HDFC Bank Shares Rally; BofA Downgrades to Neutral

Following a 20% rally in shares of HDFC Bank due to value buying and optimism around a possible increase in MSCI weightage, global brokerage firm BofA has downgraded the private sector lender to neutral from buy. The target price has been reduced to Rs 1,830 from Rs 1,850.

BofA noted that navigating FY25 could be tricky for HDFC Bank. The firm believes the risk-reward looks capped in the near term as the financial year will see a balancing of positives and negatives. A shallow rate cut cycle will delay Net Interest Margin (NIM) recovery. BofA analysts added that catalysts are likely to play out only in FY26. They expect the stock’s risk-reward to be in a narrow range over the next 12 months.

In its Q1 business update, HDFC Bank’s deposit growth was soft, growing at 15.3% year-on-year on a pro-forma basis, and flat sequentially. The Current Account and Savings Account (CASA) deposits declined 5% quarter-on-quarter, leading to a drop in the CASA ratio by about 190 basis points to 36%.

The bank reported that its loan book and deposits grew 14.9% and 16.5% year-on-year, respectively, after excluding the merger impact. Average deposits grew a healthy 4.6% quarter-on-quarter, while average Assets Under management (AUM) grew 0.8%. This is because deposits in the last quarter (Q4) saw a sharp build-up towards the end of the quarter, inflating the base.

HDFC Bank shares saw some buying in recent weeks on the news of a potential increase in the bank’s weightage in the MSCI Emerging Markets index. Nuvama expects the weightage to double to 7.2%-7.5%, potentially bringing in $3.2 billion to $4 billion in inflows. Following a 20% rally in shares of HDFC Bank due to value buying and optimism around a possible increase in MSCI weightage, global brokerage firm BofA has downgraded the private sector lender to neutral from buy. The target price has been reduced to Rs 1,830 from Rs 1,850.

BofA noted that navigating FY25 could be tricky for HDFC Bank. The firm believes the risk-reward looks capped in the near term as the financial year will see a balancing of positives and negatives. A shallow rate cut cycle will delay Net Interest Margin (NIM) recovery. BofA analysts added that catalysts are likely to play out only in FY26. They expect the stock’s risk-reward to be in a narrow range over the next 12 months.

In its Q1 business update, HDFC Bank’s deposit growth was soft, growing at 15.3% year-on-year on a pro-forma basis, and flat sequentially. The Current Account and Savings Account (CASA) deposits declined 5% quarter-on-quarter, leading to a drop in the CASA ratio by about 190 basis points to 36%.

The bank reported that its loan book and deposits grew 14.9% and 16.5% year-on-year, respectively, after excluding the merger impact. Average deposits grew a healthy 4.6% quarter-on-quarter, while average Assets Under Management (AUM) grew 0.8%. This is because deposits in the last quarter (Q4) saw a sharp build-up towards the end of the quarter, inflating the base.

HDFC Bank shares saw some buying in recent weeks on the news of a potential increase in the bank’s weightage in the MSCI Emerging Markets index. Nuvama expects the weightage to double to 7.2%-7.5%, potentially bringing in $3.2 billion to $4 billion in inflows.