HDFC Bank: FPIs cut stake in most-valued lender by 446 bps in Q4; what's ahead?

Foreign portfolio investor (FPIs) dumped HDFC Bank Ltd shares in the quarter gone by, latest shareholding data available with stock exchange suggested. Data showed a total of 2,663 FPIs held 3,14,19,30,208 shares, or 47.83 per cent, stake in the third most-valued company on Dalal Street at the end of March quarter.

This was 446 basis points lower than 52.29 per cent stake they held in the largest private bank at the end of December quarter. FPIs held 52.11 per cent stake in September and 33.36 per cent stake in the lender at the end of June 2023 quarter, as per corporate database AceEquity.

The FPI selloff on the counter was seen as the lender's March quarter results triggered concerns over margin. Higher operating expenses (cost-to-income ratio: 40 per cent of Q3FY24), reducing yields (owing to higher home loan of HDFC Ltd) and marginally reducing ROA (2 per cent for 3QFY24), resulted in the stock's underperformance so far.

HDFC Bank shares are down 11 per cent in 2024 so far. This is against a flattish BSE Bankex during the same period. That said a few brokerages believe the worst is over for the bank.

"We have a BUY rating on the stock with a target price of Rs 2,072 on SOTP basis, valuing the standalone bank at 2.8 times FY26E P/ABV," said Arihant Capital Markets on Thursday,  

Institutional investors, Nomura India in a recent note said, largely believe that the worst may be behind for HDFC Bank share price. Most investors are also comfortable with a potential low-teens loan growth outlook over the near-to-medium term, as the bank gradually brings down its loan-to-deposit ratio (LDR at 110 per cent as of 3QFY24), the foreign brokerage noted .

"Investors’ argument here is focused around RoA, which should be on a gradual improvement trajectory as the funding mix gradually improves. While we do concur that HDFC Bank stock may have bottomed (we have a Neutral rating with a target price of Rs 1,625), it is still not a preferred pick for us in the sector, as we do not see a strong case for meaningful upside amid loan growth moderation, which we think should persist over the medium term," Nomura India said.\

The bank recently reported a deposits growth  of 7.5 per cent sequentially (up 26.4 per cent YoY) at Rs 23.8 lakh crore for the March quarter. 2024. The bank’s focus on growing retail deposits is visible as retail deposit grew 6.9 per cent QoQ (up 27.8 per cent YoY) to Rs 12.8 lakh crore whereas CASA share improved sequentially to 38.2 per cent against 37.7 per cent in December 2023 (44.4 per cent last year), InCred Equities said.

"HDFC Bank is our High Conviction ADD with target price of Rs 2,000 as we continue to believe that HDFC Bank is better placed due to its improved penetration providing portfolio granularity and command over loan pricing. We expect HDFC Bank to be 2 per cent RoA and 16 per cent return on equity story. We have valued the standalone bank at 2.7x FY25F BV and its subsidiaries at Rs200/share," it said.