Investors who invested their money in the shares of HDFC Bank are pretty sad after watching the downfall of the price. According to the market, on Monday, the share price of HDFC fell over a per cent in early trade. CLSA is responsible for the price downfall. The report states that the foreign brokerage firm downgraded the ratings and cut its target price on the stock. Earlier, CLSA downgraded HDFC Bank to “Outperform” from ‘Buy’ and reduced the target price sharply to Rs 1,650 per share from Rs 2,025—the price reduction came after the reports of analysts who showcased their tension over sluggish deposit mobilisation and margin recovery.
CLSA believes that HDFC Bank is at an inflection point in its voyage. While the mortgage lender Housing Development Finance Corporation (HDFC) merger provides long-term benefits, the medium-term poses more challenges than upsides. Moreover, the brokerage firm warned that there is a high chance that HDFC Bank faces two challenges on deposits, one is a tough environment and the second one is a high ask rate. However, it expects working on yields to be offset by muted CASA accretion, which will keep net interest margin (NIM) recovery gradual.
So far this year, the stock of HDFC Bank has fallen over 15 per cent, as against a 0.9 per cent decline in the Bank Nifty index. Before that, the largest private-sector lender in India’s shares had hit a 52-week low of Rs 1,363 per share on 14th February 2024. CLSA’s Analyst states that HDFC Bank expects net interest margin (NIM) recovery to be more ‘U-shaped’ instead of ‘V-shaped’. CLSA states that “The deposit-gathering requirement increases significantly, and coincidentally, in an environment where deposit growth is challenging for the banking sector. We believe HDFC Bank will be prudent when it comes to deposit pricing and sacrifice growth if the need arises.”
The overseas brokerage business reduced its loan growth projections from 15% to 10% in line with its lower deposit accretion estimates for FY2025, which were ₹5.2 lakh crore to ₹4.2 lakh crore. CLSA also cut down its FY25 and FY26 earnings per share (EPS) estimates by 5%. It is now 8% below consensus. The firm further added “We expect the improving yields to offset muted CASA accretion, thereby keeping NIM recovery gradual. We trim FY25/26 earnings per share (EPS) estimates by 5 per cent.”
As said, HSBC analysts released a “buy” call on HDFC Bank, speculating that the stock will yield returns of between 15 and 29 per cent compound annual growth rate (CAGR) between FY24–27, with a target price of Rs 1,750 per share. The brokerage firm had noted that “The expectations of HDFC Bank of high loan growth, and not deposits, are at the core of the debacle. Lowering the loan growth may be beneficial for the stock. It would be positive for its net interest margin (NIM) or return on asset (RoA) outlook.”
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The share price performance of HDFC Bank has been lukewarm over the last 3 years, down over 7% and the stock has underperformed the benchmark indices and the entire sector in the middle of merger overhangs. In the past three months, the share price of HDFC Bank has dropped by over 13 per cent and more than 16% in 2024 so far.
