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Mumbai: Shares of HDFC Bank fell nearly 4% on Wednesday – the biggest single-day fall in four-and-a-half months – as analysts at various brokerages cut their price targets on the stock to factor in lower profitability forecasts for the lender in the wake of parent HDFC’s merger with it.

Analysts expect the stock to underperform in the near future, while investors might shift focus to peers such as ICICI Bank and Axis Bank.

Brokerages such as Nomura, HSBC, and Kotak among others unexpectedly slashed their estimates on HDFC Bank following a meeting with analysts over the weekend. Analysts said the bank’s Net Interest Margins (NIMs) – a key profitability measure – could be under pressure over the next year or so because of the merger, triggering a sell-off in the stock. HDFC shares closed at ₹1,566, down 3.9%- the highest fall in a day since May 5.

“Since the merger , it was clear that the absence of a regulatory relaxation in CRR (Cash Reserve Ratio) and SLR (Statutory Liquidity Ratio) would tighten the margins of the bank and not be in the interest of investors,” said Sandip Sabharwal, founder of, an investment advisory. “Right now, with its margins squeezed, the bank also faces the problem of raising new deposits at lower rates, given the rising interest rate environment.”

Nomura downgraded its rating on the stock to Neutral and cut its price target to ₹1,800 from ₹1,970.

“While we fully appreciate the strength of the franchise, we struggle to see upside over next 12 months on the back of RoA (Return on Assets) and loan growth pressures,” said the brokerage’s analysts including Param Subramanian in a note to clients. Nomura prefers IndusInd, Axis and ICICI as its top stock picks.

HDFC Bank shares have underperformed their peers and the market in recent months amid concerns over the potential impact of the merger of HDFC with it. The stock is down nearly 1% in the past six months, while the Nifty is up over 16% and the Bank Nifty index has gained about 13.8%.

“It has been trading in the ₹1,500-1,700 levels since last year and post the merger we saw no major buying interest or volume surge in trading,” said Ruchit Jain, lead analyst at brokerage “This is a result of time-wise correction in the stock and it may not see a major sell-off or fall beyond ₹1,450 levels.” He does not expect a big jump in the HDFC Bank stock in the near-term but investors with a long-term perspective could buy at ₹1,450-1,500 levels.

Sabharwal has recommended investors to buy at ₹1,300 levels.

HDFC Bank’s NIMs could remain under pressure over the next four to five quarters due to the merger, which may cause near-term underperformance in the stock, said HSBC Securities.

  • Published On Sep 21, 2023 at 12:15 PM IST

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