HDFC Bank, HDFC down for 2nd day in a row; dip up to 11% from Monday's high

Shares of HDFC Bank and HDFC have fallen 6 per cent in the past two trading days

Shares of banking giants HDFC Bank and mortgage lender Housing Development Corporation Limited (HDFC Ltd) traded lower for a second straight day, down up to 4 per cent in Wednesday's intra-day trade, on profit booking.

The stocks of HDFC Group companies have fallen up to 11 per cent from their respective Monday's intra-day highs, erasing most of their gains recorded after the bank's and mortagage lender's merger announcement. On April 4, shares of HDFC had zoomed 16 per cent to Rs 2,855.35, while HDFC Bank had surged 14 per cent to Rs 1,721.85 in intra-day deal.

At 02:26 pm, shares of HDFC Bank (Rs 1,553) and HDFC (Rs 2,542) were down 3 per cent each, falling 6 per cent each in the past two trading days.

From Monday's high, the market price of these companies have declined 10 per cent and 11 per cent, respectively. That said, HDFC and HDFC Bank, are currently up 4 per cent and 3 per cent, respectively, from the level of pre-merger announcement.

The board of directors of HDFC Ltd and HDFC Bank, at their respective meetings, inter alia, approved a composite scheme of amalgamation for amalgamation of HDFC Investments Ltd and HDFC Holdings Ltd, with and into HDFC Ltd; and HDFC Ltd with and into HDFC Bank, and their respective shareholders and creditors.

As part of the deal, shareholders of HDFC Ltd will receive 42 shares of the bank for 25 shares held. The subsidiary/associates of HDFC Ltd will become subsidiary/associates of HDFC Bank. HDFC Bank will be 100 per cent owned by public shareholders and existing shareholders of HDFC Ltd will own 41 per cent of HDFC Bank. Closing is expected to be achieved within around 18 months, subject to completion of regulatory approvals and other customary closing conditions.

However, analysts feel the HDFC Bank-HDFC deal may face regulatory hurdles due to insurance operations. HDFC Life and HDFC ERGO are among the leading life and general insurance companies in the private sector, and analysts say the Reserve Bank of India (RBI) is unlikely to be comfortable with the size of the insurance operations the deal will give the bank, news agency Reuters reported. CLICK HERE FOR REPORT

Yet, brokerage firm Motilal Financial Services expects HDFC Bank's margin trajectory to recover gradually over FY23, while the uptick in Retail loan growth and unsecured products will be supportive of fee income. Trend in Retail deposit too remains healthy, with the bank witnessing a sequential improvement in its CASA ratio to 48 per cent. The brokerage firm maintains a 'Buy' rating on the stock with a target price of Rs 2, 000 per share.