SBI market cap crosses ₹8 lakh crore as stock spikes over 9% to new record high on exit poll predictions of NDA win

Shares of State Bank of India (SBI), the nation's largest public sector bank, rose 9.8% to reach an all-time high of ₹911.30 apiece in today's intraday session. This pushed the bank's market capitalisation beyond ₹8 lakh crore for the first time, making it the first PSU company to achieve this milestone.

SBI has now entered the ₹8 lakh crore market capital club, becoming the fourth listed company to achieve this milestone. Over the past six months, its shares have surged significantly, climbing from ₹564 apiece to the current level of 909, marking a remarkable gain of 61%.

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Following the release of exit polls after the final phase of elections on Saturday, investor sentiment towards PSU bank counters turned optimistic, driving them into positive territory. 

The projections of a resounding victory for the ruling NDA in the exit polls have fueled expectations of Prime Minister Narendra Modi's third consecutive term, contributing to a bullish trend in the market. This reflects growing confidence in the government's leadership and its potential impact on the financial landscape.

"The victory of PM Modi/BJP augurs well. Fundamentally, for the economy and capital markets, India is witnessing its own mini-Goldilocks moment. Our model portfolio remains aligned with the key domestic cyclical themes. We remain overweight on financials, consumption, industrials, real estate, and PSU banks," stated domestic brokerage firm Motilal Oswal.

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The brokerage reaffirmed its 'buy' recommendation on SBI's stock following the bank's Q4 results and has set a target price of ₹925 apiece. SBI has demonstrated a remarkable turnaround in earnings, transitioning from a loss of ₹65 billion in FY18 to profits of ₹611 billion in FY24. 

Additionally, the brokerage highlights that the bank's cumulative profit over the past three years (FY22–24) equals what it earned in the prior 20 years combined. The sharp drop in Indian bond yields has also furthered the rally in PSU banks.

Falling yields favor PSU banks

Meanwhile, the Indian government's bond yields dropped marginally in today's session. India's benchmark 10-year yield stood at 6.9541%, down from its previous close of 6.9809%. Earlier in the day, the yield dipped to 6.9421%, marking its lowest level since April 8, 2022.

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The government data released on Friday revealed that India's economy grew by 8.2% in the fiscal year ending in March, solidifying the country's status as the fastest-growing major economy in the world. 

Additionally, the central government's fiscal deficit for 2023-24 was recorded at 5.6% of GDP, better than the earlier estimate of 5.8%, contributing to the rally in bond prices.

The sharp decline in 10-year bond yields began following the Reserve Bank of India's (RBI) announcement of a record dividend of ₹2.11 lakh crore to the central government for the financial year 2023–24, which is more than double the amount budgeted by the government. 

This development, coupled with the Indian government's already prudent budget, enhanced a strong cash balance and reduced expectations of government borrowing for the year. Consequently, the limited bond supply in the Indian economy boosted bond prices.

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PSU banks will benefit from the drop in bond yields as they hold a larger proportion of government bonds compared to private sector banks, resulting in significant treasury gains.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.