Top wealth destroyers include the HDFC twins, TCS, and Infosys. HDFC twins bashed a total of INR 2.5 lakh crore of investor’s value; what do Analysts say

Top wealth destroyers include the HDFC twins, TCS, and Infosys. HDFC twins bashed a total of INR 2.5 lakh crore of investor’s value; what do Analysts say

When investors started buying the dip, Dalal Street had already lost Rs 8 lakh crore in the past five days of correction. According to statistics from AceEquity, the top ten companies contributed nearly 60% of the correction, or Rs 4.7 lakh.
The HDFC twins have bashed a total of Rs 2.5 lakh crore in investor value and pushed HDFC out of India’s top ten corporations.

Over the last 15 days, HDFC Bank and HDFC have lost over INR 2.5 lakh crore in investor capital. The HDFC Bank-HDFC merger was announced earlier this month in an attempt to build a financial giant in the country.

The sudden dip in HDFC Bank and its parent Housing Development Finance Corp (HDFC) shares has surprised Wall Street. Since their merger declaration on April 4, both equities have lost about 20% of their value, resulting in a combined market cap loss of Rs 2.72 trillion. HDFC Bank fell for the ninth day on Tuesday, falling 3.73 percent to Rs 1,343.3. HDFC, on the other hand, slumped 5.5 percent to Rs 2,138.7.

In the last five sessions, Infosys has been the wealth destroyer leader, destroying almost Rs 1.05 lakh crore of value. Investors were underwhelmed by the IT giant’s March quarter revenue.

After the fourth-quarter results came in below estimates, most of the brokerages, including Jefferies, Morgan Stanley, JP Morgan, CLSA, and Nomura, dropped target prices on Infosys by 4-7 percent.

The merger-bound HDFC twins were next, with a decline of up to 13%. HDFC Bank and HDFC caused the fall, contributing Rs 95,272.39 crore and Rs 57,917.19 crore, respectively. Most local brokerages, including Motilal Oswal, Edelweiss, Kotak Securities, and Nirmal Bang, have suggested that investors buy India’s largest private lender.
Tata Consultancy Services has lost Rs 77,773.13 crore in market capitalization, while Wipro and HCL Technologies have lost between Rs 25,000 and Rs 29,000 crore in market capitalization.

With the exception of HCL Tech, owing to product seasonality, Tier-I IT businesses could produce revenue growth in a tight spectrum of 2.8-5.1 percent sequentially on a constant currency basis, according to Motilal Oswal Securities analysis earlier this month.

On the other hand, Analysts have voiced concern following a weak March quarter. The explanation for the big selloff in HDFC Bank and HDFC is investigated.

What happened?

HDFC and HDFC Bank are trading at a discount to the broader market for the first time since the 2008 Lehman Crisis. These companies have historically traded at a hefty Premium to the benchmark BSE Sensex.

On a consolidated basis, mortgage lender HDFC is now trading at a price-to-book-value (P/BV) ratio of 2.45 times (x), a 30% discount from the Sensex P/BV ratio of 3.47x on Thursday. HDFC Bank is in the same boat. At its current stock price, India’s largest private sector bank is valued at 3x its book value, a 13% discount from the index.
Unlike any other, the two cornerstones of India’s financial system, HDFC, and HDFC Bank, have seen a crisis. In only two weeks, this catastrophic selloff has bashed over 2.5 lakh crore in investor value.

HDFC is India’s largest Home Financing company. Before the sale, it was ranked in the top ten most valuable companies in the country, with Reliance Industries, TCS, HDFC Bank, HUL, and State Bank of India.

Two weeks after the declaration of the HDFC Bank-HDFC merger, the selloff knocked it off the list.
It’s worth mentioning that HDFC Bank and HDFC shares both soared by 14% when the merger news was disclosed, improving investor wealth by Rs. 1 lakh crore.
For a while, HDFC Bank and HDFC were the second and third most prominent companies in India in terms of market capitalization, trailing only Mukesh Ambani’s Reliance Industries.

