Banking stocks faced a significant decline in Wednesday’s trading session following disappointing Q3 results from HDFC Bank Ltd. HDFC Bank shares closed 8.16% lower at Rs 1,542.15, leading to the Nifty Bank index registering its most significant single-day fall since March 2022, closing 2,060.65 points down at 46,064. Other major banks, including Kotak Mahindra Bank and Axis Bank, also saw declines of 3.76% and 3.43%, respectively. The broader NSE Nifty index retreated over 2% due to the sell-off in financial majors and weak global cues.
Santanu Chakrabarti, Analyst-Banking and Finance at BNP Paribas India, explained that while HDFC Bank’s Q3FY24 net profit exceeded expectations, the tepid growth in Net Interest Income (NII) and Pre-Provision Operating Profit (PPOP) disappointed investors. The Net Interest Margin (NIM) remained flat sequentially, causing concern despite the reduction in balance-sheet liquidity and lower-yield wholesale loans.
Despite the quarter’s disappointment, HDFC Bank maintains a top ‘Buy’ rating from BNP Paribas. Chakrabarti emphasized that there are no structural red flags, highlighting the bank’s profitability consciousness, loan-segment choices, CASA market share traction, and operating cost control.
However, Nuvama downgraded HDFC Bank to a ‘Hold’ rating, revising the target price to Rs 1,730 from Rs 1,770. The selloff in HDFC Bank affected other banks as well, with IDFC First Bank, Bank of Baroda, AU Bank, Federal Bank, and ICICI Bank also experiencing declines.
Naveen Kulkarni, Chief Investment Officer at Axis Securities PMS, attributed Wednesday’s selloff to concerns about heightened credit/deposit ratios beyond the RBI’s comfort levels. This could lead to margin pressure, a slowdown in lending growth, or both, resulting in potential sector de-rating.
Rupak De, Senior Technical Analyst at LKP Securities, noted that Bank Nifty experienced a sharp decline due to the sell-off in HDFC Bank, with immediate support at 45,900-45,930. A drop below 45,900 could initiate a further correction towards 45,500, while resistance is identified at 46,350. The sentiment in the banking sector may remain weak following these developments.
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