Brokerages maintain 'buy' call on HDFC Bank after RBI notice; share price rises

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A day after falling 2 percent, shares of HDFC Bank climbed 0.59 percent to close at Rs 1,385.15 on BSE on December 4 after the private lender said it was working on a war footing to strengthen its IT infrastructure.

With this, the stock snapped its losing run of the last three consecutive sessions.

After the Reserve Bank of India (RBI) halted the launch of all-new digital products of HDFC Bank, its newly inducted CEO Sashidhar Jagdishan on December 3 said the bank would comply with the central bank's regulations and will wait for clearance before launching new products.

Read more: Working on war footing to strengthen IT infrastructure

The RBI asked the private-sector lender to stop all “digital business generating activities planned under Digital 2.0” and sourcing new credit card clients to get the bank to get its overall internet banking system in place following repeated glitches.

Read more: RBI asks HDFC Bank to halt anything new under Digital 2.0

The notice to the bank spooked investors. However, the counter started to see traction after brokerages kept faith in the stock.

Brokerage firm CLSA maintained a "buy" call on HDFC Bank with a target price of Rs 1,700.

CLSA, as per CNBC-TV18, said that RBI got tough on system outages and while the business impact was manageable, a long-term fix was important.

"If restrictions stay for over three-six months, then there could be some impact in FY22," CLSA said.

CLSA underscored that banks like ICICI and SBI, too, faced outages but these were less severe.

Motilal Oswal Financial Services also maintained a "buy" call on the stock with a target price of Rs 1,500.

"HDFC Bank indicated that the RBI order will not have an impact on its existing credit cards business and operations of the bank. However, this order could likely delay the launch of the digital auto loan financing portal, which the management has guided for during 2QFY21," Motilal Oswal said.

The timeline of lifting the orders would be a key monitorable and "we remain watchful on future developments in this regard", it said. "At the current juncture, we do not see any meaningful risk to our estimates and continue to maintain our buy rating with a target price of Rs 1,500 (3.3 times Sep’22E ABV)," Motilal Oswal added.

Edelweiss Securities also maintained a buy call with a target price of Rs 1,490 and said the stock continued to be among its top two sectoral picks.

"We continue to put a premium on resilience, which is what HDFC Bank offers—a strong balance sheet and likely higher residual capital than most," Edelweiss Securities said.

"This higher residual capital ensures that its best-in-class franchise can support an adequately large balance sheet after this crisis and fulfill its earnings potential. In terms of the gap between reported net worth and ‘true residual equity’, the bank is in the top quartile in our coverage universe," the brokerage firm said.

Brokerage firm JM Financial also maintained a buy call on the stock with a target price of Rs 1,440.

"We believe that RBI is indicating a non-tolerant stance towards technological lapses in the banking infrastructure. Given HDFC Bank’s dominant status in payments/credit cards and its strong commitment to tech-enabled growth, this development comes as a negative surprise," JM Financial said.

The brokerage firm added that it continues to believe HDFC Bank should be able to resolve the issues and assuage the regulatory concerns satisfactorily over the medium term.

Shrikant Chouhan, Executive Vice President, Equity Technical Research at Kotak Securities pointed out that after a sharp uptrend rally from Rs 1,150 to Rs 1,320, the stock is now consolidating near its all-time high level.

"The momentum indicators indicate that the stock is in an overbought zone and there are high chances of a short-term correction if it starts trading below the Rs 1,440 resistance level," Chouhan said.

However, Chouhan added that on the daily as well as weekly charts, the stock is still in a strong uptrend, so any meaningful correction should be the opportunity for the investor to add long positions near important support levels.

"For the next few trading sessions, Rs 1,440 should act as a key resistance level. If it trades below the same, then the correction could take the stocks towards Rs 1,350-1,340. On the flip side, Rs 1,440 would be the immediate hurdle for the bulls, and if trades consistently above the same, then the trend could well take the stock towards Rs 1,525," said Chouhan.