HDFC Bank Plunges 8% in Jan, Hits 9-Month Low on Growth Worries

BANKINGFINANCE
Whalesbook Logo
AuthorIshaan Verma|Published at:
HDFC Bank Plunges 8% in Jan, Hits 9-Month Low on Growth Worries
Overview

HDFC Bank shares have tumbled 8% in January, reaching a nine-month low of ₹915.40. This decline comes despite a healthy third-quarter profit increase of 11%. Analysts remain cautious about the bank's future growth outlook, citing a high loan-to-deposit ratio.

Q3 Performance Amid Market Slump

HDFC Bank's stock has seen a sharp decline, shedding 8% in January alone and hitting a nine-month low. This performance significantly underperforms the benchmark BSE Sensex, which declined 3.8% over the same period. The shares were trading at ₹915.40, their lowest point since April 11, 2025, underscoring investor concerns despite a seemingly robust third-quarter financial report.

Underlying Concerns Despite Profit Growth

The bank reported a net profit of ₹18,600 crore for Q3FY26, an 11% year-on-year increase, driven by higher treasury income. Net interest income rose 6.4% to ₹32,620 crore, with net interest margins expanding by 8 basis points quarter-on-quarter to 3.35%. However, a significant loan growth of 12% alongside an 11.6% deposit growth pushed the loan-to-deposit ratio to a precarious 98.7%. This high ratio signals potential pressure on liquidity and funding costs moving forward.

Brokerage Views Mixed on Outlook

Despite management's guidance of improving margins through deposit repricing and lower borrowing costs, analysts express skepticism regarding the long-term growth trajectory. InCred Equities projects margins at 3.4% and 3.5% for FY27F and FY28F, respectively, but emphasizes the need for delivery on deposit growth. ICICI Securities maintains a BUY rating with a revised target price of ₹1,150, valuing the bank at 2.3x FY28E ABV. YES Securities also reiterates a BUY with a target of ₹1,190, acknowledging that LDR normalization is a medium-term goal and focusing on strengthening the retail deposit franchise.

Margin Recovery and Future Growth

While margin recovery is proving slower than anticipated, brokerages foresee gradual improvement driven by term deposit repricing, replacement of high-cost borrowings, and strong CASA mobilization. The bank's execution capabilities are recognized as strong, with a focus on strengthening its retail deposit franchise to mobilize CASA Deposits. Analysts anticipate that these efforts, combined with benign credit costs and a strong capital position, will enable HDFC Bank to achieve return on assets of 1.8-1.9% and return on equity of 14-16% over FY26-28E.

Disclaimer:This content is for educational and informational purposes only and does not constitute investment, financial, or trading advice, nor a recommendation to buy or sell any securities. Readers should consult a SEBI-registered advisor before making investment decisions, as markets involve risk and past performance does not guarantee future results. The publisher and authors accept no liability for any losses. Some content may be AI-generated and may contain errors; accuracy and completeness are not guaranteed. Views expressed do not reflect the publication’s editorial stance.