Is SBI Stock Profitable for a Long-Term Investment

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State Bank of India is the country’s largest bank and a Fortune 500 company. Headquartered in Mumbai, Maharashtra, India, SBI is a government-owned corporation. The bank has a market share of 23%. SBI offers financial services and products under retail banking, corporate banking, investment banking, private banking and asset and wealth management. The bank deals with insurance products as well. SBI is present in the domestic market as well as international with over 22,000 branches in India and 191 overseas offices. Visit website like bankbazaar.com to know more about latest SBI stock trends. Experiencing will help financial specialist a lot.

Benefits of Long-Term Investments

Finance advisors suggest holding stocks for the long-term as stock markets turn volatile in shorter time frames. The returns of long-term investments are more significant than the short-term as there is no set path that investors are encouraged to follow to save for their retirement except for long-term investment. Here are some of the benefits of long-term investments:

  • Emotions out of Equation: One of the biggest benefits of long-term investment is that it takes the emotion out of the equation. A stock market that jumps 10% in few days isn’t going to have you sell and a minor setback in the overseas market that sends Indian stocks down 3% isn’t likely to send you running for cover. Investing in long-term stocks allows you to focus on the bread and butter of your investments, which is the long-term outlook of a business or the viability of the new business model.
  • History has the Backing of Long-Term Investments: Research suggests that people who invest in long-term stocks can get better returns than those who invest in short-term stocks. Since most of the businesses are associated with various highs and lows, by opting for a long-term investment, these two periods of highs and lows will be catered for sufficiently.
  • Compound Interest to Your Rescue: When you decide to invest on a long-term basis, you end up reaping benefits of compounding. The dividends that are repaid to you could be an excellent opportunity to reinvest your profits. This could be a great channel to expand your business.
  • Pay Lower Taxes: As an investor, you cannot avoid paying taxes on your investments; however, if you’re a long-term investor, you will pay lower taxes. This might come in the form of a tax waiver. No matter how you look at it, investing for a long-term period saves you money during the financial year.

With a fair understanding of the benefits of a long-term investment, let’s look at how SBI stocks are beneficial for a long-term investment.

Financial Performance of SBI for FY 2017-18

  • For the financial year ending 2018, the total assets inclined by 27.7% from Rs.27,05,966.30 crore at the end of March 2017 to Rs.34,54,752 crore at the end of March 2018.
  • It reported a rise in its net interest income by 21.01% to stand at Rs.74,853.71 crore as against Rs.61,859.74 crore during the previous fiscal.
  • The bank’s operating profit rose by 17.04% during the current fiscal which stood at Rs.59,510.95 crore as compared to Rs.50,847.90 crore during the corresponding financial year.
  • However, the bank posted a net loss of Rs.6,547.45 crore as against a profit of Rs.10,484.10 crore reported during the previous fiscal. This was due to higher provisions towards NPAs, MTM losses in the HFT and AFS portfolio, additional employee benefits among others.
  • The bank’s primary provisions were towards NPAs of Rs.70,680.24 crore as compared to Rs.32,246.69 crore in FY 2017.
  • For the quarter ending June 2018, the bank reported a shock loss of Rs.4,876 crore as provisions nearly doubled to stand at Rs.19,228 crore. The PSU bank has posted a net loss of Rs.7,718.17 crore in Q4 FY18.
  • Net interest income during Q1 FY19 rose to stand at Rs.21,798 crore as compared to Rs.17,606 crore during the corresponding quarter last fiscal.
  • However, its gross non-performing assets fell to 10.69% in Q1 FY19 from 10.91% in Q4 FY18 and 9.97% a year ago.

Should You Hold on to SBI Stocks as a Long-Term Investment?

Despite reported losses during Q1 FY19 and Q4 FY18, brokerages have consistently maintained their recommendations on SBI after the bank held an analyst day to discuss the performance of its verticals such as life/ general insurance, asset management, capital markets and rural banks.

There are several reports that the lender is looking to list its AMC, cards and general insurance businesses by FY 2019-20. Experts believe that these subsidiaries are moving towards the right direction and their potential listing could help SBI open up its value.

With losses reported during the last three quarters, SBI has posted an incline in its operating profit and its net interest income reflecting its strength to grow despite setbacks. Interest income on loans too witnessed an increase of 7.54% over the past year. The bank has taken efforts to reduce its NPAs which has declined by 10.69% in Q1 FY19. Also, the SBI Life Insurance IPO was the second largest IPO after Coal India reflecting the level of confidence investors have in the PSU bank.

The State Bank of India has moved in sync with technology as 82% of all transactions as of June 2018 were through digital banking as against 77% on June 2017, indicating that the lender is in a comfortable position to keep pace with newer technology and trends.

SBI Stock Performance

The SBI stock price has been fluctuating even dropping to new lows when the lender posted losses in Q4 FY18 and Q1 FY19; however, the stock has shown resilience and gained more in the recent months. While it dropped to Rs.233.20 in May 2018, the stock price, at the end of August 2018 rose to stand at Rs.309.60.

In the last two years, the SBI stock has grown by nearly Rs.100, which might not be substantive, indicating the bank’s resolve to take corrective and strategic measures to counter any losses or drop in its performance. Much of its products are yet to reach their potential which leaves room for a higher valuation of the stock.

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