Shares of HDFC Bank fell to their lowest level since December 1 on Wednesday, January 17, after the company released its third quarter results. It fell by about 7 percent in early trade on BSE. Opening at Rs 1,583.85, below the previous close of Rs 1,678.95, the stock fell as low as Rs 1,570.

BSE Bankex was down 1,166 points or 2.25 per cent around 11 am on January 17 and HDFC Bank contributed 70 per cent of the fall in the index.

“After the correction, the stock (HDFC Bank) is available at attractive valuations if you have an investment horizon of 3 to 5 years. A systematic purchase of HDFC Bank may be a good idea. The risk reward ratio is now turning favourable, Monarch Networth Capital said. All BSE Bankex constituents were trading in the red, while HDFC Bank was the laggard.

The metal index was the second worst performing index after the Bankex on January 17. BSE Metal Index slipped 1.37 per cent intraday. Tata Steel, SAIL and Hindalco are trading with a decline of more than 2 percent. “For steel makers, this quarter is good, however, the next quarter will be a bit tough due to cost pressure. Propagation will be adversely affected. There is a need to remain cautious as valuations are not attractive at the current levels,” Monarch Networth Capital said.

The bank reported a net profit of Rs 16,372 crore, showing a sequential growth of 2.5 per cent and an annual growth of 33.5 per cent.

It is important to note that HDFC Bank merged with Housing Development Finance Corp (HDFC) in June 2023.

Brokerage firm Bernstein has recommended ‘outperform’ on the lender, with a price target of Rs 2,200 per share. It acknowledged the bank’s weak numbers, noting the first year-on-year decline in earnings per share (EPS) in a decade. This was highlighted by the firm reporting flat net interest margin (NIM) quarter-on-quarter (QoQ) and 2 per cent year-on-year decline in EPS. The use of lower tax expenses to maintain a 2 percent return on assets (ROA) was cited.

Morgan Stanley (MS), with ‘overweight’ recommendation and target of Rs 2,110 per share, reported 2 per cent QoQ growth in profit after tax (PAT), beating estimates by about 4 per cent. It reported net interest income (NII) in line with estimates and stable margins QoQ. The brokerage witnessed a stable core pre-provision operating profit (PPOP) and higher credit costs due to one-time contingency provisions.

Jefferies gave ‘buy’ recommendation, setting a target of Rs 2,000 per share.

It appreciated the increase in the bank’s core profit before tax (PBT) and higher than expected net profit with lower tax rate. Emphasis was laid on accelerating retail deposit mobilization and lending to increase net interest margin (NIM). The importance of stable asset quality and retail growth was acknowledged by the brokerage.

What should investors do?

Brokerage firms have offered a variety of views on HDFC Bank’s third quarter results, reflecting both positive and cautious sentiments.

However, speaking to market experts, Ashutosh Mishra, Head-Research, Install Equityism, Ashika Stock Broking, said the current valuations are ‘quite attractive’, especially when considering not only HDFC’s standalone performance but also the performance of its subsidiaries post-merger. Collective performance is also considered. , Mishra stressed on the successful implementation of the merger substantially, while noting the absence of significant negative impacts.

According to him, this positions HDFC Bank as a “screaming buy” at its current level, offering substantial potential upside over the next two to three years.

DR Choksey Finserv MD Deven Choksey highlighted the role of growth in influencing stock prices. For Choksi, the current results present an opportunity to invest in HDFC Bank at the right bottom. He sees this as a worthwhile buying opportunity and expects potential gains of 25-30 percent going forward.