The American depositary receipts (ADRs) of HDFC Bank Ltd faced a notable setback, plummeting by 9% in overnight trading, following a 6.7% decline in the previous session. This sharp decrease, from $65.58 on Friday to $55.59 on Wednesday within two sessions, has raised concerns about potential weakness for the private lender in the Indian market, particularly amid ongoing talks of rate cuts and strategic shifts in the financial landscape.
As discussions persist regarding rate cuts and banks grapple with the delicate balance between credit growth and margins, market analysts suggest a potential tactical rotation toward high-quality Non-Banking Financial Companies (NBFCs). Jaykrishna Gandhi, Head of Business Development in Institutional Equities at Emkay Global Financial Services, remarked, "As talks around rate cuts continue and as banks struggle with balancing credit growth versus margins, we are likely seeing a tactical rotation towards good quality NBFCs."
HDFC Bank's quarterly results, disclosed on Tuesday, revealed a time correction for the stock, which has already experienced a 9.18% decline in January. The key highlight of the quarter was an unexpected strain on the bank's net interest margin (NIM), even amid trimmed expectations, attributed to higher funding cost pressures. Elara Securities anticipates a period of time correction for the stock, emphasizing that recovery may take longer as the bank grapples with the growth versus NIM conundrum.
Sharekhan, while acknowledging that net interest margins have bottomed out for the bank, emphasizes that the progression will be a critical focus area in the near-to-medium term. The bank's liability-side transition, especially the elevated CD ratio compared to the industry and the challenges in retail deposit growth, remains crucial.
Morgan Stanley, Bernstein, CLSA, Jefferies, and HSBC have provided varied target prices for HDFC Bank, reflecting diverse opinions on the stock's future performance. Nomura India points out the necessity for deposit growth to outpace loan growth significantly, emphasizing the challenges ahead as the bank adjusts its branch opening targets and contends with tight system liquidity.
Despite these challenges, Sharekhan and Morgan Stanley express a constructive long-term perspective on the bank. However, Nomura India maintains a neutral rating, citing the need for caution given the evolving dynamics in the financial landscape.
