HDFC Bank, HDFC extend gains; advance over 3% in two trading days

In the past three months, HDFC Bank (up 13 per cent) and HDFC (up 15 per cent) have outperformed the benchmark S&P BSE Sensex

Shares of HDFC twins – HDFC Bank and Housing Development Finance Corporation (HDFC) - were trading higher for the second straight day, gaining over 3.4 per cent in the past two trading days.

At 10:59 AM, HDFC Bank was up 1.5 per cent at Rs 1,632, while HDFC was up 1.3 per cent at Rs 2,674 on the BSE. In comparison, the S&P BSE Sensex traded 0.42 per cent higher at 60,908.

In the past three months, HDFC Bank (up 13 per cent) and HDFC (up 15 per cent) have outshone the markets as the benchmark index recorded 3 per cent gain during the period.

During HDFC Bank's earnings call , the management said the final hearing of NCLT, regarding the merger with HDFC, would take place on January 27, 2023, post which regulatory process will remain to be undertaken.

India's largest private lender HDFC Bank, on January 14, reported an 18.5 per cent year-on-year (YoY) increase in net profit to Rs 12,259 crore in the third quarter of FY23 as healthy growth in net interest income boosted the bank’s bottomline, the company's BSE filing said. On a sequential basis, the bank’s net profit grew 15.6 per cent from Rs 10,606 crore in the July-September quarter.

In the third quarter of the current financial year, HDFC Bank’s net interest income – which is the difference between interest earned and interest expended – registered a growth of 24.6 per cent on-year to Rs 22,987 crore. The bank’s core net interest margin was 4.1 per cent on total assets and 4.3 per cent on interest-earning assets, the lender said. CLICK HERE FOR FULL REPORT

Banks have been reporting healthy interest incomes for the last couple of quarters as lending rates have risen sharply in tandem with the Reserve Bank of India’s rate hikes. The rise in deposit rates has lagged lending rates, many of which are linked to external benchmarks tied to the central bank’s policy rates.

"HDFC Bank remains one of the few banks to clock a strong deposit growth amid rising competition for deposits, given its robust franchisee. On the credit front, HDFC Bank remains opportunistic on the corporate side; thus, we are not too worried about the Q3 growth moderation. Bank continues to clock strong growth in the retail/SME segment which we believe should support its margins amid rising cost pressure," analysts at Emkay Global Financial Services said.

The merger process is on the fast track, with shareholder approval now in place; the bank is hopeful of it being completed earlier than guided. That said, clarity on the stake of HDFC Life and other subsidiaries as well as on the merger structure by the RBI remains elusive, the brokerage firm said.

"Building of distribution capabilities and business growth to remain buoyant though merger with HDFC Ltd to remain in focus in the near term," analysts at ICICI Securities added.

Change in asset mix and rate transmission could keep margins steady. Deposit accretion will remain in focus though the management indicated that it will be supported by branch expansion and relationship building. Steady asset quality and enough provision buffer provides comfort. Physical/digital capabilities to keep the bank ahead of its competitors are key triggers for future price performance, the brokerage firm said with ‘buy’ rating on HDFC Bank and a target price of Rs 1,920.

Analyst at BNP Paribas have also recommended ‘buy’ rating on HDFC Bank with target price of Rs 2,180 per share on P/B-multiple-based.

Key risks are macro risks from the inflation-interest rate-GDP growth dynamic. HDFC Bank's provisioning adequacy is heavily dependent on the fact that its stressed asset numbers are the very lowest in the sector. If this were to change for any reason, the provisioning burden on RoA will be high. However, such a change is very unlikely given focus on prime assets, the brokerage firm said.
 

Technical View

HDFC

Bias: Range-bound

Support: Rs 2,530

Resistance: Rs 2,713

Even as HDFC has pulled back in the last two trading sessions, the short-term trend is negative for the stock with its 20-DMA (Daily Moving Average), at Rs 2,634, below the 50-DMA at Rs 2,654.

Hence, the current up move may be susceptible to selling at higher levels. Charts suggest that the stock may face resistance at super trend at Rs 2,713.

That said, the broader trend remains positive as the stock is seen making higher tops and bottoms on the weekly chart. The overall bias is likely to remain positive as long as the stock sustains above Rs 2,530.

Given the mixed signal on the daily and weekly chart, the stock can be expected to trade in the range of Rs 2,530 to Rs 2,713 in the near-term.

HDFC Bank

Bias: Positive

Target: Rs 1,850

Support: Rs 1,615; Rs 1,612

Resistance: Rs 1,665

Similar to HDFC, the short-term trend for HDFC Bank turned negative on the daily chart today. The 20-DMA, at Rs 1,612, slipped below the 50-DMA, placed at Rs 1,615.

However, the broader trend as per the weekly chart remains intact, indicating that the positive bias is likely to continue as long as the stock holds above Rs 1,545.

Further, select momentum oscillators like the 14-day RSI and the MACD have also turned favourable on the daily chart. Thus, strengthening the positive bias at the counter.

On the upside, the stock has immediate resistance at Rs 1,665, above which it can potentially rally to Rs 1,850.
 

(With inputs from Rex Cano)