HDFC Bank rallies 7% in six days; stock inches towards all-time high

Shares of HDFC Bank hit nine-month high at Rs 1,702, gaining 2 per cent on the BSE in Tuesday’s intra-day trade. The stock of the largest private sector lender quoted higher for the sixth straight trading session, gaining 7 per cent during the period.

HDFC Bank trading at its highest level since April 2022, and inches towards its all-time high of Rs 1,724 touched on October 18, 2021. In comparison, the S&P BSE Sensex was up 0.50 per cent at 61,238 at 09:42 AM.

On April 4, 2022, the HDFC Bank and Housing Development Finance Corporation (HDFC) Limited announced a transformational merger that is subject to various regulatory approvals.

Shareholders of HDFC as on the record date will receive 42 shares of face value of Re 1 each of HDFC Bank, for 25 shares of Rs 2 held in HDFC.

HDFC Bank already had a huge opportunity with the under-penetration of banking services in the country. The proposed merger adds an entirely different dimension to the future. The management believes that the runway is huge, and can potentially add an HDFC Bank every five years.

HDFC is a significant provider of home loans to the Low Income Group (LIG) and Middle Income Group (MIG) segments under the affordable housing initiatives of the Government of India. Access to housing finance for this category would be improved further on account of low cost funds available with HDFC Bank, the institution said.

During HDFC Bank's earnings call post December quarter results on January 14, the management said the final hearing of NCLT, regarding the merger with HDFC, would take place on January 27, 2023, post which regulatory process will remain to be undertaken.

"HDFC Bank remains one of the few banks to clock a strong deposit growth amid rising competition for deposits, given its robust franchisee. On the credit front, HDFC Bank remains opportunistic on the corporate side; thus, we are not too worried about the Q3 growth moderation. Bank continues to clock strong growth in the retail/SME segment which we believe should support its margins amid rising cost pressure," analysts at Emkay Global Financial Services said.

The merger process is on the fast track, with shareholder approval now in place; the bank is hopeful of it being completed earlier than guided. That said, clarity on the stake of HDFC Life and other subsidiaries as well as on the merger structure by the RBI remains elusive, the brokerage firm said.

Motilal Oswal Financial Services expects HDFC Bank stock to perform gradually as the margin profile revives and the merger related overhang eases (bank aims to complete the merger by 1Q/2QFY24).

The building of distribution capabilities and business growth to remained buoyant though merger with HDFC Ltd to remain in focus in the near term, analysts at ICICI Securities said.