only ₹27,000 crore of exposure in Adani Group, which is less than 1%, dropped by at least ₹100, whereas the bank’s profit of one-year, is even more, higher than the exposure amount. The bank also has collateral.

He added, let’s suppose, this collateral becomes zero, yet SBI has a stable margin of safety at the moment.

He pointed out key factors for investing in SBI. If investors are buying in the cash market, then he said, SBI has the strength of government ownership and that will not go down. On February 15, he suggested a stop loss of ₹495 on SBI.

On February 15, SBI stock price closed at ₹540 apiece on NSE.

The last time the SBI share price held over ₹600 mark was on January 24th, the day when Hindenburg released its report, which led to the onset of mass destruction in Adani Group-backed stocks. Just like LIC, SBI too faced the brunt of the Adani saga because of its exposure in the Gautam Adani-backed conglomerate.

Between January 24th to February 27th, SBI’s lowest drop in market price would be ₹499.35 apiece witnessed on February 1st and later from here onward the stock stayed above ₹500 apiece levels but traded broadly volatile.

Later, on February 3rd, SBI stated that its total exposure in Adani Group is around ₹27,000 crore — which is 0.88% of its total loan book.

On February 27th, the SBI share price closed at ₹527.50 apiece up by 1.24% on NSE. SBI is among the top 10 most valued firms. In a little over a month of the Adani – Hindenburg row, SBI share price has tumbled by nearly 14% between January 24 to February 27th. But the stock has climbed by nearly 6% from its lowest level of February 1st, 2023 post-Hindenburg report.

Going ahead, in the F&O segment, Gujral said, to those who are looking for short calls in SBI — the ₹540 calls in March expiry is worthwhile.

As per NSE data, in the options chain, F&O contracts for March 2023 expiry, SBI is trading at ₹9.45 on Monday for the strike price of ₹540. March F&O expiry date is set on March 29, 2023.

If Bank Nifty crosses 41,800 and goes to 42,500, then in SBI he said that investors can get a good upside.

“As the market goes up, sentiment repairs on its own. So people who are scared right now from what will happen in Adani, when the market starts to go up by 100 or 150 points, then one will forget these things and will start moving forward.”

However, Gujral stated that SBI won’t outperform but in regards to in-prices, there is probably no downside in the bank, thereby, one can bet in this bank. Because, in SBI, Adani’s business involvement is not much. Also, stock price manipulation chances are less in SBI due to the Adani saga.

Gujral had written many books where he provided a guide to investors on how to trade in market-related instruments such as equities, derivatives, futures, and options among others.

Earlier, this month, CreditSights, a division of Fitch Ratings said, given its substantial general provision reserves buffer of 338 billion rupees or 1% of net loans, SBI’s entire loan exposure to the Adani Group is quite manageable.

CreditSights highlighted SBI has a provision reserves buffer of around 338 billion rupees ($4.08 billion) or around 1% of net loans. It added SBI also can generate pre-provisioning operating profit, or income before taking into account future bad debt provisions.

In Q3FY23, SBI garnered the highest-ever quarterly net profit of ₹14,205 crore up by 68.47% YoY. The lender’s net interest income (NII) witnessed robust growth of 24.31% YoY to ₹30,687 crore driven by better margins. Net interest margins (NIM) expanded by 29 bps YoY and 14 bps QoQ to 3.69%.

SBI’s asset quality improved further in Q3FY23. As of December 31, 2023, the bank’s gross NPA ratio contracted 136 bps YoY to 3.14%, while the net NPA ratio slipped by 57 bps YoY to 0.77%. The Provision Coverage Ratio (PCR) at 76.12% improved by 490 bps YoY.

Coming to the stock price outlook in the cash market, the majority of analysts are optimistic about SBI post-Q3 numbers.

Santanu Chakrabarti, Analyst – Banking & Financials, BNP Paribas India while maintaining a ‘Buy’ rating on SBI, set a target price of ₹740 apiece. He said, “on exposure to Adani group, management clarified that the total exposure is c0.88% of advances. All loans are secured by project assets with a majority of them offered against operating assets/ completed projects generating cash flows.”

Also, maintaining a ‘Buy’ rating on SBI, Gaurav Jani – Research Analyst, Prabhudas Lilladher earlier said, “while Adani group exposure is 0.88% of total loans, same is below large exposure framework (LEF) and till date there have been no issues on loan repayment or servicing. Loans are extended against operating businesses and assets that generate cash. Payments relating to loans sanctioned for under-construction projects are being made on schedule. No finance has been extended against the promoter’s equity. On opex, wage revision would be provided for 36 months with a 10-12% rise which would translate to Rs5.0bn per month.”

Prabhudas analyst set a target price of ₹730 apiece on SBI.

Watch the full video of Ashwani Gujral on his take on SBI amidst the Adani saga here:

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.