LIC gets RBI nod to buy 4.8 percent in HDFC Bank; Expect Higher Opening
The HDFC Bank stock, facing downward pressure following its Q3 results, is anticipated to experience an opening surge on January 29. This comes after the Reserve Bank of India (RBI) granted permission for Life Insurance Corporation (LIC) to increase its stake in the bank by an additional 4.8 percent, bringing its total stake to 9.99 percent.
The stock has crashed 14 percent after the private sector lender reported its December quarter results. Margin strain, fall in earnings per share (EPS) and slower-than-expected deposit growth have hit the sentiment. The RBI allowed LIC to acquire the shareholding by January 24, 2025, the bank said in an exchange filing. LIC must also ensure that its aggregate holding does not exceed 9.99 percent of the paid-up share capital or voting rights of the bank.
During the third quarter, HDFC Bank witnessed a 4 percent growth in its net interest income (NII), driven by a 4.9 percent sequential increase in gross advances. The net profit also saw a 2.5 percent quarter-on-quarter rise, boosted by substantial treasury gains and advantageous tax write-backs amounting to Rs 1,500 crore.
Despite a substantial increase in the cost of funds, which refers to borrowing costs, HDFC Bank experienced a restrained expansion in net interest margins (NIMs) during Q3FY24, maintaining a sequential flat rate of 3.6 percent. While analysts at HSBC have issued a "buy" recommendation for the banking giant, they have revised the target price downward from Rs 2,080 to Rs 1,950. Their rationale is rooted in the belief that there are limited levers for NIM expansion.
"We moderate NIM expansion to 15 bps (basis points) over FY24-26 versus 30 bps earlier. We expect near-term earnings to remain under pressure and cut earnings per share (EPS) by 0.8 percent/7.8 percent/5.8 percent for FY24/25/26", the brokerage firm said. The management believes that the bank is at the lower end of the margin contraction spectrum and expects recovery to 3.7 percent in 18-24 months.
