HDFC Bank shares continued to face downward pressure, sliding over 2 percent in afternoon trading to Rs 1,499 per share on January 18. This decline follows a 9.1 percent overnight fall in its US-listed shares to $55.5, marking the most substantial single-day drop since March 2020. Over the past two days, HDFC Bank’s American Depository Receipts (ADR) have witnessed a significant plunge of over 15 percent, while the domestic stock has declined by over 11 percent.
The impact of HDFC Bank’s weakness extended to other banking stocks, particularly affecting private sector lenders, causing the Bank Nifty index to dip by 0.6 percent in midday trade on January 18.
The challenges for the country’s largest private lender began with a reported miss in net interest margins (NIM) in Q3FY24, attributed to a higher cost of funds. Additionally, elevated provisions and a decadal low in earnings per share (EPS) growth during Q3 contributed to the overall decline.
Although the bank’s management anticipates a gradual improvement in NIM over the next few quarters, brokerages remain skeptical about the pace of recovery. While most analysts have reduced their target prices on the stock, many still maintain a bullish outlook, citing attractive valuations.
Ajit Kabi, research analyst at LKP Securities, highlighted concerns about the lower liquidity coverage ratio (LCR), credit-to-deposit (CDR) bottleneck, and slower deposit growth potentially squeezing NIMs in the future. Despite these apprehensions, Kabi expressed optimism about witnessing a recovery in the coming period and assigned a 12-month price target of Rs 1,700 for HDFC Bank.
In Q3FY24, the private sector lender reported flat NIMs quarter-on-quarter at 3.6 percent, with provisions increasing by 39 percent sequentially. Net interest income (NII) recorded a 4 percent quarter-on-quarter rise, while net profit showed a moderate 2.5 percent increase in the same period.