Goldman Sachs has downgraded State Bank of India Ltd., India's largest lender, to "sell" from "neutral." The firm has reduced its price estimate for SBI to ₹742 from ₹841 before. The updated price objective predicts a probable 10% drop from Thursday's closing levels.

Goldman Sachs says SBI will encounter various headwinds when its Returns on Assets (RoA) peak, and the firm expects a valuation de-rating for India's largest lender.

Goldman Sachs noted in its analysis that SBI's risk-reward profile is becoming 'unfavourable' as the sustainability of SBI's RoA faces increasing obstacles.

The firm expects SBI's RoA to fall from above 1% in fiscal year 2024 to below 1% by fiscal year 2026. It also expects reduced loan growth in the future as the gap between deposit growth and loan growth widens.

Rising slippages in MSME, Agri, and unsecured portfolios might contribute to higher credit costs, according to Goldman Sachs.

As a result of these headwinds, Goldman Sachs has reduced SBI's earnings per share forecast for fiscal year 2025 - 2027 by 3% to 9%, and its target multiple has been reduced to 1x from 1.2x. Out of the 49 analysts who cover State Bank of India, 38 still have a "buy" rating on the company, six say "hold", and five say "sell".

State Bank of India shares closed at ₹818 on Thursday, with no move. So far in 2024, the stock is up 28%.