HDFC Bank’s Stock Plummets 4% After Mega Merger – What Lies Ahead?

HDFC Bank shares fall
HDFC Bank shares fall

HDFC Bank, the largest private lender in India, saw its stock price decline by 4% at the close of the trading session on Wednesday, making it the top loser on both the Nifty 50 and Sensex indices.

On the NSE, the bank’s shares ended 3.85% lower at Rs 1,566 per share, and on the BSE, they closed 4% lower at Rs 1,563.90.

Reasons for the Decline in HDFC Bank’s Share Price: This significant drop in stock value can be attributed to concerns raised by analysts regarding the recent merger of the bank with HDFC Ltd and its potential impact on key financial metrics.

During a recent analysts’ meeting, HDFC Bank discussed the short-term challenges it anticipates following the merger with HDFC Ltd.

Some of the concerns highlighted include the possibility of a 25 basis points (bps) contraction in the net interest margin (NIM).

This NIM reduction is expected due to factors such as the incremental cash reserve ratio (CRR) and excess liquidity, with HDFC having accumulated a substantial liquidity buffer prior to the merger.

In response to these concerns and the outcomes of the meeting, the global brokerage firm Nomura downgraded HDFC Bank’s stock rating from ‘buy’ to ‘neutral’ and lowered the target price from Rs 1,970 to Rs 1,800.

Nomura cited several negative surprises from the analyst meeting, including adjustments to net worth affecting book value per share (BVPS), anticipated NIM reductions, higher cost-to-income ratios due to accounting changes, and a potential increase in non-performing assets (NPAs) in HDFC’s corporate loan portfolio.

Additionally, Antique Stock Broking reduced its price target for HDFC to Rs 1,925 from Rs 2,025.

This downgrade led to a significant drop in HDFC Bank’s stock, with shares declining nearly 4%.

Future Prospects for HDFC Bank’s Performance: HDFC Bank shares have been underperforming since the merger with HDFC. Notably, the recent decline brings the bank’s year-to-date loss to 3.85%, with shares down over 4% in the past five sessions.

According to analysts, HDFC shares may undergo a phase of consolidation in light of the concerns raised by brokerage firms. Analysts quoted in a CNBC-TV18 report suggest that immediate support for the stock is seen in the range of Rs 1,530-Rs 1,500.

While the stock may experience some short-term corrections, analysts predict it will likely remain within the Rs 1,500-Rs 1,700 range. However, a drop below Rs 1,500 could trigger further corrections.

(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of this blog. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)

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