HDFC Bank tremors rock banking stocks, Nifty Bank plunges 4%

Banking stocks saw heavy selling on January 17, as all 12 Nifty Bank index names traded with cuts in the afternoon after negative commentary on heavyweight HDFC Bank's below-par December numbers weighed heavy on sentiment for the sector. HDFC Bank, which takes up over 29 percent of weightage in Nifty Bank, plunged nearly 7 percent, putting pressure on the sectoral index, which was down nearly 4 percent. The weakness also rubbed off on other lenders, pulling them down by up to 4 percent. Other index heavyweights, IndusInd Bank, ICICI Bank, Kotak Mahindra Bank, SBI and Axis Bank, which have a cumulative weightage of nearly 49 percent in Nifty Bank, lost 2-4 percent. HDFC's Q3 net profit came largely in-line with Moneycontrol's estimates but there was a twist.

Brokerage firm Jefferies noted that the net profit was lifted with a lower tax expense in the third quarter. Brokerage firm Citi also issued a cautious outlook for private lenders, as it lowered FY25/26 net interest margin estimates for Kotak Mahindra Bank, HDFC Bank, Axis Bank, Federal Bank and ICICI Bank.The firm said that quarterly business updates reflected further loan-to-deposit expansion and loan-to-credit contraction, which points towards further downside to net interest margin.The brokerage downgraded state-lender SBI to “sell” and lowering its price target for the stock by over 14 percent to Rs 600. Citi also initiated a 90-day negative catalyst on SBI.

It also downgraded Federal Bank to “neutral” and reduced the target price by 20.5 percent to Rs 135.Manish Gunwani, fund manager at Bandhan AMC, warned against being overweight on private banks, saying the segment doesn't offer great risk-reward at the current juncture. Banking stocks saw heavy selling on January 17, as all 12 Nifty Bank index names settled with sharp cuts after negative commentary on heavyweight HDFC Bank's below-par December numbers weighed heavy on sentiment for the sector.

HDFC Bank, which takes up over 29 percent of weightage in Nifty Bank, dived over 8 percent, putting pressure on the sectoral index, which was down 4.3 percent. The weakness also rubbed off on other lenders, pulling them down by up to 4 percent.HDFC's Q3 net profit came largely in-line with Moneycontrol's estimates but there was a twist. Brokerage firm Jefferies noted that the net profit was lifted with a lower tax expense in the third quarter.Other index heavyweights, IndusInd Bank, ICICI Bank, Kotak Mahindra Bank, SBI and Axis Bank, which have a cumulative weightage of nearly 49 percent in Nifty Bank, lost 2-4 percent.