The State Bank of India (SBI) has been a trusted name in Indian banking for decades. While most investors chase the latest buzz, those with experience know that real value is often right in front of us.
SBI’s wide presence and solid financials quietly make it a top pick for those who prefer going against the crowd. Despite shifting sentiments, the bank’s position remains firm, attracting those with patience and foresight.
In this article, we’ll discuss why SBI continues to be a smart pick for contra fund investors looking beyond the noise.
What are Contra Funds?
Contra funds are equity mutual‑fund schemes using a contrarian investment strategy. Managers buy fundamentally sound companies currently out of favour or undervalued and hold them long term until sentiment improves.
The strategy runs counter to the herd and bets on recovery cycles. These funds demand patience (often several years to unlock value) and involve higher risk and volatility.
Contra funds suit investors with a long‑term horizon who can withstand short‑term underperformance.
Why SBI Checks the Boxes for Contra Fund Confidence?
Contra funds, those value-focused mutual funds that seek out temporarily unloved or undervalued opportunities, like SBI, for four key reasons. Here’s how the SBI neatly aligns with what they look for:
1. Huge Valuation Gap: Built‑in Margin of Safety
SBI’s price-to-earnings ratio is close to 9 times, which is almost half of what peers like HDFC and ICICI command, sitting around 19 to 20 times.
Likewise, its price-to-book ratio is near 1.5 times, much lower than the 3-plus multiples that private sector banks usually trade at. This simple fact offers a built-in margin of safety: you’re paying less for each rupee of earnings or book value.
So, even modest normalization in sentiment or a smaller-than-expected profit recovery could deliver outsized gains, which is what contra funds seek.
2. Improving Fundamentals & Cycle Tailwinds
Throughout FY 25, SBI strengthened its financial footing via a ₹25,000-crore QIP and bond sale, pushing CET1 capital closer to 11.5% and giving it a serious cushion.
Asset quality saw steady healing: gross NPA dropped to 1.82%, net NPA to 0.47%, with high coverage levels and credit cost around 0.4%. Its loan book expanded roughly 12%, supported by a ₹3.4 trillion corporate pipeline.
These signs illustrate the classic credit cycle upturn as SBI enters a phase of cleaner books, stronger capital, and renewed lending-driven recovery.
3. Sector Strength, Government Backing & Reform Catalyst
Public sector banks like SBI benefit from renewed policy support. The finance ministry has ordered the listing of 15 PSU subsidiaries, including SBI Cards and SBI General, unlocking value for the State Bank.
Separately, some reports suggest the government may move ahead with more PSU bank mergers and ease limits on foreign investment. These steps could give SBI an even stronger position.
Together, these changes build investor confidence by showing steady reforms, while SBI’s government support helps limit the risk. This makes the bank a strong pick for those using contrarian strategies.
That is a key reason SBI Contra Fund is among the top picks.
4. Contrarian Fund Alignment: Core Exposure, Mental Availability
SBI Contrarian Fund keeps outperforming most value or contra funds, with a solid 3-year return of 21 percent, beating the category average of 19 percent. A big part of this success comes from its focus on the financial sector, where SBI holds a strong position and adds weight to the fund’s strategy.
Even when it isn’t the top stock in the fund, SBI continues to play a key role for fund managers.
Conclusion
SBI remains a solid choice for contrarian funds due to its strong fundamentals, low valuation, and improving financial health. With government support and sector reforms, it offers long-term growth potential.
Investors willing to stay patient can benefit as the stock regains favor in the market. It’s a suitable pick for those looking for value and stability.
