It was last Thursday evening when HDFC Bank declared that Anup Bagchi will be the next MD & CEO of HDFC Bank, succeeding Sashidhar Jagdishan, when his term ends in three weeks from now. The stock, as of Wednesday’s closing, is down from levels seen last Thursday.
As of Wednesday, HDFC Bank shares are just 3.5% away from their recent 52-week low of ₹681.
So why is the HDFC Bank stock underperforming despite a key overhang being addressed recently?
Rikin Shah of IIFL explains three important factors why the stock has not been performing.
In an interaction with CNBC-TV18, Shah mentioned that HDFC Bank’s September quarter business update was marginally better than expectations but most of its other peer banks had a significant beat when compared to estimates.
HDFC Bank reported loan growth of 16.3% during the September quarter, while deposit growth outpaced loan growth yet again with an 18.8% year-on-year figure. Shah explains that HDFC bank has not mobilized as much FCNR (B) deposits compared to its balance sheet size and that is a reason why the stock has not done much.
“Number two, we think from the quarterly perspective, his core margins can potentially be a tad soft simply because the core corporate loan growth has been stronger than the others, and hence some of the long-short investors have kind of made it as a funding short yesterday (Monday, October 5),” Shah said.
Lastly, while Shah is very bullish on large private banks from a two-year standpoint, he expects HDFC Bank’s earnings to compound at a relatively slower pace in comparison to its other private peers such as Axis, Kotak and ICICI Bank.He also attributed part of the underperformance to position unwinding that took place after Anup Bagchi’s appointment as the next MD & CEO.
“People were waiting for this update on the CEO as well as the business update. Once that was out, as I mentioned, the core trends on a relative basis are look are going to look softer versus the other three private banks in our view, and which is why, as I mentioned earlier, some of the long short funds that we speak with made it as a funding short,” Shah added.
So is HDFC Bank Worth The Price?
Shah said that while there is limited absolute downside for HDFC Bank from current levels, it is a good buying price for anyone with a medium-term horizon. However, in the near-term, the relative performance will look marginally weak, and with the persistent FII selling in the Indian market, HDFC Bank being the larger overweight positions, will naturally get more impacted. Shah and IIFL have a “buy” rating on HDFC Bank, but his pecking order is ICICI Bank, Axis Bank, followed by HDFC Bank and Kotak Mahindra Bank.
47 out of the 49 analysts who cover HDFC Bank have a “buy” rating on the stock.
Shares of HDFC Bank ended 0.9% lower on Wednesday at ₹705.3