The HDFC Bank stock saw a drop after MSCI revealed an increase in weight of the stock below market expectations.
The MSCI said that HDFC Bank’s weight in the index will be increased in two phases, with a modest 25 basis points adjustment in the upcoming rebalancing on August 30.
This was below the anticipated 50 basis points increase. The remaining adjustment will be made in the November Index Review, contingent on maintaining at least 20% foreign ownership.
HDFC Bank’s stock saw a significant decline of 3.6% to Rs 1,601 per share on August 13, though it was flat on August 14.
Despite the initial negative reaction, analysts suggest that long-term investors should maintain their positions in HDFC Bank. The stock is expected to recover, as the MSCI adjustment, though less than anticipated, remains positive overall. However, the near-term outlook indicates that the stock may experience sideways movement.
The challenges
HDFC Bank faces fundamental challenges that could impact its performance in the coming quarters. The bank’s credit growth has slowed, with a 0.9% quarter-on-quarter decline in loan growth reported for Q1 FY25. Deposit growth has stagnated, and the bank’s credit-to-deposit ratio (CDR) stands at a high 103.5%, indicating a potential slowdown in loan growth.
The broader banking sector has also seen a decline in credit growth, which has outpaced deposit growth, exacerbating challenges in deposit mobilization. HDFC Bank’s CASA ratio has dropped to 36%, further straining its financial metrics.
While HDFC Bank remains a leading player in the Indian banking sector, it is expected to navigate a period of slower growth and margin pressures. Investors should brace for a potentially choppy road ahead, with the stock likely to underperform or trade sideways over the next few quarters, analysts said.
