Why HDFC Bank Share Price is Rising

HDFC Bank's stock has been on a rollercoaster ride in 2024. After a steep decline in January, the stock continued to underperform, dropping 9% year-to-date.

However, there seems to be a shift in sentiment. In a surprising turn of events, HDFC Bank shares saw a surge of buying interest last week, leading to a 6% increase in price.

This has sparked speculation that the merger with HDFC might be the catalyst for the stock to finally emerge from its slump.

This marks a turnaround in the stock's performance, following a drop after it reported its third-quarter results for FY24.

Let's delve into the factors driving this recent uptick in the bank's stock price.

#1 Robust Q4 Business Update

HDFC Bank reported a record addition of Rs 1.7 trillion (tn) in deposits for the March 2024 quarter, in an attempt to bridge the gap between its loan book and deposits following the merger of HDFC with itself.

A significant 77% of the incremental deposits, Rs 1.3 tn, came from retail customers.

As of 31 March 2024, the country's largest bank's gross advances increased by 1.6% from the previous quarter to a little over Rs 25 tn from Rs 24.7 tn in December 2023.

The year-on-year growth in advances and deposits stood at 55.4% and 26.4%, respectively.

However, these numbers do not accurately reflect the situation since the figures are for the period ended 31 March 2024, which includes operations of the erstwhile HDFC, which merged with and into HDFC Bank on 1 July 2023.

Despite this merger, HDFC Bank managed to elevate its low-cost current account savings account (CASA) deposits by 8.8% sequentially, totalling around Rs 9.1 trillion.

The CASA ratio, reflecting the proportion of CASA deposits to total deposits, stood at approximately 38.2% as of 31 March 2024, compared to 44.4% a year earlier.

Against the backdrop of tight liquidity conditions in the banking sector, Indian banks witnessed robust demand for loans in recent months, prompting HDFC Bank to bolster its deposit base.

The merger notably expanded the bank's mortgage loan portfolio but only marginally increased its deposit pool, as HDFC, previously a housing finance company, lacked significant customer deposits.

Excluding the deposits from the former HDFC entity, HDFC Bank, successfully mobilised approximately Rs 3.5 tn of deposits in FY24.

Following the report, the share price of the company jumped 3% in a day.

#2 Strong Q4 Expectations

Following a stronger-than-anticipated business update for the March 2024 quarter from the private lender, market expectations are soaring for HDFC Bank's upcoming results, scheduled for release on 20 April 2024.

Investors were pleasantly surprised by the recent fourth-quarter business update, which surpassed expectations and showed early signs of merger synergies.

The standout feature was the impressive performance in deposits, particularly retail deposits, sparking optimism about the bank's overall performance.

In response to concerns regarding the bank's Loan-to-Deposit Ratio (LDR), HDFC Bank is committed to improving its loan-deposit ratio, with a focus on incremental Loan-to-Deposit ratio, as loan growth may lag behind deposit growth.

Furthermore, with a strategic emphasis on expanding branches in semi-urban and rural areas, HDFC Bank is poised to deliver even stronger results.

This is further driving stock prices higher.

What Next?

The Indian economy is poised to achieve a growth rate exceeding 6.5% in FY25, fostering robust demand for loans and credit facilities, particularly benefiting major players like HDFC Bank.

During the conference call, HDFC Bank's management expressed optimism, projecting a doubling of their loan book over the next 4-5 years.

Further, HDFC Bank is gearing up for the long-awaited initial public offering (IPO) of its subsidiary HDB Financial Services.

HDFC Bank plans to sell some of its shareholding in subsidiary HDB Financial Services over time.

This is because the country's largest private sector bank plans to get into similar lines of business as its subsidiary over the next few years, and there could be overlaps.

HDFC Bank holds a 94.7% stake in HDB Financial Services.

Moreover, this strategic decision offers HDFC Bank the opportunity to harness additional capital through HDB Financial Services IPO.

How Shares of HDFC Bank Have Performed Recently

Over a month, the share price has gone up by 8%. While in past five days it has gained 5%.

HDFC Bank share price touched its 52-week high price of Rs 1,758 on 3 July 2023. Its 52-week low was Rs 1,363 touched on 14 February 2024.

The company is currently trading at a PE (price to earnings) multiple of 18.1 times.

About HDFC Bank

HDFC Bank is one of India's largest private-sector banks. It was established in Mumbai in August 1994. Over the years, it has built a strong brand reputation and customer loyalty.

It has a network of 6,342 branches and 18,130 ATMs in 3,188 cities/towns.

HDFC Bank offers a diverse range of financial products and banking services to customers through a growing branch and ATM network, as well as digital channels such as net banking, phone banking, and mobile banking.

It also offers a wide gamut of commercial and transactional banking services to organisations of all sizes.

To know more about the company, you can have a look at its factsheet and its quarterly results.

You can also compare HDFC Bank with its peers.

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