HDFC Bank shares experienced a substantial decline of over 3% on Wednesday, hitting a day’s low at Rs 1,575 ($1 = Rs 83.05) per share. This drop followed the bank’s announcement of the successful merger with HDFC Ltd, an event poised to have far-reaching consequences on key financial metrics. The adverse performance of HDFC Bank shares, alongside those of Reliance Industries and Infosys (NS:INFY), significantly contributed to a bearish sentiment in domestic indices during early Wednesday trading.
The downturn in HDFC stock was further exacerbated by several brokerages revising their target prices. Notably, Nomura downgraded the stock rating to ‘Neutral’ and lowered the target price. Similarly, domestic brokerages Kotak Institutional Equities and Investec adjusted their price targets downwards for the stock. Following an investor meeting, Nomura revised its price target to Rs 1,800, valuing the stock at 2.5 times the projected Book Value Per Share (BVPS) anticipated for June 2025.
Investor sentiment took a hit as HDFC Bank shares dipped amidst robust trading volume. This trend was chiefly attributed to the management’s discouraging guidance on pivotal metrics, including margins and net worth.
Adding to the downward pressure was Nomura’s decision to shift its rating for HDFC to ‘Neutral.’ This move came after a detailed analyst call outlining specifics of the merged entity. The brokerage firm underscored potential pressure on net interest margins (NIM) over the next two to three quarters, citing HDFC Ltd’s Q2FY24 opening book NIMs at 2 percent compared to 2.7 percent in Q1.
Nomura also highlighted four unsettling surprises from the analyst meeting: net worth adjustments projected to have a negative 4 percent impact on FY24F BVPS, NIM reductions of 25 basis points in FY24F and 15-20 basis points in FY25-26F due to surplus liquidity and accounting adjustments, an uptick in cost-to-income ratios due to accounting changes, and a sharp rise in Non-Performing Assets (NPAs) in HDFC Ltd’s corporate loan portfolio.
The repercussions of the merger on HDFC Bank’s shares were also reflected in the broader market. The Sensex declined approximately 1%, trading below the 67,000 mark, while the Nifty 50 slipped below the 20,000 mark to reach a low of 19,927.
HDFC Bank emerged as the leading decliner in the Nifty 50 on Wednesday, with approximately 16 million shares traded on the NSE as of 9:50 am IST. The bank’s shares experienced a sharp intraday decline of up to 4.07%, touching 1,562.7 rupees, marking the steepest fall since May 5.
