HDFC Bank: Nifty Bank nosedives over 2,000 points, logs worst single-day fall since March 2022

Banking stocks witnessed a heavy sell-off on Wednesday trade after the Q3 results of HDFC Bank Ltd disappointed investors. Shares of HDFC Bank closed 8.16 per cent down at Rs 1,542.15. The Nifty Bank index settled 2,060.65 points lower at 46,064, registering its biggest single-day fall since March 2022. Other banking majors including Kotak Mahindra Bank and Axis Bank tumbled 3.76 per cent and 3.43 per cent, respectively. Following the selling in financial majors coupled with weak global cues, the benchmark NSE Nifty index retreated over 2 per cent.

Why did HDFC Bank disappoint D-Street? Sharing his views on the bank, Santanu Chakrabarti, Analyst-Banking and Finance, BNP Paribas India said HDFC Bank’s Q3FY24 net profit of Rs 16,370 crore (up 33 per cent YoY and 2.5 per cent QoQ) was 7 per cent above the Bloomberg consensus. However, NII and PPOP growth was tepid at 4 per cent per cent 4.2 per cent QoQ (given a muted Q2FY24) and missed our expectations by 3 per cent and 5 per cent, respectively.”

He further added that NIM (calculated) at 3.7 per cent was on the mark, it remained flat sequentially on a low base, a contextual disappointment given faster than expected reduction in balance sheet cash and investments. “Yields on interest-earning assets stayed flat QoQ despite the drawdown in balance-sheet liquidity and reduction of lower-yield wholesale loans in the loan mix. This was the crux of the disappointment.

However, HDFC Bank remained top ‘Buy’ among banking coverage of BNP Paribas. “While the quarter’s disappointment is undeniable, we see no structural red flags in terms of profitability consciousness in loan-segment choices, CASA market share traction and operating cost control- the keys to our central thesis of NIM and RoA expansion to 3.9 per cent and 2 per cent, respectively, by FY26.

On the other hand, Nuvama downgraded HDFC Bank with a ‘Hold’ rating and revised the target price to Rs 1,730 (from Rs 1,770).

IDFC First Bank, Bank of Baroda, AU Bank, Federal Bank and ICICI Bank also retreated over 2 per cent each. SBI, IndusInd Bank, Bandhan Bank and Punjab National Bank also declined somewhere between 0.50 per cent and 2 per cent.

Naveen Kulkarni, Chief Investment Officer, Axis Securities PMS said, Wednesday’s selloff is led by banks on the back of HDFC Bank results, indicating heightened levels of credit/deposit (CD) ratio beyond RBI’s comfort levels. This is the case with most other banks as well. Thus, the markets expect either margin pressure, in case banks go in for aggressive deposit mobilisation, a slowdown in lending growth, or both. This development can lead to some de-rating of the sector.

Rupak De, Senior Technical Analyst at LKP Securities said, “Bank Nifty experienced a sharp decline on the back of sell off in the heavyweight HDFC Bank. The index sharply fell below the 38.20 per cent Fibonacci Retracement level of the previous leg of rally (from 43,230 to 48,347). Additionally, the index retreated within the area of the previous swing high after a consolidation breakdown on the daily chart. The sentiment may remain weak, with immediate support at 45,900-45,930. A drop below 45,900 could potentially initiate a further correction towards 45,500. On the upside, resistance is identified at 46,350.”