Why SBI is Gautam Shah's top pick for the year

Gautam Shah, Founder and Chief Strategist at Goldilocks Premium Research believes State Bank of India (SBI) still has a favourable risk-reward ratio and remains his top pick for the year.

"At a 21,700 index, the risk-reward plays a very important role. When you see that knee jerk reaction of 3-4%, or the Nifty falls 300-400 points, suddenly everybody rushes towards safety. Keeping that in mind, and the fact that you have so many events and earnings lined up over the next couple of months, I want to stay with the safer name and SBI is still extremely cheap, not just fundamentally, but technically, I think it's in a wonderful space with very limited downside," Shah told CNBC-TV18.

Shares of India's largest public sector lender in terms of assets, deposits, branches, number of customers, and employees, have delivered returns of around 17% over the past year compared with Nifty50 returns of around 23%.

However, analysts at leading broking firms remain bullish on the stock. Axis Securities, SMC Global and Motilal Oswal Securities have listed SBI among their top picks for the year.

Axis Securities listed SBI as the best play among its New Year picks citing a gradual recovery in the Indian economy, the bank's healthy provisioning coverage ratio (PCR), robust capitalisation, strong liability franchise, and improved asset quality outlook. PCR is a metric that helps assess level of provisions a bank has made against bad loans or loan defaults.

Brokerages also highlighted the bank's strong underwriting practices, stable credit costs and steady cost ratios as other factors that lead to a high conviction.

Among other banking stocks Shah sees ₹1,380-1,400 as a strong long-term support level for HDFC Bank. While some investors find value at these price levels, Shah says, from a technical perspective he prefers to see momentum and strength before committing. He also notes that breaking ₹1,380-1,400 might be tough for the stock.

Shah also shared his overall outlook on the market. He sees 21 850 as a crucial resistance level for the Nifty. If the market gets past this level, it could go back to lifetime highs, he said.

However, he does not see a runaway rally. The market is likely to remain rangebound with sector specific stock trends, he noted.