HDFC Bank Slips 10% From Post-Q1 High; Brokerages See Up To 39% Upside

Shares of HDFC Bank remained under pressure on Thursday, falling more than 1% and extending losses for a fourth straight session after the country's largest private sector lender reported its June-quarter earnings.

The stock slipped over 1% to ₹753 on the BSE, taking its cumulative decline to nearly 10% since the bank announced its first-quarter results earlier this week.

HDFC Bank reported a 5% year-on-year increase in standalone net profit to ₹19,060 crore for the quarter ended June 2026, compared with ₹18,155 crore a year earlier. Net interest income (NII) rose 7% to ₹33,534 crore from ₹31,438 crore, although investors remained concerned over weaker-than-expected net interest margins.

Margin Pressure Remains The Key Concern

Brokerages said the June-quarter performance was broadly in line with expectations, but the contraction in net interest margin (NIM) remained the key negative.

Jefferies said a slight miss on NII was offset by lower operating expenses and credit costs, while stronger corporate lending helped loan growth accelerate to 16% year-on-year. However, the shift towards wholesale lending compressed NIM by 12 basis points sequentially, limiting NII growth.

Motilal Oswal echoed a similar view, saying healthy business growth and lower provisions supported earnings, but NIM contracted to 3.26%, with loan growth largely driven by the SME and corporate segments while retail lending remained relatively subdued.

JM Financial also said HDFC Bank's liquidity coverage ratio of 115% and credit-deposit ratio of around 96% have constrained faster loan growth, forcing greater reliance on the wholesale portfolio and putting pressure on margins.

Brokerages Expect Margin Recovery

Despite the near-term pressure, analysts remain optimistic that margins will improve as expensive borrowings mature over the next two years.

Motilal Oswal expects ₹400-500 billion of high-cost borrowings to run off during this period, lowering funding costs and supporting profitability. While the brokerage trimmed its FY27 and FY28 earnings estimates by 2%, it continues to expect FY28 return on assets (RoA) of 1.84% and return on equity (RoE) of 14.7%.

Jefferies also expects improving margins to drive earnings, forecasting around 15% compound annual growth in pre-tax profit between FY26 and FY29. The brokerage believes the bank's current valuation remains attractive.

Nomura said management expects HDFC Bank to gain a meaningful share of deposits under the FCNR(B) scheme, although it did not disclose any specific targets. The brokerage raised its FY27 loan and deposit growth forecasts to 16% and 17%, respectively, while leaving earnings estimates largely unchanged as lower revenue assumptions are offset by reduced provisioning and operating expenses.

JM Financial also expects NIM to improve as high-cost borrowings gradually mature, while strong asset quality should help keep credit costs under control. The brokerage forecasts 15% loan CAGR and 14% earnings CAGR over FY26-FY28, translating into an average RoA of 1.8% and RoE of 14%.

Brokerages Continue To Back The Stock

Despite the recent correction, brokerages continue to maintain a constructive stance on HDFC Bank.

Jefferies and Motilal Oswal have retained their 'Buy' ratings with target prices of ₹1,050, implying an upside of around 39% from current levels.

Nomura also reiterated its 'Buy' rating with a target price of ₹950, while JM Financial maintained its 'Add' recommendation and revised its target price to ₹900.

Analysts broadly believe the recent weakness in the stock reflects concerns around near-term margin compression rather than the bank's long-term fundamentals. They expect improving funding costs, healthy credit growth and stable asset quality to support earnings recovery over the coming years.