Leading brokerage firm JM Financial has revised its target price for HDFC Bank Ltd. shares downwards to Rs 800 from its previous estimate of Rs 900. The adjustment comes after a detailed review of the private lender's FY26 annual report, Basel-III disclosures, and other pertinent regulatory submissions. Despite the reduced target, JM Financial has opted to maintain its 'ADD' rating for the stock.
Asset Quality and Balance Sheet Trends
The brokerage's analysis highlighted a mixed outlook for HDFC Bank's balance sheet risks. On the positive side, asset quality showed improvement across the retail and services segments. Furthermore, the bank demonstrated reduced borrower and Non-Performing Asset (NPA) concentration, alongside an increasing share of better-rated corporate clients.
However, some areas of concern were also identified. Agriculture emerged as a key stress pocket for asset quality. JM Financial noted that the rising share of D1/D3 assets warrants close monitoring, especially in anticipation of the upcoming implementation of the expected credit loss (ECL) framework. Negatives also included an increasing share of commercial real estate (CRE) and capital market loans, coupled with a sharp rise in contingent liabilities.
Focus on Liabilities and Net Interest Margins
Liabilities remain a critical area of focus for HDFC Bank, according to JM Financial. The bank has experienced a falling share of retail deposits and an increased reliance on wholesale funding, leading to a moderation in its Liquidity Coverage Ratio (LCR).
Despite these challenges, some positive trends were observed in liabilities. Legacy e-HDFC borrowings continued their decline, and the bank successfully gained 33 basis points in overall deposit market share. Its exposure to Rural Infrastructure Development Fund (RIDF) also decreased, and overall priority sector lending (PSL) compliance remained healthy. However, the brokerage pointed out the bank's continued dependence on Priority Sector Lending Certificates (PSLC) for Small and Marginal Farmer (SMF) obligations.
JM Financial also highlighted potential pressure on Net Interest Margins (NIMs) in a rising-rate environment. The share of interest-bearing liabilities (IBL) in the less-than-one-year bucket marginally increased year-on-year in FY26, surpassing interest-earning assets (IEA) within the same bucket.
Revised Valuation and Expert Outlook
In light of these findings, JM Financial now values HDFC Bank's core banking business at 1.5 times its FY28 estimated core book value per share, a reduction from its earlier multiple of 1.7 times.
Echoing some of these sentiments, Aditya Agarwal, Head of Investment at Coherent Wealth, offered his perspective on the stock. He stated, "The stock is looking quite weak, and I'm not expecting a big upmove. We may see some time-wise correction." Agarwal anticipates a period of consolidation for HDFC Bank, identifying Rs 680-675 as a support zone and Rs 780-785 as a resistance zone before any fresh upward movement begins.