HDFC Bank faces downgrades from both Jefferies and HSBC, highlighting growing market concerns about the lender's near-term prospects. Jefferies has retained its Buy rating but cut the target price to ₹880 from ₹1,050 following CEO Sashidhar Jagdishan's decision not to seek reappointment. Meanwhile, HSBC has downgraded HDFC Bank to Hold from Buy and slashed its target price to ₹830 from ₹990, implying 15.2% upside from the bank's share price of ₹720.30 as of August 28. As per HSBC, the stock needs meaningful improvement in loan growth, margins and return on assets before any sustained recovery can occur.
The leadership transition adds another uncertainty as HDFC Bank's board faces limited time to suggest candidates to the Reserve Bank of India and obtain its approval before Jagdishan's term ends on October 26. HSBC identified Deputy Managing Director Kaizad Bharucha as the most obvious internal option, noting he is eligible to remain at the bank until the end of 2029. However, the 15-year cap set by the Reserve Bank of India on the tenure of a Whole-Time Director at a private bank presents a limitation. Jefferies had previously noted concerns about potential senior leader exits affecting business performance in the near term.
HDFC Bank's structural issues remain unresolved with HSBC expecting loan growth to remain weak due to the lender's high deposit growth, while credit growth is expected to remain below deposit growth in the near term. The loan-to-deposit ratio has fallen to 93%, and HSBC expects net interest margin to remain under pressure, with NIM around 3.26% in Q1 FY2027 and recovery towards 3.5% in Q2. The brokerage noted that any new CEO will not have it easy, as they will need to address loan growth, margins and return on assets while contending with existing structural issues. HSBC also expects return on assets to improve only gradually.
At the revised target prices, both brokerages maintain undemanding valuations despite the downgrades. Jefferies values HDFC Bank at 1.6x September 2028 adjusted price-to-book value, while HSBC values it at about 1.2 times its estimated price-to-book value for March 2028. Jefferies believes valuations remain undemanding given HDFC Bank trading at 1.5x one-year forward price-to-book and 12x PE. However, HSBC noted that history has no standing if fundamental performance does not improve, maintaining its view that HDFC Bank is one of the least preferred stocks among large private banks. The brokerage identified four key downside risks: slower loan growth, higher net interest margins, delay in CEO succession and higher credit costs.
According to reports from ET Now, despite the downgrades, Jefferies has identified HDFC Bank as leading with 44% upside potential, followed by Axis Bank and Bandhan Bank at 38% each. HSBC has retained its view that HDFC Bank is one of the least preferred stocks among large private banks, highlighting the divergent analyst perspectives on the lender's prospects. The mixed brokerage views underscore the complexity of HDFC Bank's current challenges, with system liquidity remaining in surplus at ₹3.6 trillion as of August 25, while bank credit growth stood at 19% year-on-year compared with 15% deposit growth, taking the credit-deposit ratio to around 82%.
