Focus on HDFC Bank: In light of the Q3 results, should you purchase, sell, or hold onto the stock of India's biggest private bank?

Today, January 22, HDFC Bank, India's biggest private sector lender, released its Q3 results. In Q3FY25, HDFC Bank's net profit increased by a slight 2.2% YoY, but its net interest income (NII) increased by 8% YoY. With a small upward skew, margins are probably going to stay steady QoQ. The December quarter saw a slight decline in the bank's asset quality as the gross non-performing asset (NPA) rose. The share price of HDFC Bank increased following today's release of the Q3 results.

Management laid out a plan to get the LDR back to pre-COVID levels in its Q2FY25 statement. This approach focused on deposit accumulation and resulted in slower credit growth than industry norms, as seen in Q3FY25 performance. Consistent deposit growth is in line with the bank's goals, even though credit expansion has been limited.

Despite a minor drop in asset quality, HDFC Bank has continuously maintained high asset quality through risk-calibrated lending and strict underwriting. Although CASA accretion issues put some pressure on NIMs, return ratios could improve in the upcoming years as a result of lower high-cost borrowings and increased operational efficiency. In addition to the bank's strategic reaction to the RBI's draft circular on lending overlap among group businesses, asset quality and credit expansion will be top priority going forward. In spite of shifting macroeconomic conditions, HDFC Bank's Q3FY25 results show a balanced performance overall.

The share price of HDFC Bank is now between ₹1610 and ₹1730 per share. Therefore, it is recommended that investors holding HDFC Bank shares keep a tight stop loss at ₹1610 and wait for the new breakout at ₹1730 on a closing basis. HDFC Bank shareholders can increase their trailing stop loss to ₹1670 per whenever the stock clearly breaks over ₹1730. For the short-term goal of ₹1800 per share, fresh purchases are only recommended above ₹1730. Fresh purchasers must, however, strictly maintain a stop loss at ₹1670 following the breakout at ₹1730.