However, those profits were not only erased during the next 15 days, but shares of both companies dropped by nearly 18%.

Why are HDFC Bank and HDFC shares falling?

The HDFC twin merger was supposed to let both corporations benefit from their experience in their respective areas, resulting in a financial giant in India.
Instead, following the early enthusiasm around the merger, both companies have seen a relentless selloff.

The weak earnings of HDFC Bank in the March quarter are factors that have led to the selloff.
On the surface, HDFC Bank’s results seem to be optimistic: net profit increased by 23% year on year to 10,055 crores, while net interest income increased by a robust 10.2% to Rs. 18,873 crores.

However, scraping the surface reveals a few areas that may cause worry.

Increase in higher-risk Assets

In the last two years, asset quality, especially risk-weighted Assets with a 100 percent risk, has increased by 25%. Assets with less than 100 percent risk increased by more than 50 percent.
Similarly, exposures posing a 100 percent risk increased by roughly a third.

Risk-weighted Assets are those for which a bank must earmark enough capital to avoid going bankrupt. Due to an increase in risk-weighted Assets, HDFC Bank would need to earmark more capital than before. This limits the amount of money it has available for banking.

Decrease in retail loans

Another Factor contributing to HDFC Bank’s slight increase in net interest income is the declining percentage of retail loans in the bank’s overall Loan portfolio.
Before the COVID-19 outbreak, retail loans made up 55 percent of HDFC Bank’s Loan portfolio. This has now been reduced to 39%.

HDFC Twin Share Price Correction Very Very Short Term said HDFC

The lack of communication on the benefits of the merger led to an important correction in HDFC twins following the announcement. This is owing to the period of silence preceding the quarterly results.

To reassure investors and stakeholders, the group’s vice chairman and CEO, Keki Mistry, stated that everything was OK and that the stock price drop was only temporary. “This (the drop in HDFC Ltd and HDFC Bank stock prices) is, in my opinion, reasonably short-term. We haven’t been able to explain the benefits of the merger very clearly or articulately since we are all waiting for our (Q4) results. “On Friday, Mistry spoke at the Times Network India Economic Conclave.

HDFC Bank’s results were issued on April 16, and HDFC’s results are set to be announced on May 2.

HDFC Bank shares have fallen by more than 18% since the merger was announced in early April, while HDFC shares have fallen by the same amount.
HDFC Bank stated on April 4 that it would acquire HDFC for $US 40 billion in Cash, creating a financial services powerhouse.

HDFC-HDFC Bank merger: What does it mean for depositors and borrowers?

If you are a depositor of HDFC Ltd

Individuals holding HDFC Ltd fixed deposits should first evaluate whether their FD investment is made through an auto-renewal or not. The FD is automatically renewed for the same term at the prevailing interest Rate on the day of maturity under automatic renewal. If no auto-renewal mandate is in place, the FD’s maturity amount is deposited into the holder’s bank Account on the maturity date.

If your FD deposit does not have an auto-renewal mandate, the maturity amount will be credited to your Bank Account when it matures.
Here’s why it’s important.

Those who have placed FD deposits with HDFC Ltd with an auto-renewal mandate will probably be given the choice of withdrawing the money or renewing the deposits with HDFC Bank at the current interest Rate.

HDFC Bank’s interest Rate, on the other hand, has historically been lower than that of HDFC Ltd. For example, if you invest less than Rs 2 crore in an FD with HDFC Ltd for a term of 66 months, you would receive an annual interest Rate of 6.55 percent (interest Rate effective February 23, 2022). (paid quarterly). HDFC Bank, on the other hand, is only giving 5.60 percent for the same term.

Even for older persons, HDFC Ltd provides a special Rate of 6.8 percent in comparison with HDFC Bank’s special interest Rate of 6.35 percent. Across tenures, there is a similar discrepancy. As a result, if you renew your FD with the bank, the Rate would almost surely be lower than what you would have received from HDFC Ltd.

Individual deposits placed/renewed using the online deposit system and auto-renewed deposits get an extra 0.05 percent p.a. interest Rate from HDFC Ltd. Because HDFC Bank does not at present have such a proposal for its FD Clients, you are more probable to lose this benefit if you renew your FDs after maturity.

