HDFC Bank shares experienced a 3% decline during intraday trading on Tuesday, which contributed to a drop in the benchmark indices, S&P BSE Sensex and NSE Nifty50. This decline followed MSCI's announcement of a lower-than-expected increase in the bank's weight in the upcoming August rebalancing.
MSCI revealed that HDFC Bank's weight would be increased by only 25 basis points (bps) in two phases, rather than the anticipated 50 bps. This lower-than-expected adjustment led to the initial drop in HDFC Bank's share price.
The shares have fallen by 5% this year, reflecting a broader trend of sluggish performance. Investors are now evaluating whether this recent development might impact the stock’s future return potential.
Despite the short-term drop, analysts suggest that long-term investors should hold on to their HDFC Bank shares. They argue that the bank remains a leading player in India's financial sector, and while the stock might face some volatility in the near term, its long-term prospects are generally positive.
Anwin Aby George, a research analyst at Geojit Financial Services, emphasized that the stock’s immediate negative reaction is primarily due to traders' responses. He believes that the stock will recover over time, despite the initial news from MSCI. However, George noted that HDFC Bank’s recent increase in fixed deposit rates could impact its profit margins in the coming quarters, leading to possible sideways trading in the short term.
Some analysts also highlight potential challenges for HDFC Bank in the near term. The recent hike in fixed deposit rates could affect profit margins, and industry-wide credit growth has slowed. HDFC Bank's high credit-to-deposit ratio (CDR) of over 100% suggests it might need to moderate its loan growth.
Last month, HDFC Bank reported a substantial 35.33% year-on-year increase in its standalone net profit for the first quarter of FY25, reaching Rs 16,174.75 crore, up from Rs 11,951.77 crore in the same quarter the previous year. Despite the recent share price drop, the bank's robust financial performance underscores its strong fundamentals.
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