FIIs dump 48 crore HDFC Bank shares as stock crashes 26% in March quarter

Foreign institutional investors (FIIs) slashed their stake in HDFC Bank by nearly 4 percentage points in the March quarter, offloading 47.95 crore shares as the lender's stock cratered 26% amid a governance crisis that triggered regulatory scrutiny and wiped billions off its market value.

FII holdings in India's largest private lender fell to 44.05% at end-March from 47.67% in December, marking the third consecutive quarter of stake reduction by overseas investors. Mutual funds stepped in to buy the dip, raising their holdings from 26.66% to 29.54% during the period.

The exodus followed former chairman Atanu Chakraborty's shock resignation in mid-March, when he cited "certain happenings and practices within the bank" that were "not in congruence" with his personal values and ethics. The letter triggered an 8.7% single-day plunge and erased $16.3 billion in market value over three sessions.


Markets regulator Sebi has since begun a preliminary review of the claims and whether other directors failed to document material information, according to Reuters. The Reserve Bank of India, the primary regulator, said it found "no material concerns on record as regards its conduct or governance."

In a recent interview with CNBC-TV18, Chakraborty said his March 18 departure wasn't triggered by a single event but stemmed from growing "incongruence" over two years between his value framework and the bank's approach. "My resignation letter is self-explanatory," the former bureaucrat said.

Also Read | HDFC Bank's ex-chair Atanu Chakraborty breaks silence after abrupt exit, speaks of incongruities

Adding to the selloff, Jefferies' top equity strategist Christopher Wood announced in his 'GREED & fear' newsletter last month that he was exiting HDFC Bank from both his Asia ex-Japan and global long-only equity portfolios, though he stopped short of clarifying the reason.

Yet even as Wood bailed, Jefferies' banking analysts doubled down. Prakhar Sharma and Vinayak Agarwal reiterated a "Buy" rating with a ₹1,240 target price and called the lender one of their top sector picks. "Now, valuations at 1.6x FY27E adjusted P/B, 13x PE are at a discount to large private banks and at a low premium to peers," Jefferies wrote, arguing "the derating has overshot fundamentals."

The brokerage noted HDFC Bank is underperforming peers amid concerns around the chairman's exit and potential West Asia conflict impact, but contended that current multiples are compelling given the bank's "stronger asset quality, healthy growth and ROE" and that sensitivity to higher credit costs and lower topline is "manageable."

"It is among our sector top picks," the report said, placing HDFC Bank alongside ICICI Bank, Axis Bank and Kotak Mahindra Bank in its preferred private lender basket.

For FY27, Jefferies forecasts return on assets of 1.7% and return on equity of 14%, with gross non-performing assets at 1.2% and net NPAs at 0.4%, alongside a capital adequacy ratio of 19%. The house expects net profit growth of 11% in FY26 and 7% in FY27, lifting earnings per share from ₹49 in FY26 to ₹52 in FY27 and ₹60 in FY28.

Jefferies' base case builds in 13% compound annual loan growth over FY26–28, average net interest margins around 3.5%, and stable asset quality, valuing the core bank at 2.5 times adjusted book for March 2028. It sees the American Depositary Receipt climbing 50% to $40.

The brokerage flagged that "clarity on board issues and rollover of CEO term / Chairman appointment can aid rerating," acknowledging governance overhangs have weighed on sentiment. It warned a spike in interest rates could hurt, as the merged entity has a higher share of non-retail funds and funding costs more closely linked to market rates than pre-merger, while slower priority-sector lending ramp-up could drag margins and ROA through higher compliance costs.

Also Read | Jefferies' Chris Wood sells HDFC Bank after Chairman's puzzling exit, cuts India weightage

Still, Jefferies views headwinds as transient against merger-led structural positives. It expects HDFC Ltd amalgamation synergies to flow through in cross-selling, better service and operational efficiencies, with continued branch expansion supporting deposit mobilisation for loan growth.

The correction has pushed HDFC Bank below its historical valuation bands, trading under long-term average one-year forward price-to-earnings and price-to-adjusted-book multiples. While the loan-to-deposit ratio at 99% as of third quarter FY26 is among the highest in its peer set, the liquidity coverage ratio of 116% remains healthy, suggesting balance-sheet risks are contained, Jefferies noted.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)