The stock of HDFC Bank may continue to decline on January 18 following a significant 9.1 percent drop in its US-listed shares, which fell to $55.5, marking the most significant decline in a single day since March 2020. This drop is a more powerful 15 percent fall in the HDFC Bank ADR over the past two days.
On January 17, shares of HDFC Bank experienced a steep fall of over 8 percent, closing at Rs 1,536. This decline, the largest in a single day for over three years, was primarily attributed to the bank’s disappointing results for the October-December quarter (Q3 FY24). This decrease in stock value also heavily influenced the benchmark Nifty 50 index, where HDFC Bank holds a dominant weightage of over 14 percent.
The drop in HDFC Bank shares also negatively impacted other banking stocks, especially those in the private sector. This led to a 4 percent decline in the Bank Nifty index, the biggest one-day fall since March 2022.
The bank’s current issues can be traced back to a significant miss in net interest margins (NIM) in Q3 FY24, driven by higher funding costs. Additionally, increased provisions and the lowest earnings per share (EPS) growth in a decade contributed to the stock’s decline.
Despite the bank’s management projecting a gradual improvement in NIM over the next few quarters, analysts still need to be convinced about the pace of this recovery. Many analysts have lowered their target prices for HDFC Bank, although they maintain a positive outlook due to its attractive valuations.
For Q3FY24, HDFC Bank reported flat NIMs at 3.6 percent quarter-over-quarter (QoQ), while provisions saw a 39 percent increase sequentially. The bank’s net interest income (NII) grew by 4 percent QoQ, and net profit increased by a modest 2.5 percent QoQ.
