Bears flock to HDFC Bank counter as loan, deposit growth slows

   2024-07-07 18:07

Mumbai: Bears have flocked to the derivatives counter of HDFC Bank after the lender reported slower loan growth and flat deposit growth in the June quarter last week.

A Bloomberg report about the bank considering a sale of part of its loan portfolio to rein in a surging credit -deposit ratio growth added to the blues.

The active futures contract witnessed open interest (OI)—outstanding positions—rising 9.43% as the stock slumped 4.57% to 1,648.10 on Friday, hurt largely by the quarterly business update a day earlier. A rise in OI accompanied by a fall in price indicates bearish sentiment.

However, the extent of bearishness was underscored by heavy selling of the at—the -money (ATM) call option expiring on 25 July. A sale of ATM calls implies that the option seller doesn’t expect a stock to rise from current market price and this would lead to a fall in the option’s price, enabling him to pocket part of the premia paid by the option buyer.

As HDFC Bank’s share ended down at 1,648.10, traders doubled down on sales of the 1,650 call option. For context, out of a total OI of 9,317 contracts, 8020 contracts were added on Friday alone.

“Huge sale of ATM calls implies bearish sentiment,” said U.R. Bhat, co-founder of Alfaniti Fintech, while declining to comment specifically on the HDFC Bank stock.

The stock hit a 52-week high of 1,794 on 3 July following reports that the counter could see $3-4 billion of incremental flows from passive trackers of the MSCI Emerging Markets Index due a doubling of its weight on the index in the 13 August review by index provider MSCI.

The stock had risen 31.6% from a 52-week low of 1,363.55 on 14 February to 1,794 on 3 July. From there, it fell 8% to Friday’s close of 1,648.10, on a marginal slowdown in loan growth during the previous quarter and report of the part sale of loan portfolio.

Ambareesh Baliga, independent market analyst, expects the stock to correct another 50 -100 at the most, implying a potential 3-6% fall further from Friday’s level.

“I don’t think it will be a big correction as analysts might be pencilling a revision in earnings estimates for Q1FY25 post the business update,” he said.

However, Baliga warned that if the actual earnings for Q1 (on 20 July) end below the revised earnings estimates, the stock could re-test the February low, which was on account of net interest margin disappointment in the December quarter.

S.K. Joshi, ED, Khambatta Securities, said the pain of the merger of HDFC into the lender could last for a “few more years ” but added he doesn’t expect a “big correction” after Friday’s fall despite huge bearish bets being raised on the counter.

Active options expiring on 25 July — three concurrent option chain contracts are liquid with the front-month chain being the most active and the mid and far months being the least active — show 1600 level to be strong support and 1700 a stiff resistance for now.

Sources said that post the merger of HDFC in July last year, attracting depositors was a challenge for HDFC Bank as the erstwhile housing finance company could offer more competitive rates to term depositors as its deposits were not subject to statutory liquidity ratio (18%) and cash reserve ratio (4.5%) requirements unlike those of a bank. With the merger having taken effect, this advantage is absent and like other lenders HDFC Bank was also grappling with deposit growth lagging credit growth.

While mutual funds raised their stake to 24.83% in the June quarter from 23.17% in the March quarter, FIIs pared theirs marginally to 47.17% from 47.83% and retail investors to 11.78% from 12.70% over the same period. Among MFs, Kotak Mutual Fund’s name with 1.3% stake figured in the June shareholding data on BSE. SBI MF, HDFC MF, ICICI Pru MF, UTI MF and Nippon India MF are other funds owning the bank shares.

As of June-end, the bank had an 11.95% weight on Nifty, followed by Reliance Industries (9.98%) and ICICI Bank (7.95%). A sharp move on the counter could impact the Nifty, too.

Original Source