HDFC Bank shares leaped into the green on Wednesday riding on the back of a strong quarterly business update by the country's largest private sector lender. The HDFC Bank stock gained by as much as Rs 27.5 per cent, or 1.8 per cent, to Rs 1,535.4 apiece on BSE, staging a sharp recovery after weakening about one per cent in the first few minutes of trade. 

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HDFC Bank said its total deposits grew 18.2 per cent on a year-on-year basis to Rs 21,73,000 crore in the quarter ended September 30. Its gross advances aggregated to Rs 23,54,500 crore, marking an increase of 57.7 per cent compared with the year-ago period.

As per HDFC Bank's internal business classification, its domestic retail loans expanded 111.5 per cent on a year-on-year basis, with the following trends across segments:

  • Commercial and rural banking loans up 29.5 per cent
  • Corporate and other wholesale loans up 8.0 per cent
  • Non-individual loans of the erstwhile HDFC Ltd (eHDFCL) at Rs 1,02,500 crore, as of September 30 

Barring the HDFC Ltd non-individual loans, total gross advances increased 17.6 per cent to Rs 23,32,800 crore.

Home loan disbursal reached a record Rs 48,000 crore, up 10.5 per cent compared with the corresponding period a year ago, according to a regulatory filing. This was the bank's first business update of a full quarter since its merger with mortgage lender HDFC Ltd on July 1.

HDFC Bank's robust business update comes as investors await the onset of a fresh corporate earnings season for India Inc.   

The HDFC Bank-HDFC merger, worth about $40 billion, was the largest in the country's corporate history. The mega-merger helped HDFC Bank enter the club of the world's top five lenders in terms of market value.

The stock settled with a gain of 1.5 per cent at Rs 1,530.8 apiece on the bourse. 

Should you buy afresh or add HDFC Bank shares to your portfolio?

"While HDFC Bank remains a long-term 'buy', the aggressive branch expansion that it is undergoing, especially after the big merger, will continue to put pressure on its profitability, especially the net interest margin (NIM)," AK Prabhakar, Head of Research at IDBI Capital Markets, told Zeebiz.com.      

"Anything that involves a big merger has a certain impact on profitability, and it takes a while for it to return to normalcy... Short-term rallies will come and go, but at this juncture, only investors with a minimum view of five years should look at buying," he said.  

Brokerage Rating Price target Upside from Tuesday's closing price
Motilal Oswal Buy Rs 1,950 29.3%
Prabhudas Lilladher Buy Rs 1,564 3.7%

According to Motilal Oswal Financial Services, a gradual recovery in growth and earnings are likely to aid the performance of HDFC Bank shares. The brokerage expects the loan growth of the merged entity to remain health at 12 per cent during the nine months to March 2024. 

"The management believes that execution remains the most important aspect for the bank and that HDFC Bank has everything in place to deliver strong profitability and growth trajectory over the coming years (similar to pre-merger levels... While the merged entity is expected to begin its journey on a softer note, we expect the operating performance to recover gradually from the second half of the financial year 2023-24," analysts at Motilal Oswal wrote in a report dated September 25.  

The brokerage has a 'buy' rating on the bank's stock with a target of Rs 1,950, which translates to an upside of more than 29 per cent from Tuesday's closing price.   

Technical outlook

"HDFC Bank shares have been underperforming for the past two years, in stark contrast to the Nifty Bank as well as some of its peers such as ICICI Bank and Axis Bank, which have posted fresh all-time highs... HDFC Bank has barely done that and once again slipped into a corrective phase," Hemen Kapadia, Senior VP-Institutional Equity at KR Choksey Stocks & Securities, told Zeebiz.com. 

Here's how HDFC Bank shares have fared so far in 2023: 

Stock/index 2023 YTD (Oct 3)
Nifty Bank 3.3%
HDFCBANK -7.3%
ICICIBANK 5.5%
SBIN -1.7%
PNB 47.4%
AXISBANK 11.5%
Source: Exchange data  

He pointed out the absence of any sign of a technical turnaround. "The outlook remains cautious because the long-term indicators are not showing any sign of a major reversal... It is oversold in the extreme short term," added Kapadia, suggesting buying the stock either as a trading bet or in a staggered manner. 

How HDFC Bank fared in Q1

HDFC Bank began the financial year with a strong performance in the first three months. Its standalone net profit jumped 30 per cent on a year-on-year basis to Rs 11,951.8 crore for the quarter ended June 30, 2023, and net interest income (NII)—or the difference between interest earned and interest paid—grew 21.1 per cent to Rs 23,599 crore.

The lender's net interest margin (NIM)—a key measure of profitability—came in at 4.1 per cent, flat on a sequential basis. 

According to Zee Business research, HDFC Bank's quarterly net profit was estimated at Rs 11,580 crore. 

The private sector bank's asset quality deteriorated marginally, as its gross non-performing assets (NPAs) or bad loans as a percentage of total loans increased to 1.17 per cent in the June quarter from 1.12 per cent sequentially. Its net bad loans inched up to 0.3 per cent from 0.27 per cent three months ago. 

HDFC Bank shares: Past performance

HDFC Bank shares have lost 6.6 per cent of their value in 2023 so far, in contrast to a 6.4 per cent rise in the headline Nifty50 index. 

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