📰Stock Pick: India's HDFC Bank

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Welcome to the best way to stay up-to-date on India’s financial markets. Today we’re breaking down a stock pick based off last week’s deep dive into India’s banking industry.

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Market Update.

Stock Pick: HDFC (NYSE: HDB)

Every Friday, Samosa Capital delivers deeply researched, long-form analysis on a timely market theme or overlooked opportunity—directly to your inbox.

Disclaimer: This is not financial advice or a recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.

HDFC Bank has a sprawling physical network spanning 7,847 branches and over 20,000 ATMs combined with a strong digital footprint. HDFC caters to rural consumers, large corporations, and small businesses alike, making it well-positioned to capitalize on macroeconomic trends. Its aggressive franchise building and balance-sheet discipline also reduce its risk while increasing return-on-equity (RoE). The company is also listed on the NYSE as an ADR, making it accessible for all.  

Moat

The bedrock of HDFC Bank’s competitive moat is its deposit franchise. After peaking at a checking and savings account ratio (CASA) of 44.4 percent in FY23, the bank navigated a cyclical dip to 34.8 percent in FY25, only to begin steering the ratio back north to target around 38 percent. The beauty of CASA deposits is the low rate that they command; banks can pay depositors minimal fees while turning around and lending at 7+ percent. For a bank, its net income essentially depends on interest income minus interest paid. The timeline for 38 percent CASA will likely be around FY28 due to systemic liquidity pressures and further targeting of consumers to open more retail deposits. The 38 percent target will put it in line with larger, state-owned rivals such as SBI, IndusInd, and Kotak Mahindra.

The key for HDFC in the future, beyond CASA improvement, is a retail credit surge. Private banks now command 41.5 percent of system lending and are subject to fewer restrictions. Consumer durables, personal loans, and credit cards should buoy HDFC’s loan book at a 14 percent growth rate, assuming macro conditions are unchanged. HDFC also benefits from its physical-to-virtual infrastructure in attaining more customers and booking more mortgages, unsecured consumer lines, and an expanding SME franchise. 

This credit momentum translates directly into top-line growth. In FY25, HDFC Bank reported $54.9 billion (₹4.7 trillion) in revenues, up 18 percent y-o-y, as net interest income and fee businesses (credit cards, third-party distribution, corporate treasury services) all hit new highs. Other income-to-assets held near 2.7 percent, while pre-provision operating profit equaled 2.44 percent of assets, underscoring the bank’s ability to scale profitably before credit costs.

Other Advantages

On the profitability front, HDFC stands apart. A RoE of 14.5 percent and net margin of 15 percent rank it at the top of large-bank peers, while its cost-to-assets ratio of 4.78 percent remains one of the industry’s most efficient. Shareholders can expect these metrics to improve further as operating leverage kicks in on its growing loan book. 

Margin pressure fears have also proved overblown. With lending tied to external benchmarks, HDFC’s profit-to-assets ticked up to 3.26 percent in FY25 and is forecast to expand as deposit repricing follows suit. In micro terms, each 25 basis point cut by the RBI tends to add roughly 5 basis points to profit margins, given the bank’s superior CASA mix and conservative term-deposit pricing.

Asset quality remains a core strength. Gross NPAs of 1.35 percent and a provision coverage ratio (PCR is a loss the company writes on its financial statements as a loan loss assumption) of 68 percent on those NPAs place HDFC at the top of the credit‐cycle curve. NPAs across large banks average closer to 2.4 percent and covering nearly all assumed NPAs means HDFC has limited risk of shocks. Strong capital buffers further reinforce its franchise. With all ratios comfortably above regulatory minimums and a debt-to-capital ratio of 54.1 percent, the bank has ample headroom for shareholder returns through dividends or buybacks and even bolt-on acquisitions to gain further urban or rural ground.

Beyond pure banking, HDFC’s subsidiaries spanning insurance JVs, asset management, and market-making create a cross-sell engine that deepens customer engagement and fee income.

