HDFC Bank Shares Rebound Amid Broader Market Optimism

HDFC Bank Shares Rebound Amid Broader Market Optimism/PTI

HDFC Bank Shares Rebound Amid Broader Market Optimism

In a swift recovery, HDFC Bank’s shares bounced back by around 2 percent on Friday, January 19, after facing a substantial 11 percent dip over the previous two days due to disappointing Q3FY24 results. The positive momentum was attributed to broader market optimism and a favorable outlook from global brokerage house CLSA.

CLSA Maintains ‘Buy’ Rating Despite Earnings Concerns

Despite concerns over the bank’s Q3 earnings, global brokerage CLSA maintained its ‘buy’ rating on HDFC Bank, projecting a target of ₹2,025 per share—a potential upside of almost 38 percent. While acknowledging domestic client dissatisfaction, CLSA observed a more optimistic sentiment among foreign investors, suggesting a belief that the bank is approaching the end of the earnings-per-share cuts cycle.

Brokerage Perspectives and Q3 Performance

Domestic brokerage LKP Securities echoed a positive sentiment, maintaining a ‘buy’ call on the stock with a 1-year target of ₹1,762, indicating an 18.5 percent potential upside. LKP Securities acknowledged potential challenges in HDFC Bank’s ROA/ROE for FY24E due to a higher C/I ratio and margin pressure but emphasized the bank’s strong underwriting practices and robust capital position.

HDFC Bank reported a net profit of ₹16,372 crore in Q3FY24, reflecting a 33 percent growth from the year-ago period. Despite a 24 percent YoY increase in net interest income, the net interest margin (NIM) of 3.6 percent fell short of expectations. Concerns were raised about the bank’s credit-to-deposit ratio (CDR) of 110 percent and lower liquidity coverage ratio (LCR) of 110 percent in Q3, potentially impacting NIM expansion.

Stock Performance and Future Outlook

After the recent correction, HDFC Bank’s stock is currently more than 15 percent below its record high of ₹1,757.80 in July 2023. Trading near its year-low and only around 2 percent above its 52-week low of ₹1,460.55, hit in October 2023, the stock has witnessed a 9 percent decline in the last year and nearly 14 percent in January 2024. The challenges highlighted in Q3 may influence the bank’s future performance, raising questions about its net interest margins and deposit growth.