In 2 days, HDFC Bank investors lose Rs 1.45 lakh crore

The slump in shares was caused by lower than expected deposit and liquidity metrics, reported by the company on Tuesday evening. Net interest margin for Q3, which is the difference between interest received and interest paid by lenders, came in at 3.4%, lower than the 3.6% expected by analysts.

HDFC Bank’s stock failed to recover on Thursday after being the leading cause of the sharp drop in the Nifty and Nifty Bank indices since Wednesday on account of disappointing October-December quarter (Q3FY24) results.

At market close on Thursday, shares of India’s largest bank were trading at Rs 1,490, down 3.09 per cent, and had fallen 11 per cent since Wednesday morning, the most it has lost since March 2020, collectively wiping out Rs 1.45 lakh crore in investor wealth, which is more than the private lender has made in revenue in the past 12 months, as per data available on Bloomberg.

The slump in shares was caused by lower than expected deposit and liquidity metrics, reported by the company on Tuesday evening. Net interest margin for Q3, which is the difference between interest received and interest paid by lenders, came in at 3.4 per cent, lower than the 3.6 per cent expected by analysts.

“This is because of the recent merger between HDFC Bank and HDFC which the market had not factored in. Earlier it was reporting a margin of 4 per cent, which is now at 3.4 per cent. There has been a slight dip on the return on investment (ROI) front, and the earnings per share (EPS) growth is negative,” said Sunny Agrawal, Head of Fundamental Equity Research at SBI Securities.

At the same time, the lender’s credit-deposit ratio was reported at 110 per cent, which is much higher than the Reserve Bank of India’s preference of 75-80 per cent.

“Since HDFC is a systemically important bank, if they have to bring down the ratio, they can only do it by either slowing down credit growth or raising more deposits, for which they will have to increase fixed deposit rates, which will eventually lead to margin compression,” according to Nishit Master, fund manager at Axis Securities. The lender’s dominance in the sector means other banks will also follow a similar strategy, he added.

HDFC Bank holds the largest weightage in the Nifty Bank index at 29.39 per cent, and its sell-off dragged other banking stocks down as well. Nifty Bank, which constitutes the top 12 banking stocks in India, was trading 0.76 per cent lower on Thursday, after falling 4 per cent the day before.

In the short term, market analysts expect Nifty Bank to underperform compared to the benchmark Nifty 50 as more consolidation could take place in the banking space while lenders focus on improving margins taking the lead from HDFC Bank.

“There are a lot of cross-selling opportunities and a lot of levers available with HDFC Bank to scale up. Down the line, margins will normalise and start to move up and be in line with industry standards,” Agrawal said.