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Rich valuations likely to cap rise in HDFC Bank shares

Analysts recommend clients to 'hold' the bank's shares

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The 52nd consecutive quarter of over 30% rise in net profit may appear impressive but most brokerages are not recommending their clients to buy of as valuation appears expensive.

"We like the stock. But we continue to maintain neutral view largely due to and suggest to hold on due to high quality of earnings and HDFC parentage," Rikesh Parikh, vice president for markets, strategy and at Motilal said.

He added that the stock is trading at 4.2 times its price to book value. The brokerage has a target price of Rs 640 on HDFC Bank shares.

Yesterday, the country's second largest private lender reported 30.1% year-on-year increase in its net profit for July-September quarter. Steady margin, higher interest income, and lower provisions aided the bank's earnings growth.

HDFC Bank shares closed 0.7% up at Rs 629.20 on the (NSE).

"HDFC Bank has been able to consistently deliver high quality numbers even when the entire industry has been witnessing pressures on the asset quality and hence the stock has been one of the outperformers in the recent times. However, with economic growth environment mostly having bottomed out and banking sector set for an upward re-rating over the next 12-18 months, in our view, it would be better to enter into banking stocks, which are trading at the lower end of their valuation cycle to maximise returns," Vaibhav Agarwal, vice president of research (banking) at Angel Broking, said.

Brokerage Financial Services has also recommended its clients to "hold" HDFC Bank shares and has set a target price of Rs 620 for the stock.

"HDFC Bank continues to drive valuation premium over its peers owing to its ability towards healthy loan growth across all segments...However, current valuations leave limited room for upside," Kashyap Jhaveri, with Emkay Global, said.

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