Banks play a pivotal role in the economic development of a country, acting as intermediaries between savers and borrowers. They facilitate capital flow, promote savings, and provide loans, thereby stimulating business activities, consumption, and investment. With the rise of digital banking, banks have evolved to offer a range of services, including payments, wealth management, and credit solutions. The banking sector is now integral to modern economies, supporting both individual and business growth.
The growth potential of the banking sector, particularly private banks, remains robust. With India’s expanding middle class, rising digital adoption, and increasing financial inclusion, private banks are poised for significant growth. Leading private banks like HDFC Bank, ICICI Bank, and Axis Bank are at the forefront, driving innovation and expanding their services, which further contributes to economic prosperity.
Share Price
The shares of HDFC Bank are currently trading at Rs. 1,665 flat from its previous close of Rs. 1,666 as of January 23, 2025. The stock opened at its high price of Rs. 1,687.
Recent Updates
Macquarie: ‘Outperform’ Rating
Macquarie has a more optimistic outlook on HDFC Bank, issuing an ‘Outperform’ call with a target price of Rs 2,300 per share. The brokerage describes Q3FY25’s performance as decent despite challenging macroeconomic conditions. Macquarie notes a marginal increase in credit costs, which was attributed to higher agricultural slippages. However, they expect net interest margins (NIM) to improve in the coming quarters, as macroeconomic conditions are expected to become more favorable.
Rationale:
Macquarie’s positive outlook stems from its belief that despite short-term challenges, HDFC Bank will benefit from improving macroeconomic conditions. They view the increase in credit costs as a temporary issue and are optimistic about NIM improvement. The bank’s overall asset quality remains stable, and Macquarie expects strong growth in the bank’s core earnings as macro conditions improve, leading them to maintain an ‘Outperform’ rating with a higher target price.
HSBC: ‘BUY’ Rating with Revised Target Price
HSBC has given a ‘BUY’ recommendation for HDFC Bank but has revised its target price to Rs 1,980 from Rs 2,130 previously. The brokerage notes that the bank’s results were in line with expectations, showing stable asset quality. However, they have cut their EPS estimates for FY2627 by 45%, owing to lower loan growth in the short term.
Rationale:
HSBC’s downgrade in target price reflects concerns over slower loan growth, which has resulted in a downward revision of EPS estimates. Despite the stable asset quality and strong NII growth, the reduced loan growth outlook has tempered HSBC’s enthusiasm. Nevertheless, they maintain a ‘BUY’ rating, seeing long-term value in the bank’s performance and its capacity to navigate the current macro environment.
Bernstein: ‘Outperform’ Rating
Bernstein has issued an ‘Outperform’ rating for HDFC Bank with a target price of Rs 2,300 per share. The brokerage believes that the bank has delivered a solid performance despite muted EPS growth. They highlight that net interest income (NII) growth was decent, though net operating income (NOI) growth was weaker. Core fee income remained strong, which they believe will support the bank’s future growth.
Rationale:
Bernstein’s positive stance is based on HDFC Bank’s strong fee income, which is a key driver of the bank’s revenue. While NOI growth was weak, Bernstein expects the bank to return to a midteens EPS growth trajectory in the coming quarters. Their optimism stems from the bank’s ability to deliver solid earnings despite the challenges posed by macroeconomic conditions, and they believe the stock is undervalued at current levels.
Emkay Global: ‘BUY’ Rating on HDFC Bank
Emkay Global has a ‘BUY’ recommendation on HDFC Bank with a target price of Rs 2,100. They report a slight miss of 2% on PAT for Q3FY25, primarily due to slower credit growth and higher provisions. However, the bank’s deposit growth remains healthy, and it has managed to control its loan-to-deposit ratio (LDR). Retail asset quality remains stable, but the overall GNPA ratio inched up to 1.42% due to seasonal stress in the KCC book.
Rationale:
Emkay Global’s ‘BUY’ rating is supported by HDFC Bank’s focus on LDR moderation and deposit acceleration, which are expected to help maintain margins. Despite a rise in provisions and slower credit growth, Emkay remains confident in the bank’s long-term prospects. They believe that the focus on portfolio selloff and managing asset quality will keep margins stable. The ongoing listing of HDB Financial Services is another factor that adds to the bank’s long-term growth potential, leading Emkay to retain a ‘BUY’ rating.
Outlook and LongTerm Growth Prospects
Despite challenges in Q3FY25, including slower loan growth and increased provisions, HDFC Bank has managed to maintain stable asset quality and a healthy deposit growth rate. The bank’s strong fee income and strategic focus on improving NIMs provide optimism for future growth. Brokerages like Emkay, Macquarie, HSBC, and Bernstein remain confident about the bank’s prospects, with most maintaining a positive outlook despite the short-term hurdles.
Written By: Dipangshu Kundu
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