HDFC Bank Share Price Plunges 8.5%: What Investors Should Know

In a surprising turn of events, HDFC Bank, one of India’s leading banks and the country’s second most-valued stock, witnessed a significant decline in its market performance. This downturn not only caused a crash in today’s BSE Sensex and Nifty50, but it also marked the worst day for HDFC Bank’s stock since the Covid crash three years ago, with an alarming 8.5% drop in its share price.

Unraveling the Market Impact

HDFC Bank
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The sudden downfall of HDFC Bank’s stock has left investors in a state of concern, with losses crossing a staggering Rs 1 lakh crore. Consequently, the market capitalization of this Nifty heavyweight plummeted to Rs 11.67 lakh crore, according to a report from ET. This decline comes as a surprise, surpassing even the previous worst fall experienced by HDFC Bank during the Covid-lows on March 23, 2020, when the stock tumbled by 12.7%.

Examining HDFC Bank’s Q3 Performance

While the recent market plunge raises questions about HDFC Bank’s financial standing, it’s important to take a closer look at the bank’s Q3 performance to gain a clearer perspective. During this period, HDFC Bank reported a significant 33% year-on-year increase in profits, totaling Rs 16,373 crore. However, it’s important to note that this increase can be attributed mainly to a one-off write-back of Rs 1,500 crore of tax provisions. Deviating from this temporary boost, underlying factors need careful analysis to gauge the bank’s long-term growth prospects.

Expert Analysis on HDFC Bank’s Performance

Santanu Chakrabarti, an expert from BNP Paribas, weighed in on HDFC Bank’s performance, highlighting certain crucial aspects that played a role in the market’s disappointment. While the net interest margin (NIM) appeared to be on par at 3.7%, it remained flat sequentially due to a low base. Chakrabarti expressed disappointment over this, considering the faster-than-expected reduction in balance sheet cash and investments. Moreover, the yields on interest-earning assets remained flat quarter-on-quarter (QoQ), despite a substantial drawdown in balance-sheet liquidity and a reduction in lower-yield wholesale loans. Such observations underscore the underlying factors contributing to this decline and set a foundation for considering the outlook of HDFC Bank’s shares.

 

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A Beacon of Hope for Investors

Despite the recent turmoil surrounding HDFC Bank’s share price, both domestic and foreign brokerages maintain a positive outlook on the bank’s long-term potential. In fact, Jefferies, a prominent brokerage firm, has reduced the target price for HDFC Bank but maintained a buy rating, illustrating confidence in the bank’s recovery.

During an analyst call, HDFC Bank’s management addressed the challenges posed by competitive pressures on deposit growth due to tight liquidity. However, they expressed optimism about normalizing margins to higher levels over the medium term, thanks to a greater contribution of retail assets in the overall asset mix. This forward-looking approach and acknowledgment of the obstacles ahead instill confidence in the bank’s ability to weather the storm.

JM Financial echoes this sentiment, acknowledging short-term pressures while emphasizing HDFC Bank’s potential for healthy growth and relatively lower risk. They maintain a buy rating and a target price that reflects the bank’s value. Similarly, CLSA and Axis Securities, both leading brokerages, have increased their target prices for HDFC Bank, signaling their belief in its potential.

Furthermore, Saurabh Mukherjea, a respected Rs 10,000 crore fund manager, believes that HDFC Bank’s valuations are tantalizingly attractive. He pointed out the strength of the bank’s Q3 results and expressed confidence in institutional investors’ renewed interest as selling pressure subsides and the company stabilizes. Mukherjea underscored HDFC Bank’s profitability, stating that even without merger synergies, the bank is delivering around 1.9% return on assets (ROA). With the potential to achieve a 2% ROA and assume a gearing of nine times, HDFC Bank can become an 18% return on equity (ROE) bank. Mukherjea argues that very few lenders, operating on this scale and profitability, exist worldwide.

Evaluating HDFC Bank’s Stock Performance

Comparing HDFC Bank’s stock performance to that of the Sensex reveals a stark disparity. While the Sensex soared by 17% over the past two years, HDFC Bank witnessed a mere 1% increase. Such statistics highlight the necessity of analyzing the factors contributing to this disparity and determining the bank’s potential for future growth.

 

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HDFC Bank’s recent plunge in stock price has served as a wake-up call for investors. However, it is important to remember that market fluctuations are an inherent part of investing. Despite the apparent setbacks, HDFC Bank’s strong Q3 performance and positive outlook from expert analyses indicate that it is still considered a top buy for long-term portfolios by reputable brokerages. As the bank navigates through short-term challenges, it remains poised to deliver healthy growth and maintain its profitability advantage in the financial industry.

Source:indiatimes.com

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