HDFC Bank shares hit 52-week low after Q3 earnings, what’s next?

On BSE, the shares of HDFC Bank Ltd, a leading private sector lender in India, reached their 52-week low on Tuesday, continuing the downtrend following disappointing Q3 earnings.

HDFC Bank’s stock fell by 1.26%, touching a yearly low of Rs 1,459.95, down from the previous closing price of Rs 1,478.65 on the BSE on Tuesday.

The stock’s relative strength index (RSI) stands at 24.5, signalling that it is in the oversold territory.

Last week, the bank’s stock experienced a sharp 10% decline following the release of its Q3 earnings report for December 2023 on January 16. This drop pushed HDFC Bank’s stock below the 52-week low of Rs 1460.55 set on October 26, 2023.

Amid a broader market rally, HDFC Bank’s market capitalization also dipped to Rs 11.12 lakh crore.

Trading on the BSE witnessed 1.04 lakh shares of HDFC Bank changing hands, resulting in a turnover of Rs 15.18 crore. The stock’s one-year beta of 0.5 indicates low volatility.

HDFC Bank’s stock is currently trading below its 5-day, 10-day, 100-day, 150-day, and 200-day moving averages.

The unexpected correction in the bank’s stock post-Q3 earnings has unsettled many investors, prompting speculation about its future trajectory.

What experts say

Global brokerage firm CLSA has maintained its buy rating on HDFC Bank with a target price of Rs 2,025 per share.

After analysing Q3 earnings, CLSA interacted with over 20 clients, noting that foreign investors appeared more optimistic, believing that the bank is nearing the end of the earnings per share (EPS) cuts cycle. Key concerns, however, revolve around deposits and net interest margins (NIM).

On the other hand, brokerage firm KR Choksey has assigned a target price of Rs 1,950 for HDFC Bank’s stock.

They value the bank’s standalone business at 2.2 times FY26E Price to Adjusted Book Value (P/ABV) to reach Rs 1,716, with subsidiaries contributing Rs 233. This totals to Rs 1,950 per share, implying a 26.8% upside from the current price. Accordingly, they maintain a “BUY” rating on HDFC Bank shares.

In contrast, Nuvama has downgraded the stock to a ‘hold’ rating post-Q3 earnings. They have reduced earnings estimates by 5-6% for FY25E-FY26E due to a 4% cut in loan growth, partially offset by an upward revision of non-core items.

Nuvama highlights concerns about HDFC Bank’s liquidity coverage ratio (LCR), loan-to-deposit ratio (LDR), and deposit growth, lowering the target price to Rs 1,730 from Rs 1,770.

Financial services firm Motilal Oswal has set a target of Rs 1,950 for HDFC Bank’s stock.

They observed that the bank’s margin remained largely flat, slightly below expectations, even as it deployed excess liquidity and drew down the LCR ratio.

Healthy loan growth, driven by retail and continued traction in Commercial and Rural Banking, improved asset quality ratios, and a provision coverage ratio (PCR) of 75% were noted. Management indicated that net interest margins (NIMs) would gradually improve in the coming years, alongside better operating leverage, leading to healthy return ratios.

Q3 results

HDFC Bank reported a 34% increase in its standalone net profit, reaching Rs 16,373 crore for the third quarter of December 2023, compared to Rs 12,259 crore in the same quarter of the previous fiscal year.

Total income also rose to Rs 81,720 crore in the October-December quarter of FY24, up from Rs 51,208 crore in the year-ago period.