For a long time, HDFC Bank was the poster stock of Indian markets. It did not put a foot wrong.
I recall the stock listing and trading at around 15–17 levels in the mid-1990s. At that time, I was one of the market makers for this stock on the newly started BSE BOLT system. NSE had not started then. Even then, volumes were brisk, allowing a few of us making the market, along with others, to make profits on a daily basis.
At that time, I did not realise what it would become. The stock price kept rising. Here is how a quarterly chart looks from when it started.
Chart is annotated with a simple 25-period moving average. The only two threats to the trend came in 2009 and 2020, both unusual periods for the markets. Now, the moving average is being tested for the third time.
In this quarterly chart, the stock has maintained a steady upward slope and has stayed above the average for most of the time. A closer look shows that from 2021, the upward movement appears to have slowed. It is possible that the plan to merge the bank with HDFC emerged around then, although it was announced in April 2022.
The stock rose after that and recorded its all-time high at 1,020 (ex-merger rate) in June 2023, just ahead of the merger. It was among the largest transactions in Indian business history, valued at about $40 billion, and turned the merged entity into one of the world's largest banks by market capitalisation.
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The merger was expected to provide synergy, reduce costs and offer a broader range of financial products.
The market has since reacted to the stock after the merger. Over the last four months, it has fallen from 1,020 to a low of 770, a decline of about 24% from the high.
It remains unclear if the move relates only to the merger or to developments this week following statements by Atanu Chakraborty, part-time chairman since May 2021. Statements have since been clarified, and there have been responses from the Reserve Bank of India stating that there are no material issues. However, questions remain on why Chakraborty chose to speak through the press rather than approach the regulator. The appointment of former insider Keki Mistry as interim chairman also followed.
The stock has taken a hit. The timeline for any recovery remains uncertain.
Foreign institutional investors hold about 47% of the equity, down from 52.3% in 2023. Domestic institutional investors hold about 37%, up from 30.5% in 2023. Public shareholding stands at about 16%, down from 18.6% in 2024. Domestic investors appear to have absorbed selling by foreign investors and the public. There has been continued selling by foreign investors, and retail participation has reduced. This may lead to further supply in the market.
Chart 2 shows the near-term trend in more detail.
Former swing highs and lows may offer support in the 650–700 range. The 50% retracement of the rise from the 2020 low also lies near 700. The RSI indicator in the lower panel shows downward momentum, which may point to further declines.
The stock has not delivered returns over the past few years. Supply from existing holders may weigh on prices. Short-term upward moves may occur due to oversold conditions, but these may face selling pressure.
Only strong corporate performance may attract buyers. The former chairman said that merger benefits are yet to be seen, which suggests that expectations may need time.
The resignation has affected the stock chart, and lower levels have pushed it into oversold territory on the RSI chart, as shown in the next chart.
This may lead to short-term upward moves. However, the decline over the past few months may limit any sustained rise. Valuations have moved to about two times book value from nearly four times earlier. This may limit fresh selling if no further negative developments emerge.
The stock remains one of the highest-weighted in the Nifty at about 12% and Bank Nifty at about 20%. It will continue to influence trading activity. However, recovery may take time as investors may exit at higher levels.
Investors who did not take profits earlier may have missed the opportunity. New investors may consider waiting for clearer support levels, as indicated in Chart 2.
The views expressed in this article are solely those of the author and do not necessarily reflect the opinion of NDTV Profit or its affiliates. Readers are advised to conduct their own research or consult a qualified professional before making any investment or business decisions. NDTV Profit does not guarantee the accuracy, completeness, or reliability of the information presented in this article.
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