HDFC Bank shares spike; should you cash out? Analysts say ‘No’ even as correction imminent

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Published: February 17, 2017 10:26:52 AM

Analysts consensus is that the long-term investors in HDFC Bank must continue to hold the shares even in the face of a potential immediate correction in the next 2-3 trading sessions, after it spiked as high as 9.2% in the morning trade as the RBI relaxed restrictions on the foreign institutional investors buying into it in open markets.

With the surge in the price, HDFC Bank has pipped Reliance Industries in terms of market capitalisation to become the second most valuable company in India. (Image: Reuters)With the surge in the price, HDFC Bank has pipped Reliance Industries in terms of market capitalisation to become the second most valuable company in India. (Image: Reuters)

Long-term investors in HDFC Bank must continue to hold the shares even in the face of a potential immediate correction in the next 2-3 trading sessions. That seems to be the consensus of the experts on the stock, after it spiked as high as 9.2% in the morning trade as the RBI relaxed restrictions on the foreign institutional investors buying into it in open markets.

HDFC Bank was trading up 6.3% at Rs 1,411 after paring part of the early morning gains, pulling up the benchmark indices along with it. BSE Sensex was up 0.52% at 28,449.04 points and NSE Nifty was 0.42% at 8,815 points.
With the surge in the price, HDFC Bank has pipped Reliance Industries in terms of market capitalisation to become the second most valuable company in India.

Earlier, the Reserve Bank of India allowed foreign institutional investors to buy HDFC Bank shares in open markets as the foreign holding in the private sector lender fell below the stipulated upper limit of 72%. The total foreign ownership in HDFC Bank was at 71.85%, making available 38 lakh shares comprising 0.15% of the capital that could be purchased by FIIs before hitting the roof again, research and brokerage firm Macquarie said in a note.

Long-term investors must stay invested in HDFC Bank, investment advisory firm Dimension Corporate Financial Services’ CEO Ajay Srivastava told CNBC TV18. “You will see correction coming through, but you stay put there because this is the long-term trajectory of the market,” he said. However, he added that he sees a correction in the next 2-3 sessions in the stock as it has been overplayed.

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Macquarie also added a word of caution on the stock moving back into the caution limit soon, even as it maintained its ‘outperform’ rating on HDFC Bank with a target price of Rs 1,440. The foreign investors will immediately fill up the gap made available today, and HDFC Bank will then again move into the restricted list of the RBI, it said.

However, the bank is expected to issue higher employee stock options in the next financial year (2017-18), diluting the foreign ownership, and again coming out of the restricted zone, Macquarie added. It also said that HDFC Bank is its top pick in the banking sector.

Another brokerage CLSA has also kept its ‘buy’ rating on HDFC Bank with a target price of Rs 1,460.

 

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