CLSA flags margin recovery ahead for HDFC Bank, predicts 27% headroom despite weak start to the year

Global brokerage CLSA has maintained its “Outperform” rating on HDFC Bank, projecting a potential upside of over 27% from current levels, even as the stock remains under pressure in the short term. The brokerage has set a target price of Rs 1,200 on the stock, which is currently trading near Rs 943.50 on the BSE, after falling 6.2% from its January high of Rs 1,006.30.

Addressing investor concerns around slower deposit growth and the lack of immediate margin improvement post-merger, CLSA believes these issues are either temporary or misunderstood.

It expects FY27 to be a “bounce-back year” for the bank, supported by improving operating dynamics and cost rationalisation.

Valuations, according to CLSA, are now attractive, with HDFC Bank trading at a 10–12% price-to-book (PB) discount to ICICI Bank. The brokerage believes this valuation gap may not be justified in the long term, especially as cost discipline improves.

Core operating expenses (opex) are expected to grow at 5–7% year-on-year, compared to 10% growth in loans. CLSA adds that slower hiring and reallocation of staff to customer-facing roles are signs of operational tightening.

The brokerage forecasts HDFC Bank’s core pre-provision operating profit (PPOP) to grow at high-teens levels over the next two years, supported by operational efficiency and loan book expansion. Although return on equity (ROE) is currently lower than ICICI Bank’s, CLSA notes that at 1.7x FY28 PB, the risk-reward for HDFC Bank appears “extremely favourable.”

HDFC Bank share price history

Over the past six months, the stock of HDFC Bank has seen a decline of 4.74%, reflecting a gradual downward drift in sentiment. In the last three months alone, it has slipped by 3.39%, while the one-month performance has been even more subdued, with a sharper drop of 5.54%.

Technical charts indicate weakness in HDFC Bank shares

On charts, the shares of HDFC Bank are currently placed below all their significant daily exponential moving averages. The RSI for the stocks stands at 25.6, according to the Trendlyne data.

An RSI below 30 is typically considered to indicate an oversold condition, suggesting the stock may be poised for a potential rebound.

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