The stock market has been quite volatile recently with shares of leading banks facing heavy selling pressure. HDFC Bank, the country’s largest private sector lender, has seen its stock tumble over 12% in just three trading sessions. Investors continued dumping the stock after the bank’s latest quarterly results failed to cheer the market.
Quick Recap Of What’s Happening With HDFC Bank.
The bank reported a modest 2.65% rise in consolidated net profit to Rs 17,258 crore for the October-December 2022 quarter compared to the previous quarter. On a standalone basis, net profit grew by 2.5% to Rs 16,372 crore. Nothing spectacular. While core net interest income rose decently, other income growth was tepid.
Clearly, the market was expecting better growth momentum from HDFC Bank especially after its merger with parent HDFC Ltd last year. But the earnings failed to excite investors. The stock fell over 8% on Wednesday post the results announcement. It declined another 3% on Thursday. And today, it plunged over 12%, wiping out nearly Rs 1.6 lakh crore from its market value.
Some analysts feel the steep fall is an overreaction. The bank remains fundamentally strong even though loan growth has slowed in recent months. Costs are under control. Asset quality is stable. But markets often tend to overreact to near term trends. Amid the prevailing cautious environment, investors are in no mood to wait and watch. Any small disappointment leads to heavy selling.
To be fair, HDFC Bank is not alone. Most banking stocks have taken a beating recently. Concerns over rising interest rates, slowing credit growth and risks of higher NPAs have weighed on sentiment. SBI, Axis Bank, ICICI Bank have all declined sharply. The banking index on NSE is down over 6% just this week. Clearly, investors are turning risk averse when it comes to banking stocks.
As far as HDFC Bank goes, experts feel this correction offers a good buying opportunity for long term investors. The bank remains among the best in the industry when it comes to asset quality, profitability, management quality and efficiency. The current valuation at around 3 times FY24 estimated book value also looks quite reasonable for a franchise of this quality.
Yes, near term growth may remain muted until macro environment improves. But HDFC Bank has the resilience to ride out short term challenges. As economic growth picks up again, loan growth and earnings trajectory should also accelerate. Also, synergies from the merger with HDFC Ltd will reflect over the coming years.
So while the stock may remain volatile in the near term, patient long term investors could consider buying on dips for a 3-5 year perspective. The current market cap of around Rs 11.2 lakh crore offers a decent margin of safety for a strong franchise like HDFC Bank. But do stagger your purchases instead of going all in at one level. This strategy will help benefit from any further corrections.
