HDFC Bank may take Bank Nifty to 60,000 within a year, says one analyst

Nifty Bank, the index of India’s 12 biggest banking stocks , recently scaled 50,000 after doubling in the last six years. It may add another 10,000 before 2024 ends, according to Gautam Shah, Founder and Chief Strategist at Goldilocks Premium Research, a technical research firm.

NSE

It took Nifty Bank over two and a half years to go from 40,000 to 50,000, a 25% rise. If Shah is right, the next 10,000, which would be a 20% gain, could come in much faster.

“If the US Fed interest rates were to go lower and if the charts were to discount that much in advance, banks are one place to be in because the risk-reward is excellent, and my fundamental analyst tells me that from a valuation perspective, banks are still cheap. So, yes, banks could be one of the trades of the next 3-6 months,” Shah said in a conversation with CNBC-TV18.

The index was the worst performer of all sectoral gauges in 2023. At the same time, the combined profit of all Indian banks crossed ₹3 lakh crore in the financial year ending March 2024.

“I am

actually

looking at 60,000 on the Bank Nifty, and stocks like HDFC Bank will trigger it because the stock is coming out of 3 years of underperformance, and there is a very high probability that HDFC Bank can go up to a lifetime high and well beyond,” Shah said in a conversation with CNBC-TV18.

HDFC Bank contributed only a fifth of the rally in the last six years — just half of the contribution from ICICI Bank, a private sector peer. The Nifty 50 has gained over 8.2% this year so far.

One of the

key

risks

to

projection

Indian banks faced a significant challenge in the latest cycle of credit growth

so far

: the demand for loans grew faster than

the

customer deposits, meaning they had to borrow money at higher interest rates to lend further, squeezing profit margins.

The non-food credit growth was over 16% in four out of the last six months of FY24 but deposits have been slower.

Deposit growth hasn’t turned around yet. The latest data from the Reserve Bank of India (RBI) shows that deposit growth for the fortnight ending May 31 was the slowest in over a year.

So far in 2024, Nifty Bank has gained 4.85%, whereas the Nifty 50 has surged nearly twice as much, 8.2%.

However, not just Shah; there are others who believe that it’s only a matter of time before the underperforming bank stocks like HDFC Bank catch up with the rest of the market. “Large-cap banks are still reasonably priced despite margin headwinds. Any delay in rate cuts can provide a positive surprise to the lowered expectations on net interest margins,” Tata Mutual Fund said in a note earlier in June.

merging market strategist Adrian Mowat believes long-term investors can wait for taking a bet on banking stocks.

"If you look at HDFC Bank, it's about 2.4 times tangible book value. Its forward PE (price-to-earnings) multiple is significantly lower than it used to be. But on a price to a tangible book value, it remains one of the world's more expensive banks. Perhaps, you find some of the faster growing Indonesian banks with similar price to tangible book levels. So, it superficially looks interesting on a forward P/E," he noted.

On the other hand, e Simply put, Mowat believes long-term investors can wait for the shares of HDFC Bank to be available at a better price.With research inputs from Abhishek Kothari, Hormaz Fatakia and Yoosef K.