In the tumultuous landscape of the Indian financial market, HDFC Bank, the country’s largest bank by market cap, has faced recent setbacks. However, a closer look at its historical performance, marked by two significant stock splits, reveals a resilient potential for long-term growth, making it a compelling buy-on-dips opportunity.
Overview of Current Scenario:
HDFC Bank’s shares have experienced a 16% dip year-to-date on the Bombay Stock Exchange (BSE), while American Depositary Receipts (ADRs) have seen a 17.4% decline. Nevertheless, the bank still boasts an impressive 467% growth from its position 13 years ago.
The current share price stands at Rs 1,430.35 with a market cap of Rs 10,86,464.53 crore, making it the third-largest company in India. Despite the recent downturns, HDFC Bank remains a potent force in the market.
Long-Term Performance and Stock Splits:
HDFC Bank’s journey includes two pivotal stock splits. The first, a 1:5 split in 2011, saw the face value reduced from Rs 10 to Rs 2. The second, in 2019, was a 1:1 split with the face value dropping from Rs 2 to Rs 1. These splits have significantly contributed to the bank’s current market standing.
If an investor had held 1,000 shares before the first split, they would now possess 5,000 shares. Subsequent to the second split, the same 5,000 shares would double to 10,000, showcasing the bank’s resilience and growth potential.
Analyst Recommendations and Potential Upside:
Kotak Institutional Equities, among the latest to maintain a ‘BUY’ rating on HDFC Bank, acknowledges the challenges post the HDFC merger. Despite trimming the target price, Kotak sees a potential 22-35% upside in the bank.
The banking giant is focused on prioritizing earnings growth over balance sheet expansion, addressing merger-related challenges, and mobilizing deposits to offset high borrowing costs. Kotak maintains a positive outlook for HDFC Bank, expecting RoEs of approximately 16-18% in the medium term.
While challenges persist, the average target price for HDFC Bank is Rs 1,938 apiece, indicating a 35% potential gain in a year, as per Trendlyne data.
In Shorts:
HDFC Bank, though facing headwinds, remains a stellar performer over the long term. The recent correction provides an opportune moment for fresh buying, especially considering its undervaluation from the 52-week high. Investors may find solace in HDFC Bank’s historical resilience, making it a potential buy-on-dips opportunity.
