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Succession uncertainty over; HDFC Bank stk outperformance unlikely: Experts

The development, analysts believe, will take away the overhang on the stock as regards the uncertainty surrounding the succession plan at the bank.
HDFC Bank on Tuesday named Sashidhar Jagdishan as the successor to Aditya Puri, their chief executive officer once the latter retires in October 2020. The move, analysts say, will remove the overhang on the stock as regards the successor for the private sector lender.

"We wish to inform you that the Reserve Bank of India (‘RBI’) vide its communication dated August 3, 2020, has approved the appointment of Sashidhar Jagdishan as Managing Director & CEO of the Bank for a period of 3 years w.e.f. his date of taking charge, i.e. October 27, 2020," the bank said in an exchange filing. READ HERE

The development, analysts believe, will take away the overhang on the stock as regards the uncertainty surrounding the succession plan at the bank.

“It is good that an internal candidate has been named who fully understands the bank and its operations. This will lead to the uncertainty and speculation regarding who will take over from Mr. Puri at rest. Leadership in any company / institution is important and plays a vital role in how the future shapes up for that company / institution. That said, companies like HDFC Bank have always attracted good talent and will continue to do so,” said G Chokkalingam, founder and CIO at Equinomics Research.

The markets, too, took note of the development and the shares of private lender HDFC Bank jumped as much as 5.7 per cent to Rs 1,060 apiece in the intra-day trade on the BSE after the bank said that the Reserve Bank of India has approved appointment of Sashidhar Jagdishan as the new chief executive officer.

At close, the stock was up 4 per cent at Rs 1,041 on the BSE, as against 748 points, or 2.03 per cent, rally in the benchmark S&P BSE Sensex. A combined 31.21 million shares changed hands on the counter on the NSE and BSE during the day.

Jagdishan has an overall experience of 29 years. He has completed his graduation in Science with specialisation in Physics, a Chartered Accountant by profession and also holds a Master’s degree in Economics of Money, Banking & Finance, reports say.

Despite the development, the stock is unlikely to outperform, say analysts, who feel the issues related to the moratorium induced across the financial sector due to Covid-19 pandemic will also weigh on the sentiment.

“The markets will assess the performance of the new incumbent for a couple of quarters before giving any verdict. It is good that Mr. Jagdishan is an internal candidate who knows the operations fully well at the bank, but he is taking over at a challenging time for the industry. Don’t expect the stock to outperform in the near-to-medium term,” said A K Prabhakar, head of research at IDBI Capital.

For the April-June 2020 quarter, the bank's net profit rose 19.58 per cent year-on-year to Rs 6,658.62 crore compared to Rs 5,568.16 crore logged in the corresponding quarter last year. Besides, net interest income (NII) grew 17.80 per cent YoY to Rs 15,665.40 crore in Q1FY21, supported by growth in advances of 20.9 per cent, and a growth in deposits of 24.6 per cent.

Siddharth Purohit, equity research analyst at SMC Global Securities believes investors should focus on the bank's operational performance rather than the change in management as June quarter results show its loan book grew more due to wholesale lending rather than retail lending.

“I am concerned about the bank's operational performance as Q1FY21 was driven more by the wholesale lending rather than retail lending... Given the current economic scenario, this is not a good sign for a bank. I have downgraded the stock to 'hold' with a target price of Rs 1,050 as short-term concerns weigh on the stock,” he says.

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