HDFC Bank shares tumble 7% in two sessions after Q1; what's spooking investors?

Shares of HDFC Bank extended their losing streak for the second straight session on Tuesday, falling nearly 2% after the lender announced its June quarter earnings over the weekend. On Monday, the country's most valued private-sector lender had ended 5.12% lower on the NSE.

Extending the previous session's losses, HDFC Bank shares fell as much as 1.5% to an intraday low of ₹765.25, dragging its market capitalisation down to ₹11.79 lakh crore.

Meanwhile, the benchmark indices Sensex and Nifty were down 0.45% each, tracking weak global cues amid persistent concerns over the West Asia crisis.

For the first quarter ended June 30, 2026, HDFC Bank reported a standalone net profit of ₹19,059.72 crore, up 4.98% from a year earlier, although it was lower than Street expectations. Net interest income (NII) increased 6.7% year-on-year to ₹33,535.95 crore, while the net interest margin (NIM) stood at 3.26%. The gross and net non-performing asset (NPA) ratios remained stable at 1.17% and 0.41%, respectively.

What triggered sell-off in the stock

The sentiment was dented as investors remained concerned about the continued decline in margins despite the rise in profit, while the lack of clarity over the CEO succession plan also added to the uncertainty. At 3.26%, the net interest margin (NIM) fell to its lowest level since the merger with HDFC Ltd., reflecting persistent pressure on lending spreads.

Analysts attributed the weakness to a higher contribution from lower-yielding corporate loans, relatively slower expansion in the retail portfolio, and continued moderation in the CASA ratio. Softer fee income and slower retail loan growth also weighed on the overall operating performance.

Despite the muted quarterly performance, most brokerages retained their positive stance on the stock, arguing that the current weakness is cyclical rather than structural.

Anand Rathi reiterated its 'Buy' rating with a target price of ₹963. While the brokerage acknowledged that HDFC Bank continues to lag peers such as ICICI Bank on loan growth, margins, and the CASA ratio, it believes the lender remains well placed to benefit from favourable sector trends and attractive valuations.

Motilal Oswal also reaffirmed its 'Buy' call but cut its earnings estimates for FY27 and FY28 by 2% each. The brokerage believes the maturity of high-cost borrowings over the next two years, coupled with better operating leverage, should help improve margins and profitability, even after modest reductions to its earnings forecasts for FY27 and FY28.

"...a meaningful scope for improvement remains as ₹40,000–50,000 crore of high-cost borrowings mature over the next two years, which should support a decline in funding costs," the brokerage said in a note.

PL Capital also maintained a 'Buy' recommendation, although it lowered its target price to ₹1,040 from ₹1,100 after trimming its earnings estimates. The brokerage expects margin recovery to be gradual but sees support from lower operating expenses, healthy asset quality, and the refinancing of high-cost borrowings over the next few years.

JM Financial retained its 'Add' rating and increased its target price to ₹900. It expects funding costs to ease over time, while steady asset quality and consistent loan growth should support earnings despite near-term pressure on margins.

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