If clients renew their FDs, there will be a major gain in terms of increased deposit safety because it will be a deposit with a bank. This is safer since deposits and income generated will be protected up to Rs 5 lakh by the Deposits Insurance and Credit Guarantee Corporation (DICGC).

HDFC Ltd’s recurring deposits are more probable to be aloowed to run till maturity at the current Rate and terms. Customers with RDs that do not have an auto-renewal option will have the maturity amount credited to their bank Accounts at maturity. In contrast, customers with auto-renewal RDs will have the choice to renew and stay with HDFC Bank at maturity.

Existing borrowers of HDFC Ltd

If you have a house Loan or other Loan with HDFC Ltd, it is unlikely that the terms and conditions of your Loan would be affected. However, after the merger is finalized, your Home Loan’s interest Rate will almost surely be altered.

Interest Rate fluctuations will be more transparent for variable Rate Loan customers. It’s important to remember that, starting in October 2019, banks must tie interest rates on all Variable Rate retail loans to an external benchmark. Repo Rate, the government of India’s 3-month treasury bill, the government of India’s 6-month treasury bill, or other market-linked benchmark released by Financial Benchmarks India Pvt Ltd can be used like an external benchmark.

The RBI does not want HDFC Ltd to link its interest Rate to an external benchmark because it is an NBFC. As a result, after the merger is completed, the Interest Rate on your current loans will most probably be reset to an external benchmark.

Banks with high CASA (Current Account and Savings Account) deposits, in particular, benefit from cheaper funding costs. As a result of the merger, the bank may be able to provide home Loan borrowers with more competitive lower rates.

Individuals with a credit score of 750 and higher may at present receive a house Loan for a 6.70 percent interest Rate, according to the HDFC Ltd website.

If the credit score falls below that threshold, the Interest Rate paid to women borrowers for house loans up to Rs 30 lakh would be in the spectrum of 6.75 percent to 7.25 percent. The interest Rate for the remainder of the population will be in the field of 6.80 percent to 7.30 percent.

SBI ordinary term house loans, on the other hand, charge 6.65 percent for CIBIL scores of 800 and higher. The Loan Rate will be 6.75 percent if the credit score is between 750 and 799. Women borrowers are eligible for a 0.05 percent discount, subject to a minimum EBR of 6.65 percent. Salaried account holders are eligible for a 0.05 percent discount.

As a result, after the merger is completed, it’s possible that your home Loan’s interest Rate may be revised.
Furthermore, HDFC Bank may request that some HDFC Ltd clients update their KYC information, and submit a new NACH mandate, specially those paying installments with post-dated checks. This may occur in order to ensure that auto-debit of home Loan EMIs continues smoothly after the merger.

What are the analysts saying?

Analysts have voiced caution and skepticism about the merger going through smoothly rather than being delighted by the announcement.

According to analysts, the steep drop is attributable to a sudden withdrawal by foreign portfolio investors (FPIs) owing to merger worries. In addition, HDFC Bank’s disappointing quarterly results have raised questions about the company’s development prospects and whether the stock can continue to fetch major price-to-book (P/B) premiums.

Slower-than-expected credit growth amid weakening macros being a result of the Ukraine-Russia conflict, further softening in margins being a result of slower retail credit growth, and a delay in gaining regulatory approval for the proposed merger is included in the key risks, according to Emkay Research in an investor note.

“Since December 2020, the NSE has traded between 1292 and 1727. In Fact, the low for April 22 is at present at 1342, which is close to several monthly candle support marks.
Let’s look at hourly candles because it’s trading around long-term support.
In the last 2 months, HDFC bank rose 30 percent from Rs1290 to Rs1720, only to give up those gains and return to the support price.

I’ll be watching for more price movement around 1340 and, if it falls down, around 1300.
For the time being, if there is a reversal, I will go long only after an important breakout over 1430, with a stop loss at 1300.”

