The brokerage also raised its price target to ₹850 per share, which implies an upside of around 21% from Wednesday’s closing price.
Morgan Stanley said it has been highlighting the improvement in HDB Financial Services’ asset quality, with the June quarter marking a meaningful improvement despite being seasonally weak.
“Following the recent stock correction, valuation has become attractive, offering significant upside,” the brokerage said.
Morgan Stanley expects HDB Financial Services’ return on equity (ROE) to expand to 16.8% by FY29 from 14% in FY26. It also expects earnings per share (EPS) to grow at a compound annual growth rate (CAGR) of 26% between FY26 and FY29, compared with flat growth during FY24-FY26.
Against this backdrop, the brokerage believes the stock’s FY28 price-to-book value (P/BV) of 2 times and price-to-earnings (P/E) multiple of 13 times look attractive relative to its fundamentals.
HDB Financial reported its highest-ever quarterly profit after tax (PAT) of ₹785 crore for the first quarter of FY27 on July 15, up 38.3% from ₹568 crore in the year-ago period.
Net interest income (NII) rose 19.9% year-on-year (YoY) to ₹2,509 crore in the quarter ended June 30, 2026, from ₹2,092 crore a year earlier.
Net total income increased 16.8% YoY to ₹3,185 crore, compared with ₹2,726 crore in the corresponding quarter last year.
The company’s assets under management (AUM) stood at ₹1,22,048 crore as of June 30, 2026, up 11.3% from ₹1,09,690 crore a year earlier.
Gross loan book also increased 11.4% YoY to ₹1,21,846 crore, compared with ₹1,09,342 crore as of June 30, 2025.
Asset quality improved during the quarter. Gross Stage 3 loans declined to 2.34% as of June 30, 2026, from 2.56% a year earlier, while net Stage 3 loans fell to 1.04% from 1.11%.
The provision coverage ratio on Stage 3 assets stood at 55.73%, compared with 56.70% a year ago.
Of the 17 analysts covering HDB Financial Services, 10 have a ‘Buy’ rating, five have a ‘Hold’ call and two have a ‘Sell’ rating.
Shares of HDB Financial Services were trading 3.46% higher at ₹703.90 as of the latest available price on Thursday. The stock remains around 8% lower so far in 2026 and is still trading below its IPO price.
