 "Is HDFC Bank stock a good bet after MSCI August Review? What analysts say | News on Markets")
HDFC Bank | Image credits: Bloomberg
HDFC Bank stock strategy: A lower-than-expected increase in weight by MSCI, in its August rebalancing, dragged HDFC Bank share price today by over 3 per cent.
“The stock’s initial negative reaction post the MSCI news is largely traders’ reaction, and the stock will recover as the announcement is positive, notwithstanding the weight percentage. The stock, however, may trade sideways in the near-term as HDFC Bank has raised fixed deposit rates, which may affect its margins over the next few quarters,” said Anwin Aby George, research analyst tracking the banking sector at Geojit Financial Services.
On Tuesday, August 13, HDFC Bank’s share price fell 3.3 per cent to Rs 1,605 per share on the BSE in the intraday trade and was the biggest laggard on the benchmark indices.
The decline in HDFC Bank share price came after MSCI announced that the weight of HDFC Bank will be gradually increased, in two tranches, to full weight of 1. In the coming rebalancing on August 30, it will be increased by just 25 bps as against market expectations of 50bps.
According to Nuvama Alternative and Quantitative Research, the current increase in weight could lead to an inflow of $1.8 billion, equivalent to 93 million shares, in HDFC Bank stock.
HDFC Bank Challenges Ahead
Despite the positive MSCI update, analysts said HDFC Bank faces fundamental challenges in the near-term and investors must brace for a choppy road ahead.
“HDFC Bank’s medium-to-long term challenges are fundamentals. The industry-wide credit growth has declined compared to last year. Deposit mobilisation has become a challenge for most banks. Within this, HDFC Bank has a credit-to-deposit ratio (CDR) of over 100 per cent, which means the bank will have to go slow on its loan growth,” said G Chokkalingam, founder and head of research at Equinomics Research.
Credit growth of all commercial banks expanded 13.7 per cent as of July 26, from a year earlier, outpacing deposits which rose 10.6 per cent in the same period, reports suggest. Within deposits, term deposits grew fastest at 19 per cent, outpacing savings deposits which grew merely six per cent during the period.
HDFC Bank, in its April-June quarter of FY25 (Q1FY25), had reported a loan growth decline of 0.9 per cent quarter-on-quarter (Q-o-Q) to Rs 24.63 trillion, led by 5 per cent Q-o-Q dip in corporate and wholesale books.
Deposit growth was flat, while the current account-saving account (CASA) ratio declined 200bp Q-o-Q to 36 per cent. CDR stood at 103.5 per cent at the end of the quarter – the highest amongst peers.
“Continued systemic challenges in deposits will likely result in slower loan growth for HDFC Bank in the near-term,” Sameer Bhise, managing director and co-head of research at JM Financial had said in his Q1 result review note.
First Published: Aug 13 2024 | 12:16 PM IST
