HDFC Bank shares fell in trade on Wednesday after global brokerage Bank of America downgraded its investment rating on the bank’s stock to ‘neutral’ from ‘buy’, as quoted by Moneycontrol. HDFC Bank shares were marginally lower, down over 0.48 per cent to Rs 1,628 per share.
The target price has been lowered to Rs 1,830 from Rs 1,850 per share as most of the positive factors have already been priced in.
The downgrade follows a spectacular rally since February, fuelled by investor concerns over HDFC Bank’s deposit volumes following its merger with the old HDFC.Bank of America analysts now see a narrow risk-reward range for HDFC Bank shares over the next 12 months, after a 20 percent rally from a February low driven in part by index-weighted optimism.
“We are navigating a challenging FY25 with limited risk and return in the near term. We expect catalysts to start functioning only in FY26. Further, a shallow rate cut cycle will delay recovery in net asset value for HDFC Bank,” the brokerage said.
A gradual rate-cutting cycle would likely delay the recovery in net interest income, with a significant catalyst likely to emerge only in FY26, according to BofA analysts.
BofA expects the stock’s risk-reward profile to remain within a narrow range over the next 12 months.
HDFC Bank recently released a business update for the June quarter (Q1 FY25). The private lender’s deposits grew 24.4% year-on-year to Rs 23.8 trillion in the first quarter, but remained flat quarter-on-quarter. Excluding the impact of the merger, deposits grew 16.5% over the past year.
The bank reported a strong 4.6% increase in average deposits quarter-on-quarter, and a 0.8% increase in average AUM quarter-on-quarter. The increase was mainly due to a strong increase in deposits towards the end of the quarter, which is typical for Q4. Therefore, the average base figure for deposits should be estimated slightly higher.
