HDFC Bank Shares Fall 3% As Q1 Update Disappoints Investors

New Delhi: The shares of HDFC Bank, which had been performing well due to the anticipated increase in MSCI weightage, experienced a significant drop of over 3% to reach a day’s low of Rs 1,665.55 on the BSE.

This decline was attributed to a sharp decrease in the CASA ratio as indicated in the bank’s June quarter business update.

In the first quarter, HDFC Bank witnessed soft deposit growth, which increased by 15.3% YoY on a pro-forma basis and remained flat sequentially. The CASA also saw a 5% QoQ decline, leading to a decrease of approximately 190 bps QoQ, bringing the CASA ratio down to 36%.

The bank reported a 14.9% YoY growth in its loan book and a 16.5% YoY growth in deposits after excluding the merger impact. However, both loan and deposit growth were slightly lower than usual, as observed by market analysts.

Despite an overweight call on the bank with a target price of Rs 2,100, Bernstein noted that the lower CASA might counter gains from a better loan mix. On the other hand, Macquarie expects NIMs to be largely unaffected.

Interestingly, the bank, in its pre-Q1 update, disclosed the growth in average balances for deposits and AUM. It mentioned that average deposits grew by 4.6% QoQ, while average AUM grew by 0.8% QoQ. This growth was primarily due to the sharp build-up of deposits in the previous quarter, resulting in an inflated average balance.

Nomura indicated that the Q1 update suggests a moderation in core NIMs on a QoQ basis in Q1. Despite this, HDFC Bank’s NIM at 3.44% in Q4 still falls well below the 4%+ levels of other large private bank peers.

In the past year, HDFC Bank shares have remained relatively unchanged. The recent rally was driven by the news of a potential increase in the bank’s weightage in the MSCI EM index. Nuvama predicts that the lender’s weightage in the global index could double to 7.2%-7.5%, potentially resulting in $3.2 billion to $4 billion in inflows.

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