HDFC bank joins the party

HDFC bank joins the party

on 18 October, the stock price of HDFC Bank touched a lifetime high of ₹1,725 per share. this took its market capitalisation to over ₹9.5 lakh crore, the third highest for an Indian company behind Reliance and TCS. this marked a jump of over 20% since the beginning of August, when the stock was trading at around ₹1,425 per share — almost exactly the same as at the beginning of this year.

so the question now is, can HDFC Bank sustain its charge?

delivering the goods

its Q2 FY21 results certainly seem to suggest so. on October 16, India’s largest private sector bank reported a profit of ₹8,834 crore for the July-September quarter — a 17.6% jump over the previous year and 14.3% over the previous quarter. healthy growth in its loan book saw its net interest income (the difference between interest earned from lending and interest given out on deposits and other schemes) grow 12.1% year-on-year to ₹17,684 crore.

deposits also showed a robust 14.4% growth over the same period at ₹14.06 lakh crore for Q2 FY21. retail deposit growth of 17.5% (as against 2% for wholesale deposits) suggests that the economy may have recovered sufficiently for more people to build their nest eggs again.

HDFC Bank’s asset quality also improved with net non-performing assets declining from 0.48% in the previous quarter to 0.4% for the reported period. this means more individuals and businesses are repaying their loans on time.

bank on it

with the Indian (and global) stock markets on a major rally over the past year, the banking sector is also shining in the market. however, PSU banks have performed better than private ones over the period. 

but the latter lot have been slowly consolidating their business, and account for about half of the deposits in India of financial and non-financial corporations as well as rest of the world sectors. they also increased their share of total bank deposits from 29.5% in FY20 to 30.5% in FY21, at the cost of PSU banks. this improvement in the real world is unlikely to remain unnoticed by the markets, especially if they continue their growth, as evidenced by HDFC Bank’s results. investors may soon start to find private banks attractively priced.

HDFC Bank itself, as noted above, has delivered 20% returns on the market this calendar year. could this stellar report card be a catalyst for a bounce?