After Q4 earnings, HDFC Bank shares decline; experts advise buying on the pullback to see gains of 3

HDFC Bank Shares: On Tuesday, HDFC Bank shares maintained their negative trend by dropping more than 2% to Rs 1,362 per share on the BSE, marking their ninth consecutive session of losses. The bank's shares have decreased by approximately 9% over the past five trading sessions, compared to a 3% decline in the benchmark Sensex.

The Q4 results for HDFC Bank were below expectations. Even while other indicators like net interest income (NII) came in below estimates, the private lender reported a 23% increase in Q4 standalone net profit, driven by lower provisions.

Housing Development Finance Corporation, a mortgage lender, said earlier this month that it will merge with its affiliate HDFC Bank to form a financial giant. The regulatory permissions for the merger are pending.

Should Investors Buy The Dip?

"Since the merger news broke, HDFC Bank and HDFC Ltd. have lost more than 20% of their value from their respective highs. Results from HDFC Bank fell short of projections as a result of pressure on NIMs. However, we think that the bank's solid record of asset quality and defense against liability exposure gives it a significant competitive edge over its rival banks. In the long run, we think the combination will be beneficial for both companies. Santosh Meena, Head of Research, Swastika Investment Ltd., said, "We propose investors buy HDFC twins on dips to play on the private CAPEX resurgence, economic growth.

The stock overreacted after the merger announcement and Q4 data, and it is currently trading lower than it has in recent days. Overall, Q4 results weren't too dismal because of robust loan growth across all segments and better asset quality. According to Prashanth Tape, Research Analyst and VP of Research at Mehta Equities, "We suggest investors leverage these dips to accumulate HDFC Bank because of all the benefits of mergers and the MSCI Index adjustment.

"There are some concerns regarding the marginal blow to the profitability of the merged firm due to greater SLR and CRR obligations," said VK Vijayakumar, chief investment strategist at Geojit Financial Services. However, the weakness in HDFC Twins after the merger announcements is attributable to sustained selling by FPIs and shorting by speculators who take advantage of the FPI positions in the stocks (HDFC Ltd doesn't have statutory obligations like SLR and CRR). Despite the short-term technical decline, HDFC Twins remain reasonably positioned from a valuation viewpoint.

Emkay Global reports that HDFC Bank reported a slight miss on PAT at Rs 100 billion (est.: Rs 103 billion) due to continued weak core profitability (up 10% YoY), which was dragged by weak margins/fees and additional contingent provisions of Rs 10 billion. This is despite sector-leading credit growth of 21% YoY. According to the brokerage, "Asset quality trended nicely, with gross non-performing asset ratio down 9bps QoQ to 1.2 percent; for HDB Fin, it was down by 200bps QoQ to 5%."

The brokerage firm has advised purchasing HDFC Bank shares with a price objective of Rs. 1,950, which would represent an increase of over 37% from current levels of Rs. 1399.

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