Nuvama has maintained its Buy rating on HDFC Bank, with a target price of ₹2,270, implying a 16% upside from the current market price of ₹1,956.00. While the bank reported a decline in margins for Q1FY26, Nuvama remains positive on the stock, citing resilient core performance and strong risk management.
The reported net interest margin (NIM) fell by 19 basis points quarter-on-quarter, which was 6 basis points more than expected. The core NIM also declined by 11bps. However, Nuvama noted that HDFC Bank reprices its external benchmark-linked loan (EBLR) book faster than peers, which can exaggerate short-term margin shifts.
Asset quality remained best-in-class, with a QoQ rise in slippages mainly driven by seasonal stress in the agricultural segment. Importantly, the bank utilised nearly the entire ₹91 billion gain from the HDB Financial Services stake sale towards contingency and floating provisions, reflecting a prudent approach to capital management. Only ₹8 billion of the gain was recognized as net profit.
Despite a 2% decline in reported net interest income (NII), core NII remained flat, and core pre-provision operating profit (PPOP) was flat sequentially and up 8% YoY, demonstrating steady underlying performance.
Nuvama believes HDFC Bank remains fundamentally sound and well-prepared for a recovery in loan growth, with sufficient buffers to manage near-term margin and credit headwinds.
Disclaimer: The brokerage view is based on publicly available research and does not constitute investment advice. Please consult a certified financial advisor before making any investment decisions.
