BofA Downgrades HDFC Bank: What Investors Need to Know

HDFC Bank shares fell nearly 1% to ₹1,622 on July 10 after BofA downgraded the stock from ‘buy’ to ‘neutral.’ The target price was cut from ₹1,850 to ₹1,830, as analysts believe most positives are already reflected in the price.

Key Points:

• Downgrade Reason: Despite a strong rally since February, BofA sees limited upside in the near term. The stock rose 20% from its February lows, partly due to optimism about its index weight.
• Future Outlook: BofA expects limited risk-reward in the next 12 months and sees catalysts playing out only in FY26. A shallow rate cut cycle may delay recovery in net interest margins (NIM).
• Recent Performance: In Q1FY25, HDFC Bank’s deposit base grew by 24.4% year-on-year to ₹23.8 lakh crore, but was flat sequentially. Excluding the merger impact, deposits grew 16.5% over the year. Gross advances increased by 52.6% year-on-year to ₹16.3 lakh crore.
• Stock Performance: HDFC Bank’s stock has declined over 4% this year, underperforming the Nifty 50’s 11% rise. It hit a 52-week high of ₹1,791 on July 3, 2024.

Conclusion:

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BofA’s downgrade reflects valuation concerns and a cautious near-term outlook for HDFC Bank. Investors should consider these factors when making decisions about the stock.