HDFC Bank share price fell over a percent in early trade on Monday after foreign brokerage firm CLSA downgraded the ratings and cut its target price on the stock.
CLSA downgraded HDFC Bank to ‘Outperform’ from ‘Buy’ and cut the target price sharply to ₹1,650 per share from ₹2,025 earlier.
The brokerage firm believes HDFC Bank is at an inflection point in its journey and while the merger with the mortgage lender Housing Development Finance Corporation (HDFC) does provide long-term benefits, the medium-term poses more challenges than upsides.
CLSA warned that HDFC Bank may face twin challenges on deposits – a high ask rate and a tough environment. It expects improving yields to be offset by muted CASA accretion, which will keep net interest margin (NIM) recovery gradual.
Also Read: HDFC Bank to overcome merger overhangs gradually; LKP recommends ‘strong buy’, sees 22% upside at TP of ₹1,762
The brokerage expects NIM recovery for HDFC Bank will be more ‘U-shaped’ than ‘V-shaped’.
“The deposit-gathering requirement increases significantly, and coincidentally, in an environment where deposit growth is challenging for the banking sector. We believe HDFC Bank will be prudent when it comes to deposit pricing and sacrifice growth, if the need so arises,” CLSA said.
The foreign brokerage house cut its deposit accretion estimates for FY2025 to ₹4.2 lakh crore from ₹5.2 lakh crore and accordingly its loan growth to 10% from 15%.
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The brokerage also trimmed its FY25 and FY26 earnings per share (EPS) estimates by 5%. It is now 8% below consensus.
HDFC Bank share price performance has been lukewarm in the past three three years, down over 7%, and the stock has underperformed the benchmark indices and the whole sector amid merger overhangs. HDFC Bank shares have fallen over 13% in the past three months and more than 16% in 2024 so far. The stock has declined over 9% in one year.
At 10:15 am, HDFC Bank shares traded 1.16% lower at ₹1,429.60 apiece on the BSE.
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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
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Omprakash Tiwary is a business writer who delves into the intricacies of the corporate world. With a focus on finance and economic landscape. He offers readers valuable insights into market trends, entrepreneurship, and economic developments.
