Why HDFC Bank Share Price is Falling

The December 2023 quarterly results of HDFC Bank were keenly awaited by Dalal Street in a bid to further understand the integration of the combined entity.

The merger of HDFC and HDFC Bank became effective 1 July 2023 and the stock price of HDFC Bank has sharply underperformed the broader Sensex over the past one year.

Investors were wondering whether the latest results will make the trend reverse.

Despite the bank beating estimates, HDFC Bank shares experienced a sharp decline today, following a 7% slump in the US-listed ADRs overnight.

This comes after the bank met street expectations on headline numbers but disappointed many who dug a little deeper.

The largest private sector bank reported stable core net interest margins (NIMs) - 3.6% in the December 2023 quarter on interest earning assets and similar to the levels reported in the September 2023 quarter.

The bank's net profit rose 33% year-on-year (YoY) to Rs 163.7 bn but this included a one-time tax rate gain.

Provisions also rose as much as 50% to Rs 42.2 bn.

The quarterly results of HDFC Bank are not comparable on a year-on-year basis.

Interest rates appear to have peaked globally and there is widespread expectation that interest rates could start easing over the next 6-9 months in India too, and this in turn could help improve the NIMs for large players like HDFC Bank.

HDFC Bank has over 8,000 branches across the country and its ability to source low-cost deposits will remain key to improving NIMs going forward.

The RBI also tightened norms for unsecured lending a few weeks earlier however, HDFC Bank is present across the value chain in the banking industry and it is expected to deal with this situation effectively.

Nearest rival ICICI Bank has not yet reported results for the December 2023 quarter, however, in the September 2023 quarter, ICICI Bank reported NIMs of 4.5%.

Meanwhile, the asset quality of HDFC Bank appears to be stable too - percentage of net NPAs to net advances was 0.31% in the December 2023 quarter vis-a-vis 0.35% in the September 2023 quarter.

Outlook for HDFC Bank

The Indian economy is expected to grow over 6.5% during FY25 and this in turn should ensure strong demand for loans / credit facilities for large players like HDFC Bank.

The company's management in the conference call said that it expects their loan book to double over the next 4-5 years. HDFC bank's gross advances were Rs 24.69 lakh crore at the end of the third quarter of the current fiscal.

HDFC Bank share price hit a 52-week high of Rs 1,757.8 on 3 July 2023 and it ended yesterday's trade broadly flat at Rs 1,679.

The December 2023 quarter results were declared post-closing hours yesterday - the stock has barely gained 3% over the past one year vis-a-vis 21.6% rise in the Sensex.

As HDFC Bank commands over 14% weightage on the Nifty 50 index, which is the highest among the constituents, any weakness in the stock could impact the performance of the overall benchmark.

Investors are closely watching the bank's strategy to keep NPAs under control and also bring the merged entities NIMs to levels north of 4%, in tune with its nearest rival.

HDFC Bank has an impeccable track record for more than two decades with regard to growing its loan book, both retail and corporate, and at the same time keeping its NPA ratios to one of the lowest in the banking sector.

It will take a few quarters before HDFC Bank will be able to return to its enviable operating ratios.

HDFC Bank trades at a PE ratio of nearly 20 times estimated standalone FY24 earnings while it is 18.4 times for rival ICICI Bank on a standalone basis.

HDFC Bank remains one of the best companies to play the 'India growth story' over the long term.

To know more, check out HDFC Bank's financial factsheet and its latest quarterly results.

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