Why HDFC Bank Share Price is Rising

The HDFC-HDFC Bank merger has been the talk of the town recently.

Both entities have experienced a remarkable uptick in their stock prices. On 3 July 2023, HDFC Bank's share price surged over 2%, hitting a fresh 52-week high at Rs 1,721.1. This is the highest level the stock has reached since March 2022.

HDFC Bank has consistently been a top-performing stock in the Indian market, gaining over 60% in the past five years. The stock's success can be attributed to steady corporate earnings and significant investments from foreign and domestic institutional investors.

Let's find out what is fueling the rally in HDFC Bank shares and what's next.

#1 HDFC-HDFC Bank merger

HDFC and HDFC Bank recently completed their merger on 1 July 2023. This merger has resulted in the creation of the world's fourth-largest bank by market value, trailing only JP Morgan, ICBC, and Bank of America.

With a combined market capitalisation of around US$ 157 billion (bn), it is expected to reach approximately US$ 172 bn.

The merger will enable HDFC Bank to underwrite larger ticket loans, including those for infrastructure projects. This expanded capacity for financing substantial projects will also enhance the bank's potential for growth.

Since the announcement of the merger, the shares of HDFC Bank, the private lender, have risen approximately 14.5% outperforming the Nifty 50 index, which saw a rise of around 9% during the same period.

Similarly, the stock of HDFC, the housing finance company, has also gained 17%.

#2 Expansion strategy

According to HDFC Bank's CEO, Sashidhar Jagdishan, the financial services and mortgage sectors are underserved and underpenetrated, offering a large growth potential.

With a strong distribution network, ample capital, healthy asset quality, and profitability, HDFC Bank is well-positioned to capture this growth. Jagdishan even mentioned the possibility of creating a new HDFC Bank every four years.

To support its growth ambitions, HDFC Bank plans to add approximately 1,500 branches annually to cater to the middle class and upper segments of the population. The bank will also continue investing in digital initiatives, aiming to transform into a technology-driven banking institution within the next three years.

This will lead the bank to transition from a sales management model to a relationship management model, taking advantage of the potential for bundled offerings and streamlining customer interactions.

Positive long-term outlook

Following the merger of HDFC and HDFC Bank, the bank is expected to experience sustained deposit market share gains. The deposits growth is projected to outpace loan growth due to aggressive branch expansion and increased emphasis on cross-selling between divisions.

Additionally, the recent increase in actual deposit rates has further contributed to this positive trend.

The strong asset quality and low credit costs of HDFC Bank are anticipated to support accelerated investments. The bank has already demonstrated increased branch expansion, partially driven by reduced credit prices.

This growth trajectory is expected to continue, leading to further market share gains in loans and deposits over the long term.

Further, it is anticipated that cost ratios will continue to decrease as the bank progresses beyond the investment cycle and experiences improved productivity and cross-selling opportunities.

How HDFC Bank has performed recently

Over the past month, the shares of the company have gained 7.5%. While over the year the shares of the company have gained 27.1%.

On a YTD basis, HDFC Bank shares have rose by 5.7%.

HDFC Bank has a 52-week high quote of Rs 1,757 touched on 3 July 2023 while it has a 52-week low quote of Rs 1,337 touched on 19 July 2022.

About HDFC Bank

HDFC Bank is one of India's largest private sector banks. It was established in Mumbai in August 1994. Over the years, it has built a strong brand reputation and customer loyalty.

It has a network of 6,342 branches and 18,130 ATMs in 3,188 cities/towns.

HDFC Bank offers a diverse range of financial products and banking services to customers through a growing branch and ATM network as well as digital channels such as net banking, phone banking, and mobile banking.

It also offers a wide gamut of commercial and transactional banking services to organisations of all sizes.

To know more about the company, you can have a look at its factsheet and its quarterly results.

You can also compare HDFC Bank with its peers.

HDFC Bank vs ICICI Bank

HDFC Bank vs SBI

HDFC Banks vs Axis Bank

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