Valuation

At current levels, HDFC is worth investing in, though with some risks. It trades roughly at the industry average (20x P/E), though this is 10-15 percent lower than the 5-year average. At the same time, RBI easing and a supposed trough in credit growth have made the company (and other related banks) run up 20 percent y-t-d. Samosa Capital is still bullish on the banking sector, and among bank names, certainly HDFC. 

Key catalysts and risks

Key catalysts include further RBI easing, accelerating SME/retail disbursements, ramped-up credit-card penetration, and digital wallet monetization. Risks center on sharper-than-expected margin compression if deposit costs lag, or a macro slowdown that leads to cyclical credit stress. Mapping out margin hits and higher costs still leaves HDFC safe due to its diversified nature.

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Gupshup.

Macro

• India’s bank loan growth has slowed to its weakest pace since March 2022, rising just 9.95 percent year-on-year to $2.1 trillion (₹182.9 trillion) as of May 2. The decline reflects cautious corporate borrowing amid economic uncertainty and more attractive bond financing options.

• The Indian rupee is expected to open slightly stronger on Friday, supported by gains in Asian currencies, but traders remain doubtful about sustained momentum. The rupee is heading for its third weekly loss and is among Asia’s worst-performing currencies this month.

• India's private sector grew at its fastest pace in over a year in May, driven by a booming services sector, according to HSBC’s PMI data. This surge came despite rising inflation, defying expectations of a slowdown.

• Bank of America now expects the Indian rupee to strengthen to 84 per U.S. dollar by December 2025, up from a prior forecast of 87. The outlook reflects improved capital inflows, trade activity, a weaker U.S. dollar, and supportive RBI policies encouraging equity investments.

• India’s finished steel imports dropped 11.3 percent in April to 0.5 million metric tons, mainly due to slower shipments from China and Japan. The decline follows India’s recent 12 percent temporary tariff on certain steel imports to curb cheap shipments, especially from China.

• RBI Governor Sanjay Malhotra said India’s growth could be moderately impacted by global tariff tensions but remains resilient, projecting 6.5 percent expansion this fiscal year. He emphasized the need for trade diversification and confirmed continued policy easing and liquidity support to sustain momentum.

• India’s bond yield premium over the U.S. has narrowed to its lowest in 20 years, raising concerns about potential outflows from local debt markets. While strong fiscal health and easing inflation are pulling Indian yields down, analysts say the shrinking gap could also boost local equities as macro fundamentals improve.

• A Reuters poll of 56 economists predicts India’s GDP growth to be 6.7 percent y-o-y in the January–March quarter, up from 6.2 percent in the previous quarter. The growth boost is attributed mainly to stronger rural spending due to better agricultural output, while urban spending remained subdued. GDP data is expected on May 30.

Equities

• India’s Renewable Energy Development Agency has filed a second bankruptcy case against Gensol Engineering, citing defaults totaling over $25 million (₹2.14 billion) by its EV leasing unit, days after a separate $61 million (₹5.22 billion) claim. Gensol faces multiple allegations of loan defaults and document falsification.

• Indian shares posted strong weekly gains, driven by the ceasefire with Pakistan, progress in U.S trade talks, and hopes for domestic rate cuts. The Nifty 50 rose 4.2 percent and the Sensex gained 3.6 percent, with broad sectoral advances and surging small- and mid-cap stocks.

• ReNew Energy will invest $2.57 billion (₹220 billion) in a 2.8 GW solar-wind hybrid project in Andhra Pradesh to meet India’s growing clean energy demand. The move supports the country’s push toward its 2030 goal of 500 GW of non-fossil power capacity.

• Singtel has sold a 1.2 percent stake in India’s Bharti Airtel for $1.54 billion (₹131.83 billion), earning an estimated gain of $1.08 billion (₹92.46 billion). The sale, made through its unit Pastel at a slight discount, reduces Singtel’s holding in Airtel from 29.5 percent to 28.3 percent, though it remains a significant long-term investor in the company.

