Brokerage firm Goldman Sachs has downgraded State Bank of India Ltd., India’s largest lender to “sell” from its earlier rating of “neutral.”

The brokerage has also cut its price target on SBI to ₹742 from ₹841 earlier. The revised price target implies a potential downside of 10% from Thursday’s closing levels.

Goldman Sachs believes that SBI faces multiple headwinds ahead as its Returns on Assets (RoA) peaks and the brokerage anticipates a valuation de-rating for India’s largest lender.

SBI’s risk-reward profile is turning ‘unfavourable’ as the sustainability of SBI’s RoA continues to see growing headwinds, Goldman Sachs wrote in its note.

The brokerage is expecting SBI’s RoA to moderate from peak levels of over 1% in financial year 2024 to below 1% levels by financial year 2026. It is also anticipating lower loan growth going forward given the widening gap with the growth in the bank’s deposits.

Rising slippages in MSME, Agri and unsecured portfolios could also lead to an increase in credit costs, Goldman Sachs wrote in its note.

As a result of these headwinds, Goldman Sachs has cut SBI’s Earnings Per Share estimate for financial year 2025 – 2027 by 3% to 9% and its target multiple down to 1x from 1.2x earlier.

Out of the 49 analysts that have coverage on State Bank of India, 38 of them still have a “buy” rating on the stock, six say “hold”, while five have a “sell” rating on the stock.

Shares of State Bank of India ended little changed on Thursday at ₹818. The stock has gained 28% so far in 2024.