HDFC Bank falls, but JPMorgan, Jefferies see valuation upside

Shares of HDFC Bank have come under sustained pressure this year, declining more than 26% and lagging both peers and the broader market, even as brokerages turn increasingly positive on the stock following the sharp correction.

The recent underperformance has prompted global brokerage JPMorgan to upgrade the stock to “Overweight” from “Neutral”, citing a more favourable risk-reward profile at current levels.

The firm has set a price target of ₹1,010, implying a potential upside of around 33% from current prices.

Separately, Jefferies has reiterated its “Buy” rating on the bank, maintaining a price target of ₹1,240, which implies an upside of about 64%.

Valuations hit multi-year lows

JPMorgan noted that HDFC Bank’s valuation has corrected to its lowest levels since the merger announcement in April 2022.

The stock is now trading at around 1.5 times its estimated FY28 price-to-book value, marking a 16-year low for the lender.

The bank’s decline has been significantly steeper compared to its peers.

While ICICI Bank has fallen about 8% year-to-date and the Nifty 50 is down roughly 13%, HDFC Bank has dropped over 24% in the same period.

As a result, the stock is now trading at a 17% discount to ICICI Bank on a 12-month forward price-to-book basis, a reversal from its historical premium, making valuations more attractive for investors.

Recovery drivers in focus

JPMorgan’s upgrade is based on three key factors that could support a turnaround in the stock’s performance.

First, the brokerage expects a recovery in system-wide credit growth, which could lift lending activity across the banking sector.

Second, it sees scope for improvement in return on assets as higher-cost borrowings are gradually replaced by lower-cost deposits, easing margin pressures.

Third, the bank’s strong track record in asset quality reviews and its robust liability franchise position it well in a volatile macro environment, where investors typically favour large, well-capitalised lenders.

The brokerage added that while a tight deposit environment may continue to weigh on earnings in the near term, with its FY26–FY28 estimates slightly below consensus, much of this risk appears to be already priced in.

Jefferies lists lender among top picks in the sector

The brokerage continues to list the lender among its top picks in the sector.

Jefferies highlighted that the stock’s recent underperformance has been driven by concerns over leadership transitions and the potential impact of geopolitical tensions in West Asia.

The unexpected resignation of part-time chairman Atanu Chakraborty earlier this month added to investor uncertainty.

Chakraborty cited differences related to “values and ethics”, triggering a sharp sell-off that wiped out billions in market value over a few trading sessions.

Although the bank and regulators have clarified that there are no governance or financial irregularities, the episode has kept investor sentiment cautious.

Outlook hinges on clarity and execution

Jefferies said valuations remain attractive, with the stock trading at around 1.6 times FY27 estimated adjusted book value and about 13 times earnings, levels that are at a discount to large private-sector peers.

The brokerage added that sensitivity to higher credit costs and slower revenue growth appears manageable, while the bank’s strong asset quality and return on equity profile provide a degree of resilience.

Analysts believe that greater clarity on board-level developments, including the appointment of a new chairman and the extension of the chief executive’s tenure, could act as key catalysts for a re-rating.

Shares of HDFC Bank were trading about 2.8% lower on Monday, reflecting ongoing volatility even as long-term investors weigh improving fundamentals against near-term uncertainties.