Following a 20% rally in shares of HDFC Bank on the back of value buying and optimism around the likely increase in MSCI weightage, global brokerage firm BofA has downgraded the private sector lender to neutral from buy and also reduced the target price to Rs 1,830 from Rs 1,850.
Noting that navigating FY25 could be tricky for the lender, it said risk-reward looks capped in the near term as the financial year will see a balancing of positives and negatives.
A shallow rate cut cycle will delay NIM recovery, BofA analysts said, adding that catalysts are likely to play out only in FY26.
BofA expects the stock’s risk-reward to be in a narrow range over the next 12 months.
In the Q1 business update, HDFC Bank‘s deposit growth was soft during the quarter, growing at 15.3% YoY on a pro-forma basis, and flat sequentially. CASA declined 5% QoQ, and as a a result, the CASA ratio was down about 190 bps QoQ to 36%.
The bank has disclosed that its loan book and deposits grew 14.9% YoY and 16.5% YoY, after excluding the merger impact.
According to the bank, average deposits grew a healthy 4.6% QoQ, while average AUM grew 0.8% QoQ. This is primarily because deposits in the last quarter (Q4) saw a sharp build-up towards the end of the quarter (as is normally seen in Q4), and so the base on an average basis needs to actually be deflated.
HDFC Bank shares saw some buying in recent weeks on the news of potentially increasing the weightage of HDFC Bank in the MSCI EM index. Nuvama expects the lender’s weightage in the global index to double to 7.2%-7.5%, potentially bringing in $3.2 billion to $4 billion in inflows.
