HDFC shares: Housing loans have long been the focus of retail lending by banks and even non-bank lenders. In fact, this segment has accounted for 8.4 per cent of the total incremental loans disbursed by banks in 2022 so far. If non-bank lenders are also included, then this share increases even more.
Being the market leader among Non Bank Finance Companies (NBFCs) in home loans, HDFC Ltd. (HDFC Ltd) has shown great resilience even in this difficult period due to the COVID-19 pandemic. HDFC’s assets under management have registered a healthy growth of 19.7 per cent in the last two years despite the pandemic. This is reflected in the asset quality as well as the premium valuation of the company reaching pre-pandemic levels.
The performance of the stock remained weak in six months
However, its stock has underperformed the market in the past six months despite improvement in various economic indicators including the real estate sector. In the last six months, HDFC’s stock fell 11 per cent, while the Nifty index has gained 4.4 per cent during this period. In fact, consumer goods lender Bajaj Finance’s valuation turned marginally higher this week than HDFC.
There are a few reasons behind this poor performance. One, the main reason for the growth in home loans is interest rates hitting several-year lows. Now the interest rate cycle has changed with the Reserve Bank of India (RBI) in the mood to cut interest rates.
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Benefit of reduction in interest rate
HDFC is primarily a retail home loan lender with 77 per cent of individual loans in its accounts. But it has always been a big beneficiary of low interest rates. Analysts see some downside to its growth given the rise in interest rates. A change in the rate cycle also means that HDFC’s cost of borrowing could go up, margins could go down. At the same time, corporate bond yields have also risen in the last six months.
However, the management has indicated improvement in loan growth going forward. HDFC Chairman Deepak Parekh recently said, “While interest rates keep rising and falling, home buyers don’t hold back.”
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Poor performance on the asset quality front
However, HDFC’s asset quality performance weakened during the third quarter. Its Stage 3 assets (non-performing loans) increased by 20 basis points. These loans constitute 2.7 per cent of its total portfolio. What is worrying is that individual loans are a major contributor to stressed assets.
Analysts at Motilal Oswal Financial Services said in a note, “We expect HDFC to register a CAGR growth of 14 per cent in AUM and PAT during FY22-24. With this, he can get 1.9 per cent / 13 per cent RoA / RoE in FY 23-FY 24.”
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