HDFC Bank up 2%, nears record high; stock up 19% from June low

The stock hit a high of Rs 1,734.90 in intra-day deals on Tuesday, and was seen inching towards its record high of Rs 1,757.80 touched on July 3, 2023.

Shares of HDFC Bank hit an over 11-month high at Rs 1,734.90, gaining 2 per cent on the BSE in Tuesday’s intra-day trade in an otherwise subdued market on expectations of earnings improvement. In comparison, the BSE Sensex was down 0.03 per cent at 79,453 at 01:45 pm.

The stock of the private sector lender was trading at its highest level since July 2023. It had hit a record high of Rs 1,757.80 on July 3, 2023. It has bounced back 19 per cent from its previous month low of Rs 1,452.85 touched on June 4.

HDFC Bank is a leading private sector bank with consistent growth and operational performance over various cycles. Post merger, the bank has become the second largest in terms of size with a diversified portfolio. The bank has maintained superior return ratios resulting in premium valuations.

HDFC Bank is the best run bank with a track record of strong growth and profitability for over two decades. However, return ratios and loan growth have moderated due to the merger and would take a few years to normalize. Valuations have come off significantly, in the past five years thus making risk-reward healthy, despite the lower profitability, analysts at CLSA said in the financial sector outlook.

Improvement in deposit accretion, especially CASA deposits, and increase in NIMs would be key catalysts for the stock, the global brokerage firm said.

According to analysts at ICICI Securities, the underlying strength of the organisation remains resilient. Continued focus on gaining market share at reasonable pricing is expected to aid improvement in margins.  Strategy to increase distribution capabilities to continue ahead with focus on risk. Improving profitability matrix remains a medium-term focus through sustainable retail liabilities franchise, the brokerage firm said.

Analysts at InCred Equities believe that despite the near-term pain of augmenting deposits at a faster pace, HDFC Bank will continue to maintain its leadership position in retail lending and further strengthen its retail liability franchise in the mid- to long term.

Though the brokerage firm expects deposit growth to accelerate loan growth for the bank, retail/SME/agri loans to grow at a relatively faster pace, which will continue to support margins in long-term tenures. “We also remain optimistic on the operating leverage kicking in for rapid branch expansion that the bank has done in the past three years. We expect HDFC Bank to be at ~2 per cent RoA and ~17 per cent RoE story,” the brokerage firm said in its financial sector report.