MUMBAI: Shares of SBI fell 7.8% on Tuesday, the highest drop in a day in two years, after the country's largest lender shocked investors with an unexpected plunge in fourth quarter profits.
Analysts forecast a further 8% decline in the stock in the next couple of weeks, but expect investors to resume purchases at lower levels as valuations turn attractive once worries about the bank's prospects recede.
SBI shares dropped to 2,413.60 on Tuesday, the lowest since July 26, 2010, as the bank stunned investors with a sharp jump in provisions for bad loans and lower-than-expected interest income.
"In addition to the higher-than-expected provisions, the steep decline in the net interest margins has come as a major negative in the results. The uptick in gross NPAs also added to the asset quality concerns," Gaurav Dua, head-research, Sharekhan . "This could result in the stock underperforming in the near term," he said SBI's net profit fell to 20.88 crore in the quarter ended March 31, 2011 compared with 1,866.60 crore in the same quarter last year.
Investors and analysts were caught unawares as the management gave no indication of such provisioning prior to the results.
"The new management appears to have endeavoured to increase the provision coverage quite sharply, which is a bit of a change in policy from the old management. Perhaps, this change in stance was not communicated too well to the market," said Brian Hunsaker, head-Asia Research of Keefe, Bruyette & Woods, Asia.
Worries about higher-than-expected provisioning for bad loans could drive away investors from shares of banks with weaker asset quality in the short-term.
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