HDFC Bank Breaks Spell Of Liquidity & Growth Concerns, What's Next For Private Banks & HDFC? | News

Going on then, HDFC Bank seems to have broken the spell that it was in since the third quarter results were announced. Over one month alone, the banking major has risen about 12%, being a major contributor to the record-breaking rally on D Street. So the bank turning a corner after the lull since the merger is the worst over for HDFC Bank. Gaurav is joining in with a detailed analysis. Gaurav, Well, yes, HDFC Bank is definitely in focus because if you look at this talk, this was actually a top performer when we talk about Nifty and Bank Nifty and what happened in HDFC Bank and why this is important. So let me take you back to third quarter where actually bank actually reported LCR and LDR at around 110%, which raised concerns over the cost of funds as well as deposit growth. And on back of this, we saw EPS cuts coming up for HDFC Bank. If you look at the stock performance also within just five days of third quarters results, we saw the bank share price tanked almost by 14%. But even then management was very sure that they will be focusing on the profitability. Now coming to the fourth quarter, what happened fundamentally in the bank is that bank actually reported inline set of numbers. In fact, when we talk about net interest margins that actually increased and it was about the streets expectation which was actually a positive thing for HDFC Bank. So fundamentally the bank has shown that they actually hold a strong position in the market. Apart from that, there are some other triggers which are now playing out. So first one is the entire private sector industry. What is happening right now is that earlier PSU banks versus private banks was a war and now brokerages are being a little optimistic when we talk about private sector banks and the main reason being that valuation. So when we look at some of the key private sector banks, they are now trading somewhere near the five year price to book value. And if we specifically talk about HDFC Bank now, that has even gone below the five year average price to book value which actually makes an attractive case for a buyers. Apart from that, we recently got a note from Macquarie where they believe that the Roe for private sector banks could be around 16 to 18% whereas we may see public sector banks struggling over ROV and there are some other risk factors as well which are associated with public sector banks because of which we may see some underperformance. Lastly, there is another trigger which is playing out for HDFC Bank and that is the MSCI rebalancing. Now what happened in the month of May is that we saw HDFC actually closely missed the target of of if I holding almost by only 5 basis point. And why this is important is that when the MSCI reject would happen, what happens is that HDFC Bank currently holds around 3.89% of the weights in MSCI India index and if the rebalancing happens, this weight will double from here on. And this actually could attract the value of around 5.2 billion passive income or in flow for HDFC Bank. When we talk about FII flows and why this is important right now is that let's take a look at some of the important data points. So we have seen Fiis have been selling since April and May and we have seen this trend continuing in the May itself. Apart from that, experts suggest that bulk of the FIS selling has been happening in the financial segment. If we look at some of the numbers, around $2 billion worth of selling has happened in the financial segment from first April to 15th May as per the data. And lastly, when we talk about fund flows, we will be watching out on what how the fund flows will be till 28th June of for HDFC Bank because that will be a key to watch out for when we talk about MSCI reject. Now talking about the stock performance once again, the stock has actually rolled once again is what we can say. It has increased almost by 11% in a month itself and last in the last three sessions also. This has been gaining in trade and the share price has also regained its position of ₹1700 which was seen in January. So definitely there are few factors which are playing out for HDFC Bank. We are seeing the stock roaring and it is fair to say that the lion is back in action when we talk about Indian private sector banks. So definitely watching out on HDFC Bank from here on. Thanks for taking us to such a detailed explanation on why HDFC Bank has been abuzz and remember yesterday also Indian private banks were the one that led the rally in a Nifty bank coming in. So start the moves coming from the Indian private banking space and HDFC Bank in particular. Lots to watch out on that front. If you like this video then like, share and subscribe to ET Now.