After seven consecutive sessions of gains, shares of banking heavyweight HDFC Bank declined on Friday, June 21.
On February 14 this year, HDFC Bank's stock reached a 52-week low of ₹1,363.55.
The results were not comparable on a year-over-year basis as HDFC Bank merged with its parent Housing Development Finance Corporation (HDFC) in July last year.
"The book value of HDFC Bank has improved over the past, and from a valuation perspective, it stands in a better place.
As the largest private sector bank, HDFC Bank is renowned for its aggressive growth strategies and exemplary customer service.
After seven consecutive sessions of gains, shares of banking heavyweight HDFC Bank declined on Friday, June 21. HDFC Bank share price opened with a mild gain of about 0.21 per cent at ₹1,672.85 against its previous close of ₹1,669.35 but soon fell about 1.6 per cent to the level of ₹1,643.15 on profit booking. The stock finally closed 0.5 per cent lower at ₹1,661.65 apiece.
Market benchmark Nifty 50 also erased all gains and declined by 0.3 per cent to end at 23,501.10 after hitting a fresh record high of 23,667.10.
The HDFC Bank share price had gained nearly 7 per cent in the last seven sessions.
As of June 21, the stock's last one-year performance has been quite sombre. It has gained nearly 2 per cent over the last year, against a solid 25 per cent gain in the benchmark Nifty 50.
On February 14 this year, HDFC Bank's stock reached a 52-week low of ₹1,363.55. Since that date, the stock has experienced a significant rally of about 22 per cent. The stock's 52-week high level is ₹1,757.50 which it hit almost a year ago on July 3 last year.
On the valuation front, the current price-to-earnings (PE) ratio of the stock is near 20, which is above its one-year median PE of 18.
India's largest bank, in terms of market capitalisation, reported a standalone net profit of ₹16,512 crore for Q4FY24, compared to ₹16,373 crore in the preceding December quarter.
The results were not comparable on a year-over-year basis as HDFC Bank merged with its parent Housing Development Finance Corporation (HDFC) in July last year.
Even as the stock is witnessing some profit booking at the current levels, analysts believe the anticipation that the stock could attract MSCI inflows of $3.5-4 billion if the weight of the stock doubles on the MSCI India Index can lift it to new highs.
“Whether the MSCI weight increase happens in August or not is anybody’s guess, but in the run-up to that, until shareholding is declared in the first week of July, sentiment could move the stock towards all-time highs," said Abhilash Pagaria, head, Nuvama Alternative & Quantitative Research.
What should investors do with the stock at the current juncture? Should they buy more or book profit? We spoke to fundamental and technical experts to get their insights about the stock. Here's what they said:
Fundamental views
Kanji B Rita, Chairman & MD, Inventure Growth and Securities Ltd
The expert observed that HDFC Bank’s weight in the MSCI India Index is expected to double in the next index rebalancing, due in August 2024, which may shred all the overhang across stock price movement.
The bank's quarterly results for Q4FY23-24 met street expectations. Gross advances at ₹25,078 billion were up by 1.6 per cent quarter-on-quarter (QoQ). Deposits at ₹23,798 billion were up by 7.5 per cent QoQ. Margins stood at 3.4 per cent, and the return on assets was 2 per cent. The bank's asset quality also improved, with a gross NPA of 1.24 per cent.
"The book value of HDFC Bank has improved over the past, and from a valuation perspective, it stands in a better place. It continues to maintain its leadership position in retail lending. HDFC Limited merged with HDFC Bank effective July 1, 2023. Post-merger, the liquidity problem is addressed by deepening reach and propelling branch networks within rural and semi-urban areas," said Kanji.
"Considering the aforementioned triggers, we recommend a 'buy' on HDFC Bank and assign a 12-month target price of ₹2,323," said Kanji.
Amit Goel, Co-Founder & Chief Global Strategist, Pace 360
HDFC Bank is considered a long-term investment bet due to its robust track record, substantial customer base, and entrenched position in the Indian banking sector.
As the largest private sector bank, HDFC Bank is renowned for its aggressive growth strategies and exemplary customer service. Factors such as the bank's financial performance, loan growth, and asset quality have the potential to influence its stock prices.
"HDFC Bank trades at a PE of 19.60. Given the prevalent overvaluations in the broader market, it would be prudent for investors to book profits," said Goel.
Technical views
Jigar S. Patel, Senior Manager of Equity Research at Anand Rathi Share and Stock Brokers
Patel observed that historically, HDFC Bank has encountered strong resistance around the ₹1,700 level, often resulting in deep corrections whenever the stock price approaches this point. Currently, HDFC Bank is trading near the ₹1,650 mark, just 30-35 points shy of the critical ₹1,700 zone.
"Given this historical resistance and the stock's current proximity to this level, we advise investors and traders to avoid initiating new long positions in HDFC Bank. Instead, it would be prudent to book profits if the stock reaches the ₹1,700-1,710 range," said Patel.
View Full Image HDFC Bank stock technical chart (Jigar Patel)
Mandar Bhojane, Equity Research Analyst at Choice Broking
According to Bhojane, the stock has recently been ready to break out of range on the daily chart, with a significant increase in trading volume indicating a potential breakout.
"If the price manages to close above the ₹1700 level, it may have the potential to reach short-term targets of ₹2,000. On the other hand, immediate support levels are located at ₹1550. These levels can be considered as opportunities to buy on dips," said Bhojane.
The Relative Strength Index (RSI) currently stands at 64 and is trending upward, indicating increasing buying momentum.
"HDFC Bank stock appears to present an appealing buying opportunity for those aiming for a ₹2,000 price target, provided that appropriate risk management measures are in place. To prudently manage risk, it is advisable to set a stop loss at ₹1,500. This precaution will help protect your investment in an unexpected market reversal," said Bhojane.
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Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.
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