HDFC Bank, India's largest private lender, experienced a notable 4 per cent decline in its share prices by the end of Wednesday's trading session, ranking it as the top loser on both the Nifty 50 and Sensex indices.
The bank's shares concluded 3.85 per cent lower on the NSE, trading at Rs 1,566 apiece, and 4 per cent lower on the BSE, with prices at Rs 1,563.90.
This sharp decline was prompted by analysts expressing concerns about the bank's recent merger with HDFC Ltd and its potential repercussions on critical financial metrics.
In a recent meeting with analysts, HDFC Bank addressed the short-term challenges it expects following its merger with HDFC Ltd.
Among the concerns raised was the possibility of a 25 basis points (bps) reduction in the net interest margin (NIM).
This NIM decrease is anticipated due to factors such as the incremental cash reserve ratio (CRR) and surplus liquidity, stemming from HDFC's substantial liquidity buffer amassed prior to the merger.
In response to these concerns and the findings of the meeting, the global brokerage firm Nomura downgraded HDFC Bank's stock rating from 'buy' to 'neutral' and revised its target price from Rs 1,970 to Rs 1,800.
Nomura pointed out several negative developments emerging from the analyst meeting, including net worth adjustments affecting book value per share (BVPS), anticipated NIM reductions, higher cost-to-income ratios due to accounting adjustments, and the potential for an increase in non-performing assets (NPAs) in HDFC's corporate loan portfolio.
Additionally, Antique Stock Broking reduced its price target for HDFC to Rs 1,925 from Rs 2,025.
These downgrades had a substantial impact on HDFC Bank's stock, causing it to drop nearly 4 per cent.
HDFC Bank shares have been underperforming since the merger with HDFC. Notably, the day's decline has resulted in a year-to-date loss of 3.85 per cent for the bank's shares. Over the past five sessions, the bank's shares have declined by more than 4 per cent.
According to analysts, HDFC's shares could enter a phase of consolidation in light of the concerns raised by brokerages. Analysts cited in a CNBC-TV18 report suggest that immediate support for the stock is expected in the range of Rs 1,530 to Rs 1,500.
While the stock may face some near-term correction, analysts anticipate that it will remain within the range of Rs 1,500 to Rs 1,700. However, a drop below Rs 1,500 could result in further correction.
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