HDFC Bank shares in Thursday’s trade (February 15) hogged the limelight as the heavyweight climbed after nearing its 52-week low levels of Rs 1,382.4. 

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At 2:51 pm, shares of the country’s leading private-sector lender gained ground and traded over 2 per cent higher to Rs 1,412.25 apiece. The stock hit an intraday low and high level of Rs 1,384.4 and Rs 1,413.3, respectively.

A sharp pullback to the tune of 16 per cent has been logged in the stock in a month since the company’s results were released last month. This drag even led to a decrease in the stock’s weightage in the Nifty pack, now below 11 per cent from the earlier over 14 per cent.

Further, as per Zee Business Research estimates, HDFC Bank has also underperformed the Nifty index in the last one month and has emerged as the laggard with the most beating during the timeframe.

In the previous month, when HDFC shares tumbled by as much as 8 per cent, FIIs were said to have exited positions in the stock. As of the December-ended quarter, the FIIs held a 52.29 per cent stake in the entity. Besides, despite the rout in the shares of HDFC Bank, it continues to be the top equity holding of domestic mutual funds.

Concerns at the lender that led to worries:

A falling RoA or return on assets below 2 per cent has been worrying the lender. 

Other concerns at the lender are lower deposit growth and a steady NIM, or net interest margin.

Omkar Kamtekar, a research analyst, noted that the two main reasons that led to the slide are as follows:

First is the higher-than-desired liquidity coverage ratio (LCR), which stood at 110 per cent as of Q3 FY24, down from 121 per cent in Q2 FY24. Further, the management has indicated that it will take some time to normalise.

The street did not like this number, which consequently led to the sell-off. Additionally, the Sebi brought a change in the disclosure norms regarding FPI, which accentuated selling. Fundamentally, there are no red flags in the number; the AUM growth has been consistent, branch growth is ambitious, and the valuations are mouthwatering.

Valuation-wise, in comparison to the average valuation over 5 years, HDFC Bank is trading at a 39 per cent discount, while ICICI Bank and Axis Bank command a 13 per cent and 4 per cent premium, respectively.

Technicals hint at an up-move in the near term, as suggested by Jigar Patel, Sr. Manager, Equity Research, Anand Rathi. The expert noted that HDFC Bank peaked at around Rs 1,721 on December 28, 2023, before declining by approximately 21 per cent afterwards. 

“Over the past two weeks, the stock has traded within a tight range of Rs 1,380 to Rs 1,480, indicating market indecision. On the indicator front, the Daily Scale Stochastics indicator identified a "regular bull divergence" near a 1.13 harmonic ratio. This divergence suggests potential upward momentum despite recent price declines, signalling a possible bullish reversal soon,” the expert added.