HDFC Bank shares: Why this stock is outperforming peers; more upside ahead?

HDFC Bank Ltd has outperformed its large private bank peers in terms of stock performance and Emkay Global believes there are good reasons for it. The stock is up 6 per cent in the past one month against a 2 per cent rise for ICICI Bank and a half-a-per cent fall for Axis Bank Ltd during the same period.  Emkay Global said the HDFC Bank's outperformance has been on account of its relatively better margin, asset quality outcomes amid rising asset quality noises in unsecured loans.

Besides, the brokerage said the private lender has adopted a strategy to securitise loans, apart from slowing down credit growth and accelerating deposit growth to bring down its LDR to pre-merger levels in due course and avoid regulatory friction.

Add to that, HDFC Bank is also planning to launch IPO of its NBFC subsidiary – HDB Fin to the tune of Rs 12,500 crore including OFS of Rs 10,000 crore,  in line with regulatory requirement and also to unlock value.

"Amid tight liquidity conditions, the noise of easing liquidity via CRR cut is on the rise, which if implemented by the RBI, could ease the squeeze and should be positive for HDFC Bank (50bps CRR cut could lead to 2-3bps benefit on NIMs," the brokerage said.

The brokerage has retained its 'Buy' rating on the stock with a target price of Rs 2,000 based on 2.2 times December 2026 standalone bank's adjusted book value and subsidiary valuation of Rs 300 per share.

Emkay said the HDFC Bank management indicated that its unsecured loan portfolio has been exhibiting resilient outcomes as it slowed down growth over the past few quarters, resulting in better-than-peer asset quality in Q2, but they remain watchful of the cascading effect.

"The bank’s specific PCR has fallen to 70 per cent, whereas it has partly consumed contingent provision buffer (now stands at 1.1 per cent of loans; Rs 34 per share) in Q2. We believe that HDFC Bank will possibly shore up specific PCR or build contingent provision buffer as it realises one-off gains from the stake sale in HDB Financial Services," it said.

Emkay said the bank has ramped-up deposit growth in Q2, which possibly may moderate a bit in Q3 due to seasonal factors, but should accelerate meaningfully in Q4.

The bank has guided that its credit growth for full year FY25 could be lower than the system, largely mimicking system growth in FY26 and outperforming the system in FY27.

"On the other hand, HDFC Bank has been able to effectively hold on to its margins for some time after a sharp fall following the merger,"

Emkay said HDFC Bank hopes to benefit from the improving portfolio mix toward retail, and gradual retiring of eHDFCL’s high-cost debt in the medium-long run.

"That said, meeting PSL (including sub-targets), LCR (in case draft guidelines are imposed in toto), and the potential impact of rate cut (as and when it happens) on the bank’s now relatively higher share of floating-rate portfolio, could cast some pressure on NIMs," Emkay said.