“Since HDFC Bank is a darling of the market, the expectations were higher and the lower delivery led to harsh reactions,” said Siddhartha Khemka, head of research at Motilal Oswal Securities.
The stock closed at ₹1,536.9 on Wednesday. Most analysts either retained or cut their stock price targets on HDFC Bank after the December quarter results.
“The market expected HDFC Bank, which has been an underperformer, to deliver a positive stock return, especially after the surprise in Infosys’s results,” said Kaitav Shah, banking analyst at Anand Rathi Institutional Equities.
“The increase in provisions, including the contingent provisions, is playing a spoilsport for HDFC,” said Khemka.
The sell-off in HDFC Bank shares on Wednesday mirrored the overnight 8% slump in its American Depository Receipts (ADRs) after the bank declared its results on Tuesday evening. The ADRs were down more than 7% late on Wednesday.
Analysts said HDFC Bank is one of the highest-owned Indian companies by foreign investors and concerns over profitability could result in them cutting their holdings.On Wednesday, foreign portfolio investors (FPIs) sold shares worth almost ₹10,000 crore – one of their highest selling in a day in recent times.
Analysts said HDFC Bank has been struggling to balance growth and margin expectations of the market since its merger with HDFC.
Anand Rahi’s Shah said the ‘real issue’ for HDFC Bank is that the credit deposit ratio (CDR) at 110% must come down and the liquidity coverage ratio (LCR) at 110 % must increase.
“The bank needs to choose between either margin or advance growth in the next couple of quarters, in the absence of a NIM (net interest margins) catalyst,” said Shah.
Lower liquidity coverage ratio and slower deposit growth may limit NIM expansion going forward, said Ajit Kabi, research analyst at LKP Securities.
“We believe the Street is concerned that the lower LCR, CDR (Credit Deposit Ratio) bottleneck and slower deposit growth may squeeze NIMs going forward,” said Kabi.
HDFC Bank has been an underperformer in recent times with the stock dropping 5.8% in the past year as against the 8.5% upmove in Bank Nifty in this period.
“While it is not clear whether the worst for HDFC Bank is over or not in the near term, softness in share price can be expected on the NIM softness,” said Shah.
Khemka said that HDFC Bank is expected to have a subdued performance over the next 1-2 quarters, post which the bank should get back on track.