Wednesday, September 26, 2007

Stock of the week: State Bank of India

State Bank of India is the country’s largest bank. It is also the oldest in the Indian subcontinent. No other commercial bank in the world has more employees or branches compared to SBI. In India, it has more than 9400 branches; its assocate banks have 4000+ branches. Apart from this, SBI has presence in 32 countries and has 84 offices worldwide. It is the only Indian bank to feature in the top 100 world banks in the Fortune Global 500 rating (ranked 495 in 2007). A brief history of the bank is given below.

Business Profile:

SBI offers personal and corporate banking, agricultural/rural banking, NRI banking, international banking and government business services.

  • Personal banking: Savings/current accounts, term deposits, housing/car/educational loans, demat services, foreign inward remittance, public provident fund

  • Corporate banking: Trade finances, cash management products, fee based products, project finance

  • Agricultural/rural banking: Crop loans, kisan credit cards, agricultural term loans, financing harvesters, dairy, poultry, horticulture

  • NRI services: NRE/NRO accounts, term loans, home/car loans, foreign currency fixed deposits

  • International banking: Trade/project export finance, merchant banking, correspondent banking, exporters gold card

  • Government Business: Receipt of direct and indirect tax, government account, public provident fund, senior citizens savings scheme

SBI has 7 associate banks viz. State Bank of Bikaner & Jaipur, Hyderabad, Indore, Mysore, Patiala, Saurashtra and Travancore. These banks earlier belonged to the princely states of India. The government integrated these banks with the State Bank of India to expand its rural outreach. All the 7 banks use the same SBI logo of blue keyhole. SBI has more than 5600 ATM’s across the country.

SBI’s foreign offices focus on India related business and are located in Australia, Bahrain, Bangladesh, Belgium, Dubai, France, Germany, Hong Kong, Israel, Japan, China, Maldives, Singapore, South Africa, Sri Lanka, Oman, The Bahamas, UK and US.

SBI’s wholly owned subsidiaries and joint ventures include:

  • Nepal State Bank Limited
  • SBI Mauritius
  • Indian Ocean International Bank (Mauritius)
  • SBI Canada
  • SBI California

Other SBI group companies include SBI Capital Markets, SBI Mutual Funds, SBI Life Insurance Company etc.

State Bank of India, California branch at San Diego

Financial Performance:

It can be seen that the net profits and EPS of SBI have grown consistently and more than doubled over the last 5 years.

The Central government holds 59.73% stake in the bank. SBI is a constituent of both Sensex (Scrip Code: 500112, free float market capitalization: Rs.42,721 crores, weightage: 3.83%) and Nifty (Ticker: SBIN, FFMC: Rs.84,226 crores, weightage: 3.61%). It is also listed at London Stock Exchange under the ticker SBID.

The monthly chart of State Bank of India Global Depository Receipt at London Stock Exchange is shown below. All prices are in USD.

Long term outlook:

On August 31, 1997 the stock closed at 283.65 and yesterday the close price was 1807. This means that the stock has appreciated more than 5 times. In the monthly charts, a negative divergence has been observed. Negative divergence occurs when security makes a higher top but a technical indicator makes a lower top. In this chart, we can see that the stock has made a higher low; but the slow stochastic indicator has made a lower low. This is a sign that the stock is likely to reverse. Since this has occurred in the long term chart, it is better to book profits at every high.

Medium term outlook:

In the weekly chart, higher high and higher low have been formed but the stochastic indicator had slightly declined at the consecutive peaks indicating negative divergence. Also, long upper shadows imply profit booking and higher volatility. Medium term investors too, may book profits at this stage.

Short term outlook:

In the daily chart, the stock had formed a bullish three inside up candlestick pattern on August 27. Watch the upward gap on the day after the harami pattern. This was the confirmation of trend reversal and the stock has managed to reach a high of 1889 from a low of 1407. On September 21, the stock had broken the previous resistance at 1799 but without much volumes, implying the trend will be weak. Also, a bullish engulfing pattern has been formed at the top of the uptrend near resistance levels; this could be a trap. The 21 day momentum has also gone down for three days in a row, indicating a possible trend reversal. The short term investors may also book profits if they already hold the stock; fresh exposures may be avoided.

Conclusion:

  • Short, medium and long term investors may book profits since the charts suggest a possible trend reversal.