HDFC Bank, India’s largest private-sector bank, has experienced notable underperformance in the stock market over the past year. Despite a modest 8% rise in its stock price, the Nifty 50 benchmark index soared by 27%, highlighting a significant lag. The last week proved especially tough for the stock as it dropped 9.5%, settling at INR 1,623 after peaking at INR 1,794.
HDFC Share Key Market Insights
Out of 41 analysts tracking the stock, 33 maintain a ‘buy’ rating, indicating market confidence in HDFC Bank’s long-term potential. Despite this, the stock’s recent performance has been outpaced by competitors like ICICI Bank, which saw a 31% rise, and Axis Bank, up 15%. HDFC Bank’s underperformance contrasts with its historic reputation for delivering strong returns.
Challenges Faced by HDFC Bank
Several factors have contributed to HDFC Bank’s slow growth, including:
- Merger Overhang: The recent merger with Housing Development Finance Corporation (HDFC) has led to concerns about integration challenges.
- Slower Deposit Growth: Banks across the private sector, including HDFC, have struggled with slower deposit growth relative to credit growth. This has led to a higher credit-deposit (CD) ratio, putting pressure on profitability.
- Increased Competition from Public Sector Banks (PSBs): Over the last five years, public sector banks (PSBs) have become more competitive, reducing private banks’ market share.
Positive Outlook and Valuations
While HDFC Bank faces short-term pressures, experts like Vetri Subramaniam, CIO at UTI Asset Management, emphasize that adverse market conditions often provide good entry points for long-term investors. HDFC Bank is trading at a lower multiple compared to ICICI Bank, which now commands a higher valuation due to consistent performance.
Moreover, provisional figures for the second quarter show a promising trend: deposit growth in private banks, including HDFC Bank, has started to outpace loan growth. This may signal a recovery in the coming quarters, especially as the Reserve Bank of India (RBI) is expected to shift its monetary policy stance, potentially easing the liquidity crunch.
Visualizing the Data
| Bank | 1-Year Share Price Growth (%) | Price-to-Book Ratio (P/B) | Analyst Recommendation |
|---|---|---|---|
| HDFC Bank | 8% | 2.5x | Buy (33 of 41 analysts) |
| ICICI Bank | 31% | 2.6x | Buy |
| Axis Bank | 15% | 2.3x | Buy |
| Kotak Mahindra Bank | 3% | 2.0x | Hold |
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