• Delhivery posted a fourth-quarter profit of $8.5 million (₹725.6 million), reversing a loss from the previous year as increased spending helped attract more clients. Revenue rose 6 percent, and cost controls supported profit growth despite rising competition from e-commerce firms building in-house logistics.

• India’s Heritage Foods reported a nearly 15 percent rise in fourth-quarter profit to $7.35 million (₹628.8 million), driven by strong demand for its dairy products. Revenue grew 10 percent to $122.43 million (₹10.48 billion), supported by robust rural demand and increasing health awareness.

• Hyundai Motor India expects 7-8 percent export growth for fiscal 2026 after a 14 percent rise in fourth-quarter overseas shipments helped it beat profit estimates. The company reported a quarterly profit of $188.54 million (₹16.14 billion), surpassing expectations despite a 4 percent year-on-year decline.

• India's Jubilant Pharmova reported an 82 percent surge in fourth-quarter adjusted profit to $24.4 million (₹2.09 billion), driven by strong demand for its radiopharmaceutical drugs used in cancer treatment. Revenue rose 10 percent, with the radiopharma segment contributing nearly 46 percent of total sales.

Alts

• Edelweiss Asset Management has launched ‘altiva SIF,’ one of India’s first SEBI-approved hedge fund-like products for retail investors. It offers flexible investment options across equity, hybrid, and fixed-income strategies, with a minimum investment of $11,690 (₹1 million).

• Brookfield Asset Management plans to triple its India assets to $100 billion (₹8.55 trillion) within five years, driven by investments in infrastructure, real estate, and renewables. The firm is also eyeing opportunities in nuclear power if the sector opens to private players.

• OpenAI is exploring data center expansion in the Asia-Pacific region, with visits planned to Japan, India, Australia, and others to discuss AI infrastructure partnerships. This follows its Abu Dhabi project and is part of a broader global push, despite U.S. concerns over tech sharing with countries tied to China.

• Jane Street earned over $2.3 billion from equity derivatives trading in India last year, but now faces a regulatory probe over alleged market manipulation. The surge underscores India’s growing importance in global trading, even as new SEBI rules slow the options boom.

• Adani Group and Reliance Industries have announced increased investments in India's northeast. Adani plans to invest $5.84 billion (₹500 billion) over the next decade in infrastructure and green energy projects, including roads, hydro, and pumped storage.

Policy

• India told a court it had the legal authority to revoke Turkey-based Celebi’s aviation clearance without notice, citing national security concerns. The move follows backlash after Turkey backed Pakistan in a recent conflict, triggering widespread boycotts in India.

• Prime Minister Narendra Modi said Pakistan will not receive water from rivers controlled by India, escalating tensions over water access after a deadly attack in Kashmir. Pakistan’s legal chief responded that Islamabad is open to talks but insists India honor a longstanding treaty.

• The Reserve Bank of India will transfer a record $31.6 billion (₹2.69 trillion) to the government, exceeding expectations and supporting efforts to meet its 4.4 percent fiscal deficit target. The surplus, driven by investment earnings and forex valuation gains, will help offset weak tax revenues and provide a buffer amid trade negotiations.

• India’s commerce minister called recent US trade talks “constructive,” with both nations aiming for an interim deal before July to avoid new tariffs. The agreement is expected to progress in three stages, with early wins possible by fall.

• India may allow U.S. and other foreign firms to bid on over $50 billion (₹4.26 trillion) in government contracts as part of trade negotiations, marking a major shift in its procurement policy. Small businesses will retain 25 percent of contracts, and similar access has already been granted to UK firms.

• Pakistan has extended its airspace ban on Indian-owned or operated aircraft, including military planes, until June 24 due to ongoing tensions between the two nations. The ban, first imposed last month, affects all aircraft registered, operated, owned, or leased by India.

• India’s antitrust watchdog found global ad firms, including GroupM, Interpublic, Publicis, and Dentsu, colluded on fees charged to advertisers. The finding led to surprise raids in March, revealing coordinated price-fixing in violation of competition laws.

See you Monday.

Written by Yash Tibrewal. Edited by Shreyas Sinha.

Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.