The banking sector witnessed sharp selling pressure on Monday, July 20, after major private and public sector lenders announced their Q1 FY27 results over the weekend. HDFC Bank shares tumbled over 5% to hit an intraday low of ₹775, reversing gains made ahead of the earnings announcement. The stock had ended Friday's session 1.4% higher at ₹819.60 before announcing its April-June quarter results. Banking stocks witnessed sharp selling pressure with the BSE Sensex declining 442.93 points to close at 77,708.52 and the Nifty 50 falling 95.80 points to 24,238.50, dragged by steep declines in Axis Bank, HDFC Bank, Yes Bank and Kotak Mahindra Bank. However, select PSU banks bucked the broader weakness, with Punjab National Bank, Union Bank of India, Canara Bank, SBI and Bank of Baroda trading higher, reflecting continued investor preference for lenders with improving asset quality and stronger earnings momentum.
Investec has downgraded HDFC Bank to 'hold' from its earlier rating of 'buy' after the bank's Q1 results that were reported on Saturday, July 18. The brokerage firm revised its price target to ₹920 from ₹915 earlier, with the revised price target implying an upside potential of 12% from Friday's closing levels. As per CNBC TV18, Investec has cut HDFC Bank's Profit After Tax (PAT) estimates by 1% and 2% over financial year 2027 and 2028 respectively to reflect a weaker core income growth, and are also building in a Return on Equity (RoE) of 13% to 13.5% over the next two years. The downgrade comes after 46 out of the 47 analysts tracking the stock previously had a 'buy' rating on it, making this the first downgrade the stock has received after four months. Investec called the quarter 'weak' and highlighted that retail loan growth was muted, credit costs rose due to seasonal factors, and the management did not provide any clarity on the CEO succession plans.
HDFC Bank reported standalone net profit of ₹19,060 crore for the April-June quarter, representing a 4.98% year-on-year increase from ₹18,155.21 crore in the corresponding quarter last year. However, the figure was below the CNBC-TV18 poll estimate of ₹19,332 crore. Net Interest Income (NII) rose 6.7% YoY to ₹33,534 crore from ₹31,438 crore, also missing the CNBC-TV18 estimate of ₹34,353 crore. Net Interest Margin (NIM) stood at 3.26% on total assets and 3% on interest-earning assets, while gross non-performing assets were at 1.17% of gross advances as of June 30, 2026, compared with 1.15% as of March 31, 2026, and 1.40% a year earlier. Net non-performing assets (NNPAs) were 0.41% of net advances as of June 30, 2026, compared with 0.38% in the preceding quarter. Total income also declined to ₹92,184 crore from ₹99,200 crore a year ago, while operating profit fell to ₹28,169 crore from ₹35,734 crore in the same quarter last year, reinforcing concerns over profitability. Provisions dropped sharply by 78.8% year-on-year to ₹3,060 crore from ₹14,441 crore, but increased 17.2% sequentially from ₹2,610 crore in the previous quarter.
While HDFC Bank showed strong growth in loans and deposits, the street's disappointment stems primarily from a 10-bps compression in NIM quarter-on-quarter, while peers like ICICI and Kotak maintained flat margins. HDFC's net interest income growth was the lowest in the peer group at 6.7% year-on-year, largely due to the said NIM decline to 3.4% from 3.5% each in Q4 FY26 and Q1 FY26. The drop in NIM is attributed to three key factors: one, the share of high-cost non-retail deposits continues to be higher at 20% versus 17-18% a year ago; two, CASA ratio at 32% is down 200 bps year-on-year; and three, growth in corporate loans continues to outpace retail at 18.6% versus 7.2% year-over-year. The weakness in the bank's earnings could be attributed to a higher contribution from lower-yielding corporate loans, relatively slower expansion in the retail portfolio, and continued moderation in the CASA ratio. Softer fee income and slower retail loan growth also weighed on the overall operating performance. Costs were under control, resulting in an adjusted pre-provisioning operating profit growth of 5.9% year-on-year, lower than ICICI's 15.6% and Kotak's 10%.
The sharp fall in India's largest private sector lender also weighed heavily on global markets, with HDFC Bank's ADRs listed on the New York Stock Exchange (NYSE) plunging 11% to $23.60 after the earnings announcement. The weak sentiment spilled over to domestic markets, where the decline wiped out ₹64,685.58 crore from HDFC Bank's market capitalisation, taking its valuation below the ₹12 lakh crore mark to ₹11.98 lakh crore. Ajit Mishra, SVP, Research at Religare Broking, said investor sentiment remained subdued after quarterly earnings from major private banks disappointed on the margin front, triggering a sharp sell-off in banking heavyweights. The stock fell more than 5% during Monday's session, touching an intraday low of ₹760.90 on the NSE, with the stock down 23% on a year-to-date basis and commanding a market cap of ₹11,83,592.02 crore. On July 21, HDFC Bank stock stood at ₹761.75 apiece, down by 2.04% on BSE, with a market cap of ₹11,72,811.09 crore, extending the losses from the previous day's 5.12% decline. In two days, the blue-chip stock has tanked 7.10%, wiping out ₹89,636 crore from its market valuation, with the stock declining 2.08% to settle at ₹761.45 on the BSE during the latest session.
