scorecardHDFC twins wipe out ₹2.5 lakh crore investor wealth, push HDFC out of top 10 largest companies in India
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HDFC twins wipe out ₹2.5 lakh crore investor wealth, push HDFC out of top 10 largest companies in India

HDFC twins wipe out ₹2.5 lakh crore investor wealth, push HDFC out of top 10 largest companies in India
Finance6 min read
HDFC Bank and HDFC shareholders have seen a fifth of their investment wiped out in the last two weeks    BCCL
  • HDFC Bank and HDFC are bleeding investor wealth, wiping out over INR 2.5 lakh crore over the past 15 days.
  • Earlier this month, the HDFC Bank-HDFC merger was announced in a bid to create a financial behemoth in the country.
  • However, after a modest March quarter, analysts have expressed caution.
  • We find out what is the reason behind the massive selloff in HDFC Bank and HDFC.
HDFC and HDFC Bank, two pillars of India’s financial sector have seen a meltdown unlike anything before – a massive selloff that has wiped out over ₹2.5 lakh crore investor wealth in the span of two weeks.

HDFC Bank 01_01_22 to 19_04_22.
HDFC Bank share price in 2022      BSE / Business Insider India / Flourish

HDFC is India’s largest housing finance company, and prior to the sell-off, it was amongst the top 10 in terms of valuation, among the likes of Reliance Industries, TCS, HDFC Bank, HUL, State Bank of India, among others.

The sell-off has kicked it out of the list, two weeks after the announcement of the HDFC Bank-HDFC merger.

HDFC, HDFC Bank market cap post merger market cap April 19 2022.
HDFC group companies' market capitalisation after merger and today      BSE / Business Insider India / Flourish

It is worth noting that immediately after the merger news was announced, HDFC Bank and HDFC shares both surged by as much as 14%, adding ₹1 lakh crore in investor wealth.


HDFC 01_01_22 to 19_04_22.
HDFC share price in 2022      BSE / Business Insider India / Flourish

For a while, HDFC Bank and HDFC together were the second largest company in India by market capitalisation, beating TCS and only behind Mukesh Ambani’s Reliance Industries.


However, over the next 15 days, those gains were not only wiped out, but shares of both the companies also fell by over 18%.

Why are HDFC Bank and HDFC shares falling?



The HDFC twin merger was expected to help both the companies leverage each other’s expertise in their respective industries, creating a behemoth of the Indian financial sector.

Instead, after the initial excitement about the merger, both the companies have experienced a selloff that refuses to slow down.

One of the reasons that have contributed to the selloff is HDFC Bank’s modest earnings in the March quarter.

On the surface, HDFC Bank’s numbers look good – net profit surged 23% year-on-year to ₹10,055 crore, while net interest income grew by a healthy 10.2% to ₹18,873 crore.

However, on scratching the surface, there are some areas that could spark concerns.

Increase in higher risk assets



Asset quality, more specifically, the risk-weighted assets which carry a 100% risk, grew by 25% in the past two years. Assets with less than 100% risk grew by over 50%.

Likewise, exposures with over 100% risk grew by nearly a third.

Risk-weighted assets are those for which a bank needs to set aside adequate capital to reduce the risk of insolvency. A rise in risk-weighted assets means that HDFC Bank will have to set aside more funds than before. This reduces the amount of money it can use for its banking activities.

Decrease in retail loans



Another reason behind HDFC Bank’s modest growth in net interest income is the decline in retail loans’ share in the overall loans issued by the bank.

Prior to the COVID-19 pandemic, the share of retail loans in HDFC Bank’s loan portfolio was 55%. This has now come down to 39%.

HDFC Bank loan portfolio mix.
HDFC Bank loan portfolio mix      Company reports / Business Insider India / Flourish

What are the analysts saying?



Instead of being excited by the merger news, analysts have expressed caution and are circumspect about the merger going through in a smooth manner.

$HDFCBANK.NSE has been trading between 1292& 1727 from Dec-2020 till now. infact low for April-22 is at 1342 now, which is close to multiple support points in monthly candles.Given that its trading near long time support, lets zoom into hourly candles.HDFC bank zoomed 30% from Rs1290 to Rs1720 in a matter of month, only to give up those gains & square back to support price.right now I'll wait for further price action around 1340 & if it breaks down, at around 1300.If there is any reversal, will go long only after a strong breakout above 1430 for now, with sl at 1300.Will go short once there is a weekly close below 1300 with sl at 1555 & tgt of 900refer charts in comments pls#kgmk

— (@muthukishor) April 19, 2022

“Key risks are slower-than-expected credit growth amid weakening macros due to the Ukraine-Russia conflict, further softness in margins due to slower retail credit growth, and delay in getting regulatory approval for the proposed merger,” said Emkay Research in an investor note.

While some brokerages have maintained their ‘Buy’ rating for HDFC Bank, the stock has seen a cut in target prices.

BrokerageRatingTarget price before resultsTarget price after resultsCurrent upside
EdelweissBuy₹2,000₹1,86035%
Kotak Inst.Buy₹1,780₹1,65020%
Emkay GlobalBuy₹2,050₹1,95042%
NomuraBuy₹1,955₹1,70524%
Yes SecuritiesAdd₹1,900₹1,66821%
MacquarieOutperform₹2,005₹2,00546%

Source: Brokerage reports | Upside as compared to CMP of ₹1,373, as on April 19, 2022.

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