Lok Sabha 2019 elections: This major lender's shares gave over 204% return in 5 years

A stock with good business portfolio and stable growth outlook is worth buying on Dalal Street,even if it witnesses volatility. This is because, in the longer term it can give you better returns than any other traditional investment scheme. The reason is the magic that stock exchanges work even though they are volatile and risky. This is very much true in case of HDFC Bank stock. However, on Lok Sabha Elections 2019 counting day it did see negative sentiment from investors. Point of note, however, is that experts are very optimistic about HDFC Bank. Hence, the current drop can be taken as opportunity for buying this stock. Why? Because from previous 2014 elections to current one, this private lender more than doubled returns for investors! 

On Thursday, HDFC Bank share price ended at Rs 2,334.35 per piece down by Rs 70.75 or 2.94%. However, days before the D-Day, this lender clocked an all-time high of Rs 2,449 per piece. From May 16, 2014, when election verdict was announced with NDA win to latest 2019 one, HDFC Bank shares have jumped by a whopping Rs 1,644 or 204.33%. The shares were a little over Rs 804 per piece then. 

For outlook ahead, Reliance Securities analysts said, “Despite higher cost of funds and sequential decline in CD ratio, the Bank sustained its margin by altering its loan mix. Growth in retail loans moderated due to a mix of factors including impact of high base and moderate growth in unsecured portfolio. Moreover, given the increased cost of funds, the Management chose to shift away from low-yielding segments like home loans. Looking ahead, we expect the Bank’s margin to remain stable over the next two years."

As on FY19, deposits grew by a strong 8% QoQ led by 27% and 5% sequential growth in CA deposits and term deposits, respectively. The analysts said, “ Sharp rise in CA was driven by a commensurate growth in corporate loans. Term deposits mainly constituted of granular retail deposits, in line with the Bank’s focus over the last few quarters. Consequently, CASA ratio increased sequentially even as it declined on YoY basis. Nonetheless, the decline in SA ratio is mainly driven by shift to term deposits by the existing customers, led by higher TD rates. Developments in the Bank’s liability franchise and industry will be a critical area to watch out for.”

Thereby, Reliance Securities said, “The Bank’s strong lending and deposit franchise, healthy capital position and impeccable asset quality performance across cycles have been aiding stable RoAs over the years. At CMP, the stock trades at 1-year forward multiple of 3.7x. Marginally tweaking our earnings estimates for FY20E/FY21E, we maintain our BUY recommendation on the stock with an SOTP-based Target Price of Rs2,650 (based on 3.7x FY21E adjusted PBV and the value of its subsidiaries, implying a FY21 P/ABV of 3.8x).”