Prabhudas Lilladher has reiterated its buy recommendation on HDFC Bank with a target price of ₹1,150, following the bank's impressive quarterly performance that exceeded analyst expectations across key metrics.

Strong Quarterly Performance Drives Positive Outlook

The bank delivered a robust quarter with core profit after tax (PAT) reaching ₹156.50 billion, surpassing Prabhudas Lilladher's estimates by 5.9%. This outperformance was primarily attributed to lower provisions, which helped boost the bottom line significantly.

Asset Quality and Operational Metrics Show Improvement

HDFC Bank's asset quality remained healthy during the quarter, supported by lower net slippages and a contingent provision reversal of ₹10.40 billion. This reversal was driven by improved credit performance from a large corporate client, demonstrating the bank's effective risk management capabilities.

Net interest income (NII) came in 1.2% ahead of estimates, led by better reported net interest margin (NIM) which increased by 8 basis points quarter-on-quarter. This performance compared favorably to ICICI Bank, which maintained stable NIM during the same period.

Growth Projections and Strategic Outlook

The bank expects the banking system to grow by 12-13% in FY27E and has maintained its guidance of growing above system levels. HDFC Bank's loan-to-deposit ratio (LDR) is projected to reach approximately 90% as part of its strategic growth plans.

However, Prabhudas Lilladher expresses some caution regarding the bank's ambitious growth targets. The brokerage factors in a loan compound annual growth rate (CAGR) of approximately 12% over FY26-28E, noting that to meet its guidance, the bank would need to capture an incremental deposit market share of over 20%, which may prove challenging in the current operating environment.

Valuation and Investment Recommendation

Prabhudas Lilladher maintains its sum-of-the-parts (SOTP) based target price of ₹1,150, applying a multiple of 2.5x on September 2027 core adjusted book value (ABV). The brokerage retains its 'BUY' rating on the stock, reflecting confidence in the bank's fundamental strength and growth prospects despite some concerns about deposit market share capture in the competitive banking landscape.

Indian equity markets face a cautious start to the week as investors shift focus from headline earnings to forward guidance across key sectors, according to market expert Nischal Maheshwari. While recent quarterly results from banking, IT, and Reliance have largely met or fallen short of expectations, the banking sector emerges as a bright spot with improving visibility for growth.

Banking Sector Shows Resilience Despite One-Time Provisions

The banking sector delivered largely strong earnings, with HDFC Bank and ICICI Bank demonstrating solid underlying performance despite facing one-time provisions linked to priority sector lending (PSL) norms. Maheshwari emphasized that beyond these temporary impacts, both banks showed robust fundamentals and provided encouraging forward guidance.

"Otherwise, I think the results were better and their outlook also, both of them guided that they are seeing strong visibility of growth," Maheshwari noted, highlighting the positive trajectory despite temporary headwinds.

Large Private Banks Present Investment Appeal

After a prolonged period of underperformance spanning 1-1.5 years, large private banks now offer compelling investment opportunities due to attractive valuations. The expert expects net interest margins to continue their upward trajectory, providing additional support for earnings growth through FY27.

Maheshwari's outlook for the banking sector remains optimistic: "The NIM profile has improved for both of them and I continue to see that it will continue to improve as you go into FY27." This improvement in net interest margins, combined with reasonable valuations, positions these banks favorably for long-term investors.

Broader Banking Trends and Market Outlook

The banking landscape shows varied performance across different segments, with smaller private banks and PSU lenders currently delivering superior numbers and maintaining strong momentum. This trend is expected to continue in the near term, supported by favorable valuations and operational improvements.

Looking ahead to 2026, Maheshwari expects PSU banks to lead performance in the first one to two quarters, followed by larger private sector banks catching up as their fundamentals and guidance materialize into results.

Additional Sector Insights

Beyond banking, the expert provided perspective on other sectors. Metal stocks, which have experienced a significant rally over the past quarter, may see continued short-term upside, though caution is advised regarding underlying demand sustainability. The real estate sector maintains strong demand fundamentals across major cities including Mumbai, Bengaluru, and Delhi, despite recent stock corrections reflecting stretched valuations rather than weakening demand.

The IT sector results have shown limited positive visibility, with most companies providing muted forward guidance. This contrasts sharply with the banking sector's more optimistic outlook, reinforcing the relative attractiveness of financial services stocks in the current market environment.

Source: https://www.etnownews.com/markets/exclusive-hdfc-bank-icici-bank-attractive-for-long-term-investment-after-underperformance-expert-nischal-maheshwari-article-153471845