India's largest lender gets a raise in target price to ₹850 despite its recent performance

In its note, Kotak said that it do not see a specific tailwind that would trigger re-rating for SBI in the short term. "We see SBI to outperform other PSU banks, given sharp convergence in multiples. We are valuing SBI at 1.4 times book and 10 times earnings for return on equity (RoE) at 15%," it stated.

Analysts at Kotak highlighted that the lender has withstood most concerns, with negligible impact on earnings. "We believe SBI has done better than feared on most issues that could have had a negative earnings impact."

These issues, according to Kotak, could be specific conglomerate exposure, expected credit loss (ECL) provisions, mark-to-market (MTM) losses, unsecured loan growth, wage settlement and capital adequacy ratio (CAR), including an risk-weighted asset (RWA) increase.

Addressing these have probably resulted in the current outperformance, the brokerage noted while adding that the tendency of investors appears to be conservative by looking at the actual outcome before turning positive on the bank.

Kotak expects the country's largest lender to deliver a steady performance, adjusting for various one-offs. "Loan growth is likely to be lower than the industry average. The positive outcome of low CAR is that growth is likely to be of better quality. We expect NIM at elevated levels on a through-the-cycle basis, as it is the primary revenue source," it said.

According to Kotak, the premium at which SBI is currently trading to Bank of Baroda and with other mid-tier public banks has declined sharply and is closer to the best of times.

On the other hand, SBI's discount with HDFC Bank has narrowed sharply as well, the brokerage said.

Among public banks, Kotak believe that SBI has done well to defend its market share on liabilities, while its underwriting has been better-than-expected. "We shall prefer SBI among public banks," it said.

Though analysts at Kotak expect the outperformance with private banks to be slower, but believe that there is headroom as available.

"We are building in a call that the extent of the differential in return ratios, loan growth, NIM and credit costs is not likely to be too different in the medium term, until we have clear evidence of weak underwriting from these players. Until then, relative performance is likely to have a higher weightage in stock ideas," the brokerage said.