India's SBI drops as brokerages flag margin pressure after quarterly miss

Shares of State Bank of India fell 4% on Monday as brokerages turned cautious on the lender’s earnings outlook after its March-quarter results last week highlighted pressure on core earnings and margins.

The stock dropped to 977.7 rupees, its lowest in six weeks, and was the biggest drag in the Nifty PSU Bank index, which was down 1.8%.

Analysts said the lender’s fourth-quarter earnings miss reinforced concerns that Indian banks are entering a tougher profitability cycle, with rising funding costs beginning to erode lending margins.

SBI on Friday reported a narrower net interest margin of 2.8% for the quarter, compared with 2.98% in the previous three-month period, and also missed analysts’ estimate on profit.

“NIM compression is becoming more visible as funding costs reprice faster,” JP Morgan said on Monday, adding that earnings momentum could moderate in the coming quarters.

Bernstein analysts echoed the view, and said the quarterly profit was supported by recoveries and treasury gains, masking weaker underlying profitability trends.

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“Core earnings were underwhelming, with incremental margins tightening,” Bernstein said, cautioning that upside catalysts may be limited without a stabilisation in margins.

Brokerages said SBI’s asset quality remained a key positive, with bad loans and credit costs staying benign.

Analysts, however, warned those positives may no longer be sufficient to offset pressure on net interest income. They pointed to a healthy loan growth for SBI, but said it may not fully compensate for margin compression.

Still, analysts broadly retained a constructive longer-term stance on the bank, citing strong balance sheet, scale and market leadership.

Bernstein analysts still said that much of the optimism has already reflected in the stock price, leaving shares vulnerable to earnings disappointments.

The session’s losses erased the stock’s year-to-date gains.

It was last down 0.4%, but still outperformed the Nifty PSU Bank index, which has fallen nearly 4%, and the benchmark Nifty 50, down 8.7%.