Expect HDFC Bank, Kotak Mahindra Bank to Head Higher: Ashika Research

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by Sandip Das on 16 February 2024,  7 min read

Expect HDFC Bank, Kotak Mahindra Bank to Head Higher: Ashika Research
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HDFC Bank: CMP: Rs 1,400 | Target: Rs 1,600

The Nifty bank space has seen a healthy retracement in the last two months It is currently seen rebounding after a base at the 200-day EMA. Our preferred pick within the space is HDFC Bank which we expect to outperform.

The stock has retraced to the extent of 38.2 percent of the entire rally since March 2020 (Rs 738-1757). A shallow retracement signals a robust price structure and a favorable risk-reward setup.

Going ahead we expect the stock to resume its up move. It may head higher towards Rs 1600 levels in the coming weeks/months being the 61.2 percent retracement of the immediate previous breather (Rs 1721-1363).

Among the oscillators, the daily RSI has generated a buy signal moving above its nine-period average thus validating positive bias.

HDFC Bank delivered an earnings growth of 30 percent YoY every quarter for a very long period. It moderated to 20 percent YoY in the past few years.

During Q3 FY24, it posted healthy credit growth of 17 percent YoY and 5 percent QoQ on the merged basis. It was backed by strong momentum in retail mortgages and CRB (Commercial Rural Banking). But deposit growth was relatively moderate at 17 percent YoY and 2 percent sequentially.

During the quarter, HDFC Bank’s reported NIM as well as core NIM remained stable at 3.6 percent and 3.4 percent, respectively.

On the asset quality front, after a sharp jump in NPAs during Q2 FY24 due to the merger, the bank’s GNPA/NNPA ratio improved by 8bps/4bps QoQ to 1.3 percent/0.3 percent, respectively, due to contained slippages.

The Bank continues its strategy to focus on aggressive strengthening of distribution capabilities. HDFC Bank has reported steady operational performance with a RoA of 2 percent.

Going ahead, gradual improvement in the CD ratio, decline in CI ratio to below 40 percent, and steady credit cost are expected to result in sustainable RoA for HDFC Bank

Kotak Mahindra Bank | CMP: Rs 1735 | Target: Rs 2015

The stock is on a base building mode around the level of Rs 1700-1725 where it has honored the support level and witnessed pullback multiple times since July’2021 onward. Presently it is griding around the 200-weekly EMA thus providing favorable risk-reward setup.

On the oscillator front too the stock is witnessing Class C bullish divergence. Though such divergence in technical parlance is being considered as the weakest form considering the historical chart setup and risk reward perspective one can assume the stock to resume upmove.

Also read: Why M&M Share Price Hit 52-Week High, Top Nifty50 Gainer?

We expect the stock to head higher hereon towards Rs 2015 levels being the 61.8 percent retracement of the entire decline since Dec 2023 (Rs 1926-1691)

Kotak Mahindra Bank reported steady performance in Q3 FY2024. Net interest income grew by 16 percent YoY and 4 percent QoQ. Deposit growth during the quarter, outpaced loan growth driven by term deposits.

The ‘ActivMoney’ product grew at a strong 23 percent QoQ, helping the bank fund credit demand.

The unsecured retail book fueled healthy credit growth. It contributed 11.6 percent of loans against 11 percent in Q2 FY24. It is in line with the bank’s strategy of taking unsecured shares to the mid-teens.

The NIM during the quarter remained stable at 5.2 percent. An increased share of high-yielding assets supported it, offsetting the higher cost of deposits.

On the asset quality front, the controlled slippages led to flat GNPA/NNPA of 1.7 percent/0.3 percent while PCR improved 150bps QoQ.

The reported credit cost during the quarter improved to 40bps from 47bps in Q2 FY24. Furthermore, Kotak Mahindra Bank has a well-capitalized position with a CAR of 21.3 percent.

Research Analyst: Mr. Arijit Malakar
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Disclaimer: The information provided in this blog post is for informational purposes only and should not be construed as investment or trading advice. The author is not a financial advisor and does not have any professional qualifications in this area. The author does not guarantee the accuracy or completeness of the information provided. Any action you take based on the information in this blog post is done at your own risk. Please consult with a financial advisor before making any investment decisions.

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