HDFC Bank hits 52-wk low; wipes Rs 1.9 trn m-cap with 15% fall in 1 week

The stock slipped nearly 4% to Rs 1,425.05 on the BSE in intra-day trade, falling below its previous low of Rs 1,460.55 touched on October 26, 2023.

Shares of HDFC Bank hit a 52-week low of Rs 1,425.05, falling nearly 4 per cent on the BSE in Tuesday’s intra-day trade. The stock of the country’s largest private sector lender fell below its previous low of Rs 1,460.55 touched on October 26, 2023. It now quotes at its lowest level since October 2022 (pre-HDFC merger), BSE data shows.

In past one week, the market price of HDFC Bank has tanked 15 per cent after the bank reported a disappointing set of numbers for the quarter ended December (Q3FY24). HDFC Bank has seen the market capitalisation erode by Rs 1.9 trillion on a sharp sell-off led by foreign portfolio investors (FPIs). Foreign institutional held 52.3 per cent stake in HDFC Bank at the end of December quarter.

FPIs sold shares worth Rs 20,155 crore ($2.4 billion) in last two trading days, NSDL data shows. This marked the fifth-highest weekly outflow from overseas funds since the beginning of 2008 and the largest since the last week of March 2020. The previous week’s pullout was mainly due to selling in HDFC Bank, a stock with one of the highest FPI exposures on an absolute basis, the Business Standard reported.

Meanwhile, once a poster boy for consistency, HDFC Bank has seen it all – COVID-19, management transition, Reserve Bank of India (RBI) ban and now merger pangs. While merger has its own challenges, analysts at Elara Capital believe these are nearing an end, but HDFC Bank lacks positive triggers. Given near-term concerns, time correction may play through, the brokerage firm said in Q3FY24 result update.

In Q3FY24, HDFC Bank's core net interest margin (NIM) on total assets stood at 3.4 per cent, and its NIM on interest-earning assets was 3.6 per cent. Both NIMs were steady when compared with the July-September quarter (Q2FY24). Analysts, however, believe that despite the NIM likely bottoming out, the drivers for expansion appear to be slower than forecasted.

Earlier, HDFC Bank had indicated that higher liquidity and incremental cash reserve ratio (ICRR) impacted NIM, which was expected to improve, However, despite using many levers (liquidity coverage ratio or LCR down to 110 per cent; loan-to-deposit  or LDR at 110 per cent), the bank, at best reported stable NIM. With many variables at play, viz. transitionary liquidity requirement (scale has its own challenges while running tight liquidity), changing loan construct, and systemic challenges on deposits, Elara Capital believe NIM recovery may take longer (not to mention, any rate change at the system level may push this down further).

Given increase in interest sensitivity of advances, utilization of excess liquidity and pressure on LDR/ LCR, margin trajectory is contingent on acceleration in liabilities accretion and focus on high yield book which is to accrue gradually. Thus, maintaining growth momentum along with improvement in margins remains a challenge in near term, analyst at ICICI Securities said.

On reported basis, RoA is steady at around 2 per cent, however, adjusting for one-offs RoA has declined by 10-20 bps. Going ahead, gradual improvement in credit-deposit (CD) ratio, decline in cost-to-income (CI) ratio to below 40 per cent and steady credit cost is expected to result in sustainable RoA of 1.8-1.9 per cent in FY24-25E, the brokerage firm said in result update.