HDFC Bank recovers after over 11% drubbing in 2 days; CLSA sees 36% upside

HDFC Bank share price, HDFC Bank Q3 results: HDFC Bank's shares in Friday's trade (January 19) recovered after steep losses of over 11 per cent over the past two days. Broader market optimism partially led to the gains in the stock. At around 10:11 am, the stock was seen trading higher by 0.22 per cent at Rs 1,489.25, while at the day’s high, it logged levels of Rs 1,510.25, up 1.62 per cent.

"Since the largest chunk of FII AUM is in banks, they have been selling in banks, mainly HDFC Bank. Investors should remember that in the tug of war between FIIs and DIIs in recent years, DIIs always won in the medium- to long-term, even though FII selling can cause short-term pain," noted Dr. V. K. Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

Additionally, while earnings by the country's biggest lender remained a concern, global brokerage CLSA has reiterated its buy rating on the counter with a target of Rs 2,025 per share. Since the release of its Q3 results, the brokerage has interacted with over 20 clients. "While most domestic clients were unhappy, we felt that it was slightly different for foreign investors, many of whom believe that we are near the end of the “EPS cuts” cycle. Key concerns, though, were about deposits and NIM, or net interest margin.

The suggested target price by the brokerage implies a substantial potential upside of 36 per cent.

On deposits, some clients believed that it was a macro problem and not intrinsic to HDFC Bank. The brokerage expects the RBI to reduce the $2,000 crore liquidity deficit through a mix of FX purchases, a possible 50-bp CRR cut, and OMOs.

Domestic brokerage LKP Securities has also maintained its buy call on the stock with a 1-year target of Rs 1,762. The brokerage is of the view that the lender may see a marginal reduction in ROA/ROE for FY24E owing to a higher C/I ratio and margin pressure.

"Nevertheless, we believe superior underwriting practices, adequate coverage, and a strong capital position make the bank well placed," added the brokerage.