Beyond 1:1 bonus issue, why HDFC Bank shares remain top pick after Q1 results
ADVERTISEMENT Despite macroeconomic headwinds and pressure on margins, analysts across global and domestic brokerages see HDFC Bank as well placed to deliver stronger growth in the second half of FY26, aided by improving loan demand, easing regulatory constraints, and monetisation of merger synergies.
Jefferies said HDFC Bank's Q1FY26 results showed "better growth and buoyant outlook", with profit of Rs 18,200 crore, up 12% YoY, ahead of estimates. 'HDFC Bank's growth should continue to improve & monetisation of merger synergies should help. Stays among our top picks,' the brokerage said.
Goldman Sachs echoed that sentiment, saying the quarter was "operationally in-line" and that the bank is 'now ready to deliver on loan growth in line with its guidance while improving profitability underpinned by better NIMs in 2H and operating leverage.' The brokerage expects loan growth to improve from 12% in FY25 to 20% by FY27.Nomura, while noting that loan growth was soft in Q1 at 6.7% YoY and flat sequentially, said 'we expect HDFC Bank to deliver RoA/ROE of 1.7-1.9%/13-14.5% over FY26-28F.' The broekrage maintained a "buy" rating and raised its target price to Rs 2,190.CLSA, too, maintained its 'outperform' rating and upgraded its target price from Rs 2,200 to Rs 2,300, citing a Q1 FY26 net interest income and pre-provision operating profit beat of 2% and 10% respectively. 'While we expected an NIM reduction of 15bp for large banks, HDFC Bank surprised us with only an 11bp core NIM moderation,' the brokerage noted. CLSA praised the lender's "strong quarterly average deposit growth (both CASA and total)" and 'flat opex QoQ—another positive from the results.'
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According to Motilal Oswal, which reiterated a "buy" rating with a target price of Rs 2,300, the bank "prudently deployed HDB gains to lift floating & contingent provisions." The brokerage expects the lender to deliver FY27E RoA/RoE of 1.9%/14.9% and described the June quarter as a "steady" one, with business growth aligning with the bank's strategy to reduce its credit-deposit ratio and enhance provision buffers.
ADVERTISEMENT Loan growth is expected to pick up in the second half of the year, particularly in retail, SME, and housing segments, helped by festive demand and favourable policy changes. Jefferies reported that 'management expects retail credit demand to improve aided by benefits from cut in tax rates, interest rates as well as regulatory easing.'HDFC Bank, India's largest private sector lender, announced its maiden bonus issue in a 1:1 ratio on Saturday. Under the terms of the issue, shareholders will receive one fully paid-up equity share of face value Rs 1 for every one existing fully paid-up equity share. The record date for entitlement is August 27, 2025.
ADVERTISEMENT Alongside the bonus issue, the board also approved a special interim dividend of Rs 5 per share, with the record date set as July 25. The payout will be made to eligible shareholders on August 11.These corporate actions accompanied the bank's Q1FY26 results, which showed a 12% year-on-year rise in net profit to Rs 18,155 crore. Net interest income stood at Rs 31,440 crore, up 5.4% YoY, while the bank's net interest margin for the quarter moderated to 3.35% from 3.46% in the previous quarter.
ADVERTISEMENT The moderation in NIMs was anticipated, with brokerages like Nomura and Goldman Sachs expecting them to bottom out in Q2 and improve thereafter. Goldman noted that 'pick up in loan growth should drive improvement in operating leverage,' while Nomura highlighted that the 'bank created floating provisions of INR90bn and contingent provisions of INR17bn in the quarter,' strengthening its buffer position.Jefferies raised its price target to Rs 2,400 from Rs 2,340. Goldman Sachs' target price now stands at Rs 2,327. CLSA and Motilal Oswal have pegged the stock at Rs 2,300, while Nomura raised its valuation to Rs 2,190.While challenges persist in terms of NIM pressure and a competitive retail loan landscape, brokerages largely agree that HDFC Bank's strong balance sheet, provision coverage, and improving credit growth outlook make it a compelling long-term investment.
Also read | HDFC Bank announces 1:1 bonus issue in its first-ever bonus share issue
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