Pankaj Agarwal has mostly stuck to his sell rating on HDFC Bank Ltd. for six years, during which the lender’s stock has tripled in value, turning it into India’s biggest by market capitalisation.
Yet investors who followed Agarwal’s recommendations over the past 12 months have yielded a 36% return, the most among more than 40 analysts covering the stock.
After a 63% rebound from its March low, HDFC Bank’s stock is too expensive given the risks related to management change and asset quality, as Indian lenders face “one of the most challenging phases” amid Covid-19 and the nation’s prolonged credit crisis, Agarwal, an analyst at Ambit Capital Pvt, said in an interview. He has had a sell rating on HDFC Bank since 2014 save a brief upgrade to buy earlier this year, Bloomberg-compiled data show.
Bank stocks have been the worst-performers in India this year, with a gauge of lenders slumping more than 24%. Soured loans are expected to swell to the highest level in more than two decades in 2021 following the world’s strictest lockdown measures.
HDFC Bank posted profit for the September-ended quarter that beat the average analyst estimate by 17%. Its gross bad-loan ratio narrowed, but that was thanks to regulatory exemptions that make it difficult to read asset quality trends, Agarwal said.
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