HDFC Bank Shares Drop 12% This Week: Assessing Valuation Appeal

HDFC Bank shares have not yet reached their 52-week low of Rs 1460.55 from October 26, 2023. However, the stock experienced a decline, reaching an intraday low of Rs 1476.65 in Saturday’s trade, marking a loss of over 12% for the week.

HDFC Bank shares witnessed a 12% decline this week following the release of the bank’s earnings report for the quarter ending December 2023 on January 16. The stock, closing at Rs 1678.95 on January 16, dropped to an intraday low of Rs 1476.65 in Saturday’s trade. It is noteworthy that the stock has not yet reached its 52-week low of Rs 1460.55, which was recorded on October 26, 2023.

In the current session, HDFC Bank’s stock is trading 1% higher at Rs 1485 on the BSE, with a market cap of Rs 11.26 lakh crore. The recent significant drop in the banking heavyweight has raised concerns among investors about the value of their holdings in HDFC Bank shares.

Despite the challenges, global brokerage CLSA has maintained its buy rating on the stock, setting a target of Rs 2,025 per share. Following interactions with over 20 clients after the Q3 earnings, CLSA noted that while most domestic clients expressed dissatisfaction, foreign investors appeared more optimistic. Many foreign investors believe that the earnings per share (EPS) cuts cycle is nearing its end. However, key concerns remain focused on deposits and net interest margins (NIM).

Brokerage firm KR Choksey has set a target price of Rs 1950 for HDFC Bank, valuing its standalone business at 2.2 times FY26E P/ABV to Rs 1,716 and the subsidiaries at Rs 233. This implies an upside of 26.8% from the current price, leading to a “BUY” rating on HDFC Bank shares.

On the other hand, Nuvama has downgraded the stock to “Hold” post Q3 earnings. Nuvama has cut earnings by 5–6% for FY25E–FY26E, with a higher 8% reduction in core earnings due to a 4% cut in loan growth. Concerns include the bank having exhausted its Liquidity Coverage Ratio (LCR), the need to lower its Loan-Deposit Ratio (LDR), and slower-than-guided deposit growth. Consequently, Nuvama has lowered the target to Rs 1,730 from Rs 1,770.

Motilal Oswal, a financial services firm, has set a target of Rs 1950 for HDFC Bank’s stock. The brokerage noted that HDFC Bank’s margin remained largely flat, slightly below expectations, despite deploying excess liquidity and significantly drawing down the Liquidity Coverage Ratio (LCR).

Motilal Oswal highlighted that the bank exhibited healthy loan growth driven by retail and continued traction in Commercial and Rural Banking. Additionally, asset quality ratios improved, and the provision coverage ratio (PCR) increased to 75%. The bank’s maintenance of a 0.6% buffer of floating plus contingent provisions was acknowledged, providing additional comfort. The management’s indication of a gradual improvement in Net Interest Margins (NIMs) over the coming years, coupled with enhanced operating leverage, is expected to contribute to healthy return ratios for the bank.

As of the latest information, a total of 12.70 lakh shares of HDFC Bank changed hands on the BSE, amounting to a turnover of Rs 188.54 crore. The market capitalization of the bank rose to Rs 11.26 lakh crore.

HDFC Bank’s stock exhibits low volatility with a one-year beta of 0.5, indicating a lower level of market risk.

From a technical perspective, the relative strength index (RSI) of HDFC Bank is at 24.5, signaling that the stock is in oversold territory. Additionally, the large-cap stock is trading below the 5-day, 10-day, 100-day, 150-day, and 200-day moving averages. These technical indicators provide insights into the stock’s current market conditions and potential trends.

HDFC Bank recorded a robust performance in the third quarter ended December 2023, reporting a 34% increase in standalone net profit to Rs 16,373 crore compared to Rs 12,259 crore in the corresponding quarter of the previous fiscal year. The total income for the October-December quarter of FY24 surged to Rs 81,720 crore, marking a significant rise from Rs 51,208 crore in the year-ago period.

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