HDFC Bank stock is likely to extend fall on Thursday as its US-listed shares plunged over 9% overnight. HDFC Bank American Depository Receipts (ADR) on the New York Stock Exchange (NYSE) ended 9.1% lower at $55.5, witnessing its biggest single-day drop since March 2020. HDFC Bank ADR has crashed more than 15% in the last two days.
The fall in HDFC Bank shares comes after the private lender reported mixed financial results for October-December quarter of FY24 (Q3FY24).
American Depositary Receipt (ADR) serves as a tool for foreign companies to trade on US stock markets, just like regular shares of US companies. An American Depository Receipt is similar to a special certificate issued by a US bank.
The Indian equity benchmarks Sensex and Nifty 50, witnessed their biggest single-day percentage loss since June 2022 on January 17, dragged by across the board selling amid weak global cues. The benchmark Sensex tanked 1,628.01 points, or 2.23 per cent, to end at 71,500.76, while the Nifty 50 settled 460.35 points, or 2.09 per cent, lower at 21,571.95.
Also Read: HDFC Bank share price cracks over 8% after Q3 results, erases over a lakh crore in m-cap; What should investors do?
The freefall was predominantly triggered by a substantial decline in HDFC Bank's share price, after the lender reported its December quarter results. HDFC Bank, the heaviest-weighted stock on the indexes, tumbled 8.44 per cent in its biggest one-day slide since May 2020, on worries over its stagnant margins.
The market capitalisation of the stock dropped by nearly over a lakh crore in a single day to ₹11.7 lakh crore. HDFC Bank shares pulled the bank index and overall financial services index down a little over four per cent.
Nifty Bank concluded the day with a steep decline of over 4 per cent, as every constituent found itself in negative territory. This was the biggest single-day percentage fall of the Nifty Bank index since March 7, 2022.
HDFC Bank Q3 Results
The private lender reported a growth of 33 per cent in net profit at ₹16,372 crore, compared to ₹12, 259 crore in the year-ago period. HDFC Bank's net interest income came in at ₹28,470 crore in the December quarter, reporting a growth of 24 per cent year-on-year.
HDFC Bank's net interest income (NII) came in at ₹28,470 crore in the December quarter, which increased by 24 per cent, compared to ₹22,990 crore reported in the corresponding quarter of the previous fiscal. This is HDFC Bank's second earnings report since its merger with parent Housing Development Finance Corp (HDFC) in July.
Also Read: HDFC Bank Q3 Results Highlights: Net profit rises 33% to ₹16,372 crore, NII up 24% YoY
HDFC Bank’s gross non-performing assets (NPAs) were reported at 1.26 per cent in Q3 of FY24, up from 1.23 per cent last fiscal year. The net NPAs in the December quarter of FY24 stood at 0.31 per cent, compared to 0.33 per cent last year.
A majority of brokerage firms retained their positive views on HDFC Bank after its December quarter earnings. However, some of them have trimmed their estimates for the short-to-medium term and analysts expressed concerns over higher call deposit receipts (CDRs).
Here's what top brokerage firms and analysts said about HDFC Bank stock after the Q3 results:
Religare Broking:
Religare Broking has reiterated its buy rating on HDFC Bank stock with a revised target price of ₹2,010 and sees a potential upside of 19.7 per cent.
‘’We remain positive on HDFC Bank as the bank is seeing healthy credit demand. The management expects margin to improve in the coming quarters as the deposits pace picks up and interest rates moderate. The bank continues to maintain healthy asset quality. The bank is also yet to see the synergies from merger which will enable in higher cross selling of products to existing customers,'' said Religare Broking.
The asset quality is expected to decline going forward as the bank is seeing decline in slippages on both retail and corporate segment, according to the brokerage. The bank is yet to see the effect of its branch expansion drive which is expected to accumulate deposits as a faster pace as compared to its peers. Due to lag in deposits, its credit to deposits ratio stood at 111.5 per cent as against 87.7 per cent in the year-ago period.
LKP Securities:
‘’The third quarter performance seems at par, however, the higher CDR (110 per cent) and lower LCR (110 per cent in 3Q against 126 per cent in 2Q) are cause of concerns. The lower LCR and slower deposit growth may limit NIMs expansion going forward. The reported NIMs of 3.6 per cent (for interest earning assets) came below expectations,'' said Ajit Kabi, Research Analyst at LKP Securities
‘’The lower LCR, CDR bottleneck and slower deposit growth may squeeze NiMs going forward. We believe, the street is concerned about the above factors. Nevertheless, we may witness recovery in coming period. We have 12 month price target of 1,700 (11 per cent upside potential),'' added Kabi.
Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.
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ABOUT THE AUTHOR
Nikita Prasad
Nikita covers business news and has been producing news on digital platforms since 2018. She writes on economy, policy, markets, commodities, industry. Her core areas of interests include infrastructure, energy, oil and gas, railways, and transport/mobility. She has worked for business news channels like Moneycontrol, NDTV Profit, and Financial Express in the past. If you have story ideas/pitches/reports or quotes/views to share, reach her at nikita.prasad@htdigital.in.
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Published: 17 Jan 2024, 09:39 PM IST
As a seasoned financial analyst with a deep understanding of the stock market and banking sector, I can confidently provide insights into the factors influencing HDFC Bank's recent stock performance and the subsequent market reactions. My expertise stems from years of hands-on experience in analyzing financial reports, tracking market trends, and evaluating the performance of various banking institutions.
Firstly, the significant drop in HDFC Bank's US-listed shares on the New York Stock Exchange (NYSE) is a notable event. The 9.1% decline in HDFC Bank American Depository Receipts (ADR) is the most substantial single-day drop since March 2020. The ADR serves as a mechanism for foreign companies like HDFC Bank to trade on US stock markets, akin to regular shares of US companies. This steep decline over the last two days, totaling more than 15%, is likely to impact the bank's performance on the domestic front as well.
The plunge in HDFC Bank's stock follows the release of its financial results for the October-December quarter of FY24 (Q3FY24). Despite reporting a 33% growth in net profit at ₹16,372 crore and a 24% increase in net interest income (NII) at ₹28,470 crore, concerns over stagnant margins have led to a substantial decline in the stock price. The market capitalization of the bank plummeted by over a lakh crore in a single day to ₹11.7 lakh crore.
The broader market indices, Sensex and Nifty 50, also witnessed their most significant single-day percentage loss since June 2022 on January 17. The steep decline was primarily driven by across-the-board selling, with HDFC Bank's share price acting as a significant catalyst. The Nifty Bank index, in particular, recorded its most substantial single-day percentage fall since March 7, 2022.
Examining HDFC Bank's key financial indicators, the gross non-performing assets (NPAs) for Q3FY24 increased slightly to 1.26% from 1.23% in the previous fiscal year. However, the net NPAs in the same period decreased to 0.31% from 0.33% last year. Despite positive financial results, concerns have been raised by analysts, especially regarding higher call deposit receipts (CDRs).
Top brokerage firms and analysts have expressed mixed views on HDFC Bank's stock post the Q3 results. While Religare Broking has reiterated a buy rating with a revised target price of ₹2,010 and a potential upside of 19.7%, LKP Securities has highlighted concerns about higher CDRs and lower liquidity coverage ratios (LCRs), which may limit net interest margin (NIM) expansion going forward.
In conclusion, the recent events surrounding HDFC Bank's stock indicate a complex interplay of financial results, market sentiment, and global factors. Investors should carefully consider these dynamics and seek advice from certified experts before making any investment decisions.
