HDFC Bank (NSE: HDFCBANK) shares ended Wednesday’s session 0.9% lower at ₹705.3, a sobering close for India’s largest private lender. The stock is currently hovering just 3.5% above its 52-week low of ₹681. This decline persists despite significant clarity emerging last Thursday when the board announced Anup Bagchi would succeed Sashidhar Jagdishan as MD & CEO, a transition expected to stabilize leadership concerns.
So why is the market punishing the stock? Rikin Shah, co-founder and head of research at IIFL Securities, pointed to the September quarter business update released alongside the CEO announcement. While loan growth stood at 16.3% and deposit growth hit 18.8% year-on-year, Shah noted these figures were only marginally better than estimates. In contrast, rival banks posted significant beats, making HDFC’s relative performance look weaker in the eyes of institutional investors.
Shah identified a specific structural issue: HDFC Bank has not mobilized Foreign Currency Non-Resident (FCNR) deposits as aggressively as its balance sheet size would suggest. This gap, combined with stronger core corporate loan growth, is squeezing margins. “His core margins can potentially be a tad soft simply because the core corporate loan growth has been stronger than the others,” Shah told CNBC-TV18. He added that this dynamic has encouraged long-short funds to position against the stock, viewing it as a relative underperformer compared to the broader private bank basket.
The sentiment isn’t unique to HDFC. Shah emphasized that while he remains bullish on large private banks over a two-year horizon, HDFC’s earnings are expected to compound at a slower pace than peers like Axis Bank, Kotak Mahindra Bank, and ICICI Bank. This relative deceleration, coupled with persistent Foreign Institutional Investor (FII) selling in the broader Indian market, creates a headwind. Since HDFC Bank is a larger overweight position for many global portfolios, it naturally absorbs more of this selling pressure.
Despite the near-term drags, the valuation offers a safety net. Shah noted there is limited absolute downside from current levels, making it a reasonable entry point for medium-term investors. IIFL maintains a “Buy” rating, though their internal pecking order places ICICI Bank and Axis Bank ahead of HDFC. This view is shared by the broader street; 47 out of 49 analysts covering HDFC Bank currently hold a “Buy” recommendation. The stock’s next catalyst will be its full Q2 earnings report, where margin trends will be the critical metric to watch.