HDFC Bank ADRs plunge 9% overnight! More selling ahead for private bank shares?

The American depositary receipts (ADRs) of HDFC Bank Ltd plunged 9 per cent in overnight trading, in addition to a 6.7 per cent fall in the previous session. The HDFC Bank ADR has fallen 15.23 per cent from $65.58 on Friday to $55.59 level on Wednesday, within a span of two sessions, raising concerns whether more weakness is ahead for the private lender here in India. US markets were shut on Monday.

"As talks around rate cuts continue and as banks struggle with balancing credit growth versus margins, we are likely seeing a tactical rotation towards good quality NBFCs," said Jaykrishna Gandhi, Head - Business Development, Institutional Equities at Emkay Global Financial Services.

HDFC Bank had announced its quarterly results on Tuesday. Elara Securities sees time correction for the stock that has fall 9.18 per cent in January so far. The key highlight of the quarter was higher-than-expected strain on HDFC Bank's net interest margin (NIM), even on trimmed expectations, given higher funding cost pressures. "Given the regulator’s focus on CD ratio and HDFC Bank already at 110 per cent, with LCR of 110 per cent, the bank has much to balance (growth versus NIM conundrum). While one may argue on bottoming of earnings, we believe recovery may take longer and the stock may see time correction till investors find merit in execution," Elara Securities said.

Also read: Rs 1,730 or Rs 2,200? HDFC Bank share price targets post Q3 results

Sharekhan said net interest margin (NIM) have bottomed out for the bank, but the progression would be the key focus area in the near-to-medium term. Liability-side transition is also important to track as the CD ratio continues to remain elevated compared to the industry and retail deposit growth continues to remain challenging, it said.

"We believe the bank would have to slow down loan growth in the near term to navigate the liability-side transition. However, we remain constructive on the bank with mid to long-term perspective," it said while suggesting a target of Rs 1,900 on the stock.

Morgan Stanley suggested a target price of Rs 2,110 on the stock. Bernstein reportedly suggested a target of Rs 2,200 on the stock, CLSA Rs 2,025, Jefferies Rs 2,000 and HSBC Rs 1,950.

Nomura India said HDFC Bank requires deposit growth to significantly outpace loan growth in order to reduce wholesale borrowings in funding mix. This, it said, is not the current trend and will stay a challenge, as system liquidity remains tight and deposit mobilisation stays tough and the bank scales down its branch opening target (800-1,000 for FY24 against 1,500-2,000 guided previously).

"This is a key challenge, which makes the road ahead tough, and is driving the cuts to our balance sheet growth and NIM assumptions. We now value HDFC Bank at 2.1 times Dec-25F BVPS (vs 2.3 times Sep-25 earlier) to arrive at our target price of
Rs 1,625 (vs Rs 1,750 earlier), with subsidiaries contributing INR223/share. We reiterate our Neutral rating," Nomura India said.

Also read: HDFC Bank shares tank 6% post Q3 results, lose Rs 77,000 crore m-cap. Here's why

Also read: HDFC Bank Q3 results: Profit jumps 34% to Rs 16,373 crore, meets Street expectations; key takeaways