HDFC Bank shares slump 8% on margin miss despite profit growth
India's largest private lender saw its stock hit a 2026 low after narrowing net interest margins offset solid first-quarter profit growth, though analysts maintain the selloff is a buying opportunity.
HDFC Bank shares fell for a third consecutive session on July 22, dropping 1.2% to ₹752.45 and extending a three-day rout that has erased 8% of its market value. The stock is now down 24% year-to-date, marking the lender's worst annual start since 2008.
The selling pressure followed the release of the bank's first-quarter results for fiscal 2027. While standalone net profit rose 5% year-on-year to ₹19,060 crore and net interest income increased 7% to ₹33,534 crore, the underlying metrics disappointed investors.
The primary sticking point was a 12 basis point sequential contraction in net interest margins to 3.26%. Loan growth was predominantly driven by SME and corporate segments, while retail lending remained subdued. The bank's credit-deposit ratio also tightened to 95.8%, though deposit growth was a healthy 14.7% annually.
These operational headwinds are compounded by governance uncertainties, including the delayed reappointment of CEO Sashidhar Jagdishan and the sudden departure of part-time Chairman Atanu Chakraborty. Asset quality remained broadly stable, with gross non-performing assets edging up slightly to 1.17% of advances.
Despite the stock's sharp de-rating, major brokerages see limited downside from current levels. Both Motilal Oswal Financial Services and Kotak Securities reiterated 'Buy' ratings with identical target prices of ₹1,050, implying significant upside from Tuesday's price.
"For long-term investors, the private lender is the defensive compounder. It offers predictability, best-in-class underwriting, and a dominant retail franchise, though RoE expansion will hinge on merger synergies and CASA recovery. It fits as a core portfolio holding for stability and compounding," said Seema Srivastava, Senior Research Analyst at SMC Global Securities.
The bank continues to hold substantial contingency and floating provisions of ₹156 billion and ₹214 billion, respectively. Its total balance sheet expanded to ₹43.97 lakh crore from ₹39.54 lakh crore a year earlier.
Analysts expect the tight credit-deposit ratio to gradually moderate to 92-93% by fiscal 2028. As funding conditions improve and balance sheet synergies materialize, brokerages forecast a return on assets of 1.84% and a return on equity of 14.7%, justifying a valuation of 2.1 times adjusted book value.