Muthukishor stated that he would go short whenever the weekly close falls below 1300, with a stop loss of 1555 and a target of 900.
While several brokerages have kept their ‘Buy’ ratings on HDFC Bank, the stock’s target prices have been reduced.

Among large-caps, Edelweiss favors HCL, Infosys, and TCS, while, in Tier-1 names, Emkay Global prefers Infosys, followed by Wipro, HCL Tech, and Tech Mahindra, and finally TCS.

According to Market Analysts, unabated foreign money withdrawals, mounting inflationary fears, a surge in crude oil prices, poor India Inc profits, and geopolitical concerns about the Russia-Ukraine conflict have made investors concerned.
Global markets were under pressure, according to Siddhartha Khemka, Head Of Retail Research, Motilal Oswal Financial Services Ltd, because emotions became cautious following the recent Ukraine war developments.

“Investors were jittery due to the chances of rapid Fed tightening to control inflation. The market is weighing the impact of the Ukraine conflict and the recent jump in inflation on the current quarter’s earnings, “Added he.

Bharti Airtel (Rs 23,301.88 crore) and Asian Paints (Rs 20,934.5 crore) are two other wealth destroyers that are hurting portfolios. These equities, on the other hand, have not seen a important fall and are yet to release their Q4 results.

Bharti Airtel’s earnings are expected to be Rs 2,396.10 crore, up 215 percent year on year from Rs 759.20 crore in the same quarter last year, according to domestic brokerage IIFL Securities. Emkay Global’s earnings are estimated to be Rs 2,009 crore, up 142% year on year.

Sharekhan, on the other hand, has set a target price of Rs 3,689 for Asian Paints. In the following year, the stock is expected to gain 23 percent in value.
In the last five sessions, the market capitalization of Larsen & Toubro and Bajaj Finserv has fallen by between Rs 16,600 and Rs 18,100 crore.

JP Morgan maintained an overweight rating with a target of Rs 2,100 in a recent report. Bajaj Finserv, on the other hand, is expected to post a 148.5 percent increase in net profit to Rs 2,400 crore on a 13.7 percent increase in net sales to Rs 17,500 crore according to Motilal Oswal in a note.

HDFC Bank said this week that its net profit for the three months ended March 31, 2022, increased by 23% year on year to Rs 10,055 crore. The bank reported a 21% year-over-year increase in loans, but this did not transfer into higher net interest income (NII), which increased by 10.2% year over year but fell three percentage points short of expectations.

The difference between the revenue earned by a bank’s interest-bearing Assets and the expenditures connected with servicing its interest-bearing liabilities is known by the term net interest income.

The lender’s net interest margin (NIM) was 4%, down 10-basis points from the last quarter. Analysts slashed profits growth expectations for the next two financial years due to the lowest margin in the last quarters.

The net interest margin (NIM) is the difference between the amount a bank earns in interest on loans and the amount it pays in interest on deposits.
“Adverse Loan mix (more Secured vs. Unsecured, greater wholesale versus retail, a larger mix of better-rated credit) caused NIM (on Average Assets) to decrease 10bps q-q, and management traded away for growth and related expenses,” wrote Nomura in a note.

Analysts are concerned that the planned merger with HDFC will further cut NIMs and drive up the cost of capital.
With the recent slump, HDFC Bank’s P/B multiple has dropped to 3.1 times from 4.4 times six months ago, while HDFC’s has fallen to 2.37 times from 3.3 times.

“Sustained selling by FPIs and shorting by speculators using FPI positions in the equities caused the weakening in HDFC twins following the merger news.” “Despite the short-term technical weakness, the HDFC twins stay fairly positioned from a valuation standpoint,” said Vijayakumar.

Analysts predicted that the bank would outperform the industry over time.
“The bank, in our opinion, is prepared to handle deposit mobilization ahead of the merger date. They are vigorous when it comes to branch opening. We believe that the stock price change is only temporary and that the higher asset quality and reduced provision will probably preserve the shareholder return. The stock may see some pressure in the mid-term, but it has the potential to outperform the sector in the long run, “Kabi said.