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

HDFC Bank ADRs

Mumbai, India: The American depositary receipts (ADRs) of HDFC Bank Ltd witnessed a significant 9% decline in overnight trading, following a 6.7% fall in the preceding session. This sharp drop, from $65.58 on Friday to $55.59 on Wednesday, within two sessions, has raised concerns about potential weaknesses for the private lender in the Indian market. It’s important to note that US markets were closed on Monday.

Analysts attribute this decline to ongoing discussions about rate cuts and the challenges banks face in managing credit growth versus margins. Jaykrishna Gandhi, Head of Business Development at Emkay Global Financial Services, suggests that there might be a tactical rotation towards high-quality non-banking financial companies (NBFCs).

HDFC Bank recently announced its quarterly results, prompting insights from various financial institutions. Elara Securities anticipates a time correction for the stock, emphasizing a 9.18% fall in January. The key concern highlighted is the higher-than-expected strain on HDFC Bank’s net interest margin (NIM) despite trimmed expectations, owing to increased funding cost pressures.

HDFC Bank ADRs

Sharekhan indicates that while net interest margin (NIM) might have bottomed out for the bank, the focus should be on its progression in the near-to-medium term. Liability-side transition is crucial to monitor as the bank might need to slow down loan growth to navigate this transition. However, Sharekhan remains constructive on the bank with a mid-to-long-term perspective, suggesting a target of Rs 1,900 on the stock.

Various other financial institutions have set target prices for HDFC Bank, with Morgan Stanley at Rs 2,110, Bernstein at Rs 2,200, CLSA at Rs 2,025, Jefferies at Rs 2,000, and HSBC at Rs 1,950. Nomura India points out the challenge faced by HDFC Bank in achieving significant deposit growth to outpace loan growth and reduce wholesale borrowings in its funding mix.

Nomura India values HDFC Bank at 2.1 times Dec-25F BVPS, resulting in a target price of Rs 1,625, with subsidiaries contributing INR223/share, maintaining a Neutral rating on the stock.