HDFC Bank share price slides over 3% as good news snubbed by markets; This explains why

Country's largest private lender, HDFC Bank share price witnessed a drop in Monday's trading session despite a 21% jump in Q1 net profits announced on Saturday. HDFC Bank reported a rise in standalone net profit at Rs 5,568.16 crore for the quarter ended June 2019 as against Rs 4,601.44 crore in the same quarter last year. HDFC Bank stock opened at Rs 2,353 on Monday and has corrected around 3% by 10:10 hrs. 

HDFC Bank has reported a 22.9% rise in its net interest income (NII) for June quarter to Rs 13,294.30 crore on YoY basis, driven by asset growth and a rise of 4.3 per cent in core NII for the quarter. Meanwhile, other income (non-interest revenue) at Rs 4,970.3 crore, grew by 30.2 per cent over Rs 3,818.1 crore reported in the corresponding quarter a year ago. 

The mere negative factor could be a rise in provisions and contingencies for the first quarter, jumping by a whopping  60.4 per cent to Rs 2,613.7 crore as against Rs 1,629.4 crore for the same quarter a year ago. While gross non-performing assets were at 1.40 per cent of gross advances as on June 30 compared to 1.33 per cent a year ago. 

Another reason as to why the street is devaluing the stock is the prospect of the exit of Managing Director Aditya Puri halfway through FY21. The service age for HDFC Bank executives is capped at 70 years and experts believe that it is a tough task to fit someone in his shoes. Puri has steered the bank since the beginning, also searching for a successor has been a lot tougher after deputy Paresh Sukthankar left in 2018. 

Though analysts are bullish on the stock and have retained a buy and hold call with a targets close to Rs 3,000. The global brokerage firm, Morgan Stanley has maintained a ‘Overweight’ rating on HDFC Bank with a target price of Rs 3,000 per share due to its strong balance sheet. 

Prabhudas Lilladher has maintained a buy call at CMP of Rs 2,376, with a target price of Rs 2,700. Commenting upon the results report said, ''Adopting caution but performance intact. The core operating performance continues to be strong and the bank escalates provisions on certain segments of unsecured retail & HFC/NBFC along with other sectors on caution from slowing economy.''

''We believe the bank is well positioned to deliver healthy growth even in the current weak environment. Its strong capital position, improving operating efficiency and impeccable asset quality performance across cycles should continue to aid return ratios with RoA/RoE pegged at 1.9%/16% for FY21E. We maintain our buy call on the stock with a Target Price of Rs 2,650,'' Reliance Securities added.