HDFC Bank shares dropped to a two-year low of ₹726.50 on Tuesday, declining 12% over the last month as foreign investors continued to trim their stake for the fifth straight quarter. While the bank posted a 5% increase in net profit for the June quarter, concerns over net interest margins and funding costs remain a drag on market sentiment. Investors are now watching for signs of margin recovery and deposit growth.
HDFC Bank shares touched a fresh two-year intraday low of ₹726.50 on Tuesday, continuing a downward trend that has seen the stock decline 12% over the past month. The share price has underperformed the broader market significantly, falling 27% in calendar year 2026, even as the benchmark Sensex saw a much smaller decline. This movement reflects a period of intense pressure for the country's largest private lender, as market participants grapple with the bank's post-merger transition.
Foreign Portfolio Investors (FPIs) have been consistent sellers, reducing their stake in the bank for the fifth consecutive quarter. By the end of the June 2026 quarter, FPI holding had dropped to 41.83%. This consistent selling by global institutional players has weighed heavily on the stock, limiting its ability to recover despite domestic institutional investors attempting to balance the sentiment by increasing their own holdings.
Financial performance in the first quarter of the 2026-27 financial year shows a mixed picture. The bank reported a standalone net profit of ₹19,060 crore, a 5% increase compared to the same period last year. However, investors have focused on the net interest margin (NIM)—a key measure of a bank's profitability—which stood at 3.26%. This figure has been a point of concern as it reflects the cost of gathering deposits in a competitive banking environment.
Since the 2023 merger, HDFC Bank has faced a structural challenge: maintaining a high growth rate while managing a higher cost of funds. The bank is currently navigating a high credit-deposit ratio, meaning it has lent out a significant portion of the money it has collected as deposits. This requires the bank to aggressively seek new deposits to fuel loan growth, which can keep interest expenses high and put pressure on profit margins.
Brokerage views remain mixed but generally suggest a long-term perspective. While some analysts have flagged the short-term impact of margin compression and the potential for a slower-than-expected recovery in funding costs, others point to the bank's strong business franchise and the potential for improved return ratios as old, high-cost borrowings mature. The market sentiment is also influenced by broader leadership transitions, including the appointment of a new chairman, as investors look for stability.
The most important monitorables for shareholders will be the trend in the bank's deposit mobilization efforts and any improvement in net interest margins in the coming quarters. Investors will likely track management commentary on how the bank plans to balance loan growth with the need to improve its deposit mix, which is essential to lowering funding costs and protecting profitability.