Is there still more fall in store for HDFC Bank shares after their worst day in four months?

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The Nifty 50 is down more than 100 points on Wednesday during trading on the stock of India’s largest private sector lender.

The Nifty 50 index’s top losers are the shares of HDFC Bank Ltd., which are currently experiencing their greatest one-day decline in four months. The stock is currently down 4%, which is the most since May of this year for a single day.

The Nifty 50 is down more than 100 points on Wednesday during trading on the stock of India’s largest private sector lender.

Shares of HDFC Bank dropped after brokerage Nomura decreased its price objective from Rs. 1,970 to Rs. 1,800 and downgraded the company from buy to neutral.

The stock’s 52-week low is Rs. 1,365, and its 52-week high, which it reached following the news of the merger with HDFC, is Rs. 1,757. The Relative Strength Index (RSI) on the charts is at 38 and approaching oversold levels at the present price. When the RSI falls below 30, it’s a sign that the stock is oversold.
After falling by 2% on Monday, HDFC Bank’s shares have now fallen for two days in a row.

According to three technical analysts,saidthat  the stock may continue to move in a range. What they said was as follows:
According to Ruchit Jain of 5paisa.com, the stock has underperformed somewhat since the merger announcement, and the prices may consolidate and correct in the near future. The 1,530–1,500 range provides immediate support.

According to Rupak De of LKP Securities, HDFC Bank has been trading in a 200-point range for the past 10 months, with a lower band of despite a big recent decline, the stock has impressively maintained its stability within the region of Rs. 1,500 to Rs. 1,700. According to the author, this resistance points to ongoing consolidation, with considerable purchasing activity reappearing around the Rs. 1,500 area.

According to comments from analysts during an investor meeting earlier this week, the bank expects the combination to put further strain on its net interest margins (NIM) and perhaps cause a rise in non-performing assets (NPA).

Analyst meeting result

Following its merger with parent business Housing Development Finance Corp. (HDFC), HDFC Bank expressed concerns about potential short-term difficulties during a recent analysts’ meeting.

Due to this strategic decision, the bank anticipates negative effects on net worth, NIM, and asset quality.

The potential for a 25 bps narrowing of NIM was one of the main issues raised in the conference.

This would happen as a result of a number of variables, including excess liquidity and the incremental cash reserve ratio (CRR). Before the merger, HDFC had amassed a surplus liquidity reserve of around Rs 1 lakh crore.

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Nomura lowers HDFC’s rating

Following the meeting, the shares of HDFC Bank was downgraded from ‘buy’ to ‘neutral’ by the international brokerage firm Nomura, and the target price was decreased from Rs. 1,970 to Rs. 1,800.

Four unfavourable surprises from the analyst meeting were mentioned by Nomura:

1.  Net worth adjustments have a 4% negative impact on the book value per share for the FY24F.
2. Due to excessive liquidity and accounting changes, NIM reductions of approximately 25 bps in FY24F and 15-20 bps in FY25-26F are anticipated.
3. The upfronting of sourcing costs under IGAAP for HDFC as compared to amortisation under IndAS has resulted in higher cost-to-income ratios.
4. A notable increase in non-performing assets (NPAs) in the corporate loan book of HDFC.

Nomura stated: “In our opinion, these are mainly taken into account by our EPS cuts of 5-9% over FY24-26F and BVPS cuts of roughly 7%. The disparity between HDFCB’s medium-term RoA (return on assets) profile (1.7–1.8% over FY24–26F) and ICICI’s RoA profile (2.2%) (FY24–26F) is now much more pronounced as a result.

Even while the bank did not highlight any changes to its expectation for loan growth, analysts at the firm said they will examine the near-term impact resulting from “pressure to maintain elevated liquidity levels”.

“While recognizing the franchise’s excellence, Nomura remains cautious. We anticipate challenges in RoA and loan growth for the next year.”

(Disclaimer: The views, opinions, advice, and recommendations provided by the experts/brokers in this article are their own, and they do not necessarily represent those of the India Today Group. Before making any actual investments or trading decisions, it is advisable to speak with an experienced broker or financial advisor.)

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Anshika Agarwal

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