HDFC Bank valuations at 16-year low; JPM upgrades, Jefferies sees 64% upside

Shares of HDFC Bank Ltd., India's largest private sector lender, will remain in focus on Monday, March 30, after emerging as one of the biggest contributors to the Nifty 50 decline in the previous truncated trading week.

Global brokerage firm JPMorgan has upgraded the stock to 'Overweight' from 'Neutral', citing improving risk-reward following a sharp correction.

The brokerage has a price target of ₹1,010 on the stock, implying a potential upside of around 33% from current levels.

JPMorgan said that HDFC Bank's valuation has corrected to its lowest price-to-book (P/B) level since the merger announcement in April 2022, and is now at a 16-year low of 1.5x FY28 estimated P/B for the parent entity, following a 24% year-to-date decline in the stock price.

Further, the brokerage said that the stock has underperformed both peers and the broader market.

While ICICI Bank is down about 8% year-to-date, and the Nifty 50 has declined around 13%, HDFC Bank has fallen 24% over the same period. As a result, the stock now trades at a 17% discount to ICICI Bank on a 12-month forward P/BV basis, making valuations more attractive.

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The upgrade is premised on three key factors.

First, an expected recovery in system-wide credit growth. Second, a potential improvement in return on assets (RoA) as higher-cost borrowings are gradually replaced by lower-cost deposits. Third, the bank's strong asset quality review (AQR) track record and robust liability franchise, which position it well in an uncertain macro environment where investors tend to favour large-cap quality names.

JPMorgan added that while a tight deposit environment could continue to weigh on sentiment and earnings — with its FY26-28 estimates about 2-3% below Bloomberg consensus — the recent valuation correction already factors in much of this risk.

Separately, Jefferies has reiterated its 'Buy' rating on the stock and a price target of ₹1,240, which suggests an upside of 64%. HDFC Bank remains among Jefferies' top picks in the banking sector.

The brokerage said that HDFC Bank has underperformed peers, falling 24% year-to-date, amid concerns around leadership transitions and the potential impact of geopolitical tensions in West Asia.

Jefferies said the stock is now trading at 1.6x FY27 estimated adjusted book value and 13x price-to-earnings, which is at a discount to large private sector banks and only a modest premium to peers.

It believes valuations are attractive, supported by strong asset quality, healthy growth prospects, and a stable return on equity profile.

The brokerage also said that sensitivity to higher credit costs and slower topline growth remains manageable.

It added that greater clarity on board-level developments, including the chairman appointment and CEO tenure rollover, could act as key triggers for a potential re-rating.

Shares of HDFC Bank ended 3.11% lower on Friday at ₹757.95. The stock has now declined for five consecutive weeks, including a 2.7% fall last week, following losses of 4.5% each in the preceding two weeks.