HDFC Bank stock expected to re-rate in next 12-18 months, says Motilal Oswal’s Nitin Aggarwal
HDFC Bank’s stock is expected to re-rate in the next 12-18 months, despite the hit it has taken to its book value due to its merger with HDFC Ltd, according to Nitin Aggarwal of Motilal Oswal Financial Services.
Aggarwal said that the merged entity is well-positioned to achieve a 2 percent Return on Assets (ROA) by FY26, and that there will be a gradual improvement in earnings. He also highlighted the liquidity that the bank has gained from the merger, which can help to grow the business.
However, Aggarwal also cautioned that execution remains critical for the merged entity, given its large size. He said that investors will be watching out for deposit growth, which has slowed down after a strong run in Q1. The performance of the bank on deposits and advances will also be key to evaluate the growth of the merged entity along with margins.
For the next one quarter, Aggarwal would prefer to wait and see how the bank deploys the excess liquidity that it has built up post-merger.
Nomura, a foreign broking firm, has downgraded its rating on HDFC Bank to Neutral after the bank’s analyst call to share particulars of the merged entity. Nomura analysts cited the downward adjustment to the incoming net worth of HDFC Ltd and the potential pressure on NIMs over the next two to three quarters as reasons for the downgrade.
Overall, Aggarwal is bullish on HDFC Bank’s long-term prospects, but he believes that investors should wait and see how the bank executes in the near term.
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