HDFC Bank and HDFC down for the second day in a row; It is down as much as 11% from Monday’s high

Shares of banking giant HDFC Bank and mortgage lender Housing Development Corporation Limited (HDFC Ltd) traded lower for the second day in a row, down as much as 4 percent in Wednesday’s trading through Wednesday, based on earnings booking.

Shares of HDFC Group companies tumbled as much as 11 percent from Monday’s highs, erasing most of the gains recorded after the bank and mortgage lender merger was announced. On April 4, HDFC shares rose 16 per cent to Rs 2,855.35 while HDFC Bank rose 14 per cent to Rs 1,721.85 in an intraday deal.

At 02:26 pm, HDFC Bank (Rs 1,553) and HDFC (Rs 2,542) shares were down 3 per cent each and were down 6 per cent each in the past two trading days.

From Monday’s rally, the market price of these companies is down 10 percent and 11 percent, respectively. However, HDFC and HDFC Bank are currently up 4 percent and 3 percent, respectively, from their pre-merger announcement level.

The Board of Directors of HDFC Ltd and HDFC Bank, at their respective meetings, among others, approved a composite scheme to merge to merge HDFC Investments Ltd and HDFC Holdings Ltd, with HDFC Ltd. and HDFC Ltd together with HDFC Bank and their shareholders and creditors.

As part of the deal, HDFC Ltd shareholders will receive 42 shares of the bank for 25 shares. The subsidiary/associate companies of HDFC Ltd will become a subsidiary/partner of HDFC Bank. HDFC Bank will be 100 per cent owned by the general shareholders, and the existing shareholders of HDFC Ltd will own 41 per cent of HDFC Bank. Closing is expected in approximately 18 months, subject to completion of regulatory approvals and other usual closing conditions.

However, analysts feel that the HDFC Bank-HDFC deal may face regulatory hurdles due to its underwriting operations. HDFC Life and HDFC ERGO are among the private sector life and general insurance companies, and analysts say the Reserve Bank of India (RBI) is unlikely to be comfortable with the scale of insurance operations the deal will give the bank, news agency Reuters mentioned. Click here to report

However, brokerage Motilal Financial Services expects HDFC Bank’s margin trajectory to recover gradually through fiscal year 23, while a slight increase in retail loan growth and unsecured products will support fee income. The trend in retail deposits remains good as well, with the bank seeing a sequential improvement in the CASA ratio to 48 percent. The brokerage maintains a “buy” rating on the stock with a target price of Rs 2,000 per share.

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