HDFC Bank at a 16-year low, suddenly everyone's bullish again
What's the story
HDFC Bank, India's largest private lender, is in the spotlight today after a major fall in its share price. The bank's shares have fallen by 24% year-to-date, underperforming both its peers and the broader market. Global brokerage firm JPMorgan has upgraded the stock from 'Neutral' to 'Overweight,' citing an improved risk-reward scenario after a steep correction.
Market outlook
JPMorgan sets ₹1,010 target
JPMorgan has set a price target of ₹1,010 for HDFC Bank's shares, suggesting a potential upside of around 33% from current levels. The firm noted that HDFC Bank's valuation has dropped to its lowest price-to-book (P/B) level since the merger announcement in April 2022. It now stands at a 16-year low of 1.5x FY28 estimated P/B for the parent entity, after a year-to-date decline of 24% in stock prices.
Peer comparison
HDFC Bank underperforms peers
JPMorgan also highlighted that HDFC Bank has underperformed its peers and the broader market. While ICICI Bank has fallen some 8% year-to-date, and Nifty 50 is down about 13%, HDFC Bank's shares have plummeted by a whopping 24%. This has led to a valuation discount of around 17% on a one-year forward price-to-book value basis against ICICI Bank, making its valuations more attractive.
Upgrade rationale
Upgrade cites credit growth, RoA, AQR
JPMorgan's upgrade of HDFC Bank is based on three main factors. These include an expected recovery in system-wide credit growth, a potential improvement in return on assets (RoA) as high-cost borrowings are replaced by low-cost deposits, and the bank's strong asset quality review (AQR) track record. Despite a tight deposit environment possibly affecting sentiment and earnings, JPMorgan believes the recent valuation correction already accounts for much of this risk.
Analyst endorsement
Jefferies keeps 'Buy' rating on HDFC Bank
Separately, Jefferies has maintained its 'Buy' rating on HDFC Bank with a price target of ₹1,240. This implies an upside of 64%. The brokerage noted that despite concerns over leadership transitions and geopolitical tensions in West Asia, the stock is now trading at a discount to large private sector banks and only a modest premium to peers. It believes valuations are attractive given strong asset quality, healthy growth prospects, and stable return on equity profile.