HDFC Bank Ltd.’s shares have been on an upward trajectory since the beginning of April after facing a sharp decline in March. The question on every investor’s mind is whether this is a sign of recovery or an opportunity for long-term investment.
HDFC Bank shares rose by almost 2 per cent during Wednesday’s trade session, reflecting increased investor confidence in the company. Brokers have maintained a positive stance on HDFC Bank shares despite the recent resignation of part-time chairman Atanu Chakraborty.
HDFC Bank Shares Showing Early Indications of Improvement
HDFC Bank shares rose by 1.77 per cent to touch an intraday high of Rs 744.50 on Wednesday. The company’s shares have been showing signs of improvement after falling sharply in March. The HDFC Bank shares fell by 18 per cent in March, reflecting investor concerns over the recent resignation of Atanu Chakraborty.
Despite HDFC Bank shares showing signs of improvement, they have still not reached pre-pandemic levels. HDFC Bank shares have been trading at a discount after falling to a low of Rs 727 on March 30, a level not seen in the last one year. These low levels have encouraged investors to invest in HDFC Bank shares, considering them a good opportunity for long-term investment.
HDFC Bank Shares: Reasons Behind Atanu Chakraborty’s Resignation
Atanu Chakraborty’s resignation was seen as a major reason for investor sentiment for HDFC Bank shares.
Atanu Chakraborty, in an interview with CNBC-TV18, stated that his resignation was primarily due to “incongruence between personal values and ethics.”
However, according to Systematix analyst Siddharth Rajpurohit, it was seen that Chakraborty did not disclose particular information regarding the events leading to his resignation.
“Mr. Chakraborty spoke in a very calibrated manner during the interview and did not clearly specify the events that led to his resignation. The interview does not materially alter our previous view that there are no material governance issues at HDFC Bank. The interview also does not offer any further clarity on whether there are any operational issues at HDFC Bank.”
This information was seen calming down market fears regarding deeper issues concerning HDFC Bank.
Dubai Branch Issue Already Addressed
Mr. Chakraborty was seen referring to issues concerning HDFC Bank’s Dubai branch during an interview. These issues were brought up by the Reserve Bank of India (RBI) in 2023.
Mr. Chakraborty was seen clarifying this issue, stating that the bank’s board was aware of this problem, and it was already addressed.
It was seen that several executives who were part of this problem were penalized for this incident. Chakraborty was seen saying that such incidents should ideally not occur, but the bank had addressed this issue accordingly.
Brokerages Bullish on HDFC Bank
Despite the recent changes in HDFC Bank’s leadership and its share price falling, global and domestic brokerages have been seen remaining bullish on HDFC Bank’s prospects.
JPMorgan has upgraded the stock to “overweight” from “neutral” due to the attractive risk-reward trade-off after the recent correction in the stock. The brokerage has set a target price of Rs 1,010, which indicates a strong upside from the current levels.
In the meantime, another global brokerage firm, Jefferies, has reiterated the stock as one of the top picks in the banking space.
Jefferies believes the stock has corrected enough, which has made the valuations attractive, especially when compared to private banking peers.
Jefferies has set an even more aggressive target price of Rs 1,240 on the stock.
Valuations Turn Attractive
Jefferies, the global brokerage, believes the valuations of the stock are attractive after the recent sell-off in the stock.
Jefferies has mentioned the following in the report:
“The recent sell-off in the stock has made the valuations attractive, especially when compared to private banking peers.”
The brokerage has further mentioned the following:
“HDFC Bank’s current valuations, trading at 1.6 times estimated adjusted book value for FY27, represent a 20 percent discount to ICICI Bank, as well as a 10-20 percent discount to Axis Bank and Kotak Mahindra Bank.”
On the other hand, when compared to the price-earnings ratio, the stock is trading close to ICICI Bank while maintaining a 10-15 percent premium over Axis Bank and Kotak Mahindra Bank.
The premium valuations are justified due to the strong asset quality, growth story, and high return on equity (ROE) of the stock.
Jefferies has further mentioned:
“The sensitivity of the stock to rising credit costs or slower revenue growth appears manageable, which further supports the investment case.”
What Could Trigger a Re-rating?
Though the fundamentals of the stock are strong, certain developments are expected to trigger the stock in the near term.
One major factor that would be at play is the clarity that would emerge regarding changes at the leadership level, including the appointment of a new chairman and the rollover of the CEO’s term.
The clarity regarding the bank’s governance structure would help eliminate any lingering concerns and may even trigger a re-rating for the stock.
Moreover, improving investor sentiment regarding the bank’s strategic direction and its sustained earnings growth may also help the stock recover further.
Impact of Global Factors
Apart from the factors that are impacting HDFC Bank stock internally, there are also global factors that have impacted the stock and led to its recent fall.
Jefferies, a financial research firm, noted that HDFC Bank shares have lost 24 percent this year, falling short of its peers on concerns over the departure of the chairman and tensions in West Asia.
However, analysts note that these are temporary factors and don’t really affect the bank’s fundamental growth story.
Should Investors Buy, Sell, or Hold?
For long-term investors, analysts note that the recent fall is a potential buying opportunity for HDFC Bank shares.
The bank is one of the largest and most stable private-sector banks in India, with strong asset quality, profitability, and a strong management structure.
The bank also enjoys a deep retail franchise, a strong middle management layer, and a diversified loan portfolio, which help cushion its performance against economic volatility.
However, for short-term investors, the stock may continue to experience volatility until clarity emerges regarding the recent developments and changes at the leadership level.
For those who are already holding HDFC Bank shares, analysts note that the stock is a hold, given its fundamentals and potential upside as per the target prices recommended by different brokerages.
For new investors, the stock may be a potential investment option, especially if one is a long-term investor and is planning to invest at these levels.
The Bottom Line
The recent correction in HDFC Bank’s shares has led to much debate among investors as to whether the bank is actually facing serious issues or is simply undergoing a phase of correction.
While the bank’s chairman, Atanu Chakraborty, resigned, the bank’s fundamentals are said to be sound, as believed by most brokerages and analysts.
Not only are the bank’s shares now more reasonably valued, but they are also believed to have the potential to move to the target prices set by most brokerages, as they are bullish on the bank’s shares.
For now, the message among market experts is very clear—HDFC Bank is an extremely sound financial institution, and the bank’s shares are actually an opportunity.
