private lender’s shares HDFC bank The stock is up only 9% in the one-year period, compared to a nearly 24% rise in the benchmark Sensex, as a somewhat sluggish performance. And now, brokerage house Emkay sees a rally in the bank stock after its third quarter business update.
The brokerage and research firm said HDFC Bank posted healthy but in-line credit growth of 16% year-on-year (YoY) in Q3FY22 and 5% sequentially, which looks very balanced and broad-based.
“The stock has underperformed its own benchmarks as well as peers following the change in management, and due to RBI restrictions on its card/digital initiatives and COVID-induced growth/asset-quality disruption. The risk of fresh Covid wave induced lockdown may once again impede business/asset-quality normalisation,” the note highlighted.
However, analysts at Emkay believe that the bank has created proper COVID buffers and should be relatively resilient. The stock is trading at a fair valuation after the recent fall. They have a Buy rating on HDFC Bank with a target price of 2,050, given its proven track record in asset quality management across cycles, strong franchise/capital profile, and ability to deliver superior return ratios.
“We expect overall NPAs to decline mainly in the retail segment, due to better collection efficiency. However, agricultural NPAs will be the main monitorable. In addition, asset quality results in its NBFC subsidiary, HDB Financial Services, will also be closely monitored, given the relatively riskier client/credit profile,” the brokerage added in its note.
Notably, according to Emkay, the bank has started gaining market share in cards, and should see further acceleration, along with PL, subject to the absence or partial situation of lockdown.
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.
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