HDFC Bank shares fell nearly 7% over two sessions after Q1 results showed a decline in net interest margins and a profit miss. The bank reported a profit of ₹19,060 crore, missing market estimates by 5%, as margin pressure and slowing deposit growth weighed on investor sentiment.
Detailed Coverage
HDFC Bank shares continued to face selling pressure on Tuesday, marking a decline of nearly 7% over the last two trading sessions. The stock hit an intraday low of ₹767.25 on the National Stock Exchange following the bank's first-quarter financial update. This correction has led to a reduction of approximately ₹80,000 crore in the bank's total market value.
Impact of Margin Compression and Income Trends
The primary driver of the investor reaction appears to be the contraction in net interest margins, or the difference between interest earned on loans and interest paid on deposits. For the first quarter, the bank's margins fell by 13 basis points quarter-on-quarter to 3.4%. While the bank achieved a 15% year-on-year credit growth, the profit after tax of ₹19,060 crore came in 5% below market expectations.
The bank’s total income was reported at ₹92,184 crore for the quarter, compared to ₹99,200 crore in the same period last year. A notable area of concern for market watchers was the decline in operating profit, which dropped to ₹28,169 crore from ₹35,734 crore in the previous year's comparable quarter. This decline reflects broader challenges in managing costs while credit growth remains steady.
Brokerage and Sector Context
Following the earnings release, analysts have begun to adjust their expectations for the bank's future performance. Motilal Oswal Financial Services noted the margin moderation and the impact of the bank's borrowing structure. The brokerage adjusted its earnings estimates for FY27 and FY28 downward by 2% to reflect these pressures. Despite these adjustments, the firm maintained a long-term outlook, projecting a return on assets of 1.84% and return on equity of 14.7% by FY28.
From a sector perspective, HDFC Bank is navigating a period where deposit growth is a critical factor for all major Indian lenders. While some analysts, such as those at Geojit Financial Services, suggest that current valuations are attractive compared to industry peers, they also caution that the bank must address the twin challenges of margin pressure and the pace of deposit mobilization to restore investor confidence. The bank’s ability to manage its high-cost borrowings as they mature will be a key factor in improving margins in the coming quarters. Investors will likely monitor upcoming management commentary for details on loan pricing strategies and deposit growth targets.