HDFC Bank Shares Rise 1% as Independent Review Removes Governance Overhang

Mumbai, June 29: HDFC Bank share price rose on Monday after multiple brokerages reiterated their positive stance on the private sector lender, saying an independent legal review has largely removed the governance overhang that had weighed on investor sentiment since the resignation of former chairman Atanu Chakraborty in March. 

The stock gained after the bank disclosed last week that an independent review conducted by two international law firms found no evidence to support allegations of governance lapses or ethical misconduct made by Chakraborty when he stepped down in March. The findings prompted several brokerages to reaffirm their “buy” ratings, arguing that the removal of uncertainty could pave the way for a valuation re-rating. As of writing the stock was up 1% at Rs 804. 

Brokerages remain constructive 

Leading brokerages, including Jefferies and JPMorgan, maintained their bullish outlook on the stock after the review’s findings. 

Stock shows pressure after resignation of former Chairman Atanu Chakraborty in March. It is down 18% this year. But now things may look up as the review had removed governance overhang. Source: Google   

Brokerages said the report effectively addresses one of the key concerns that had kept investors on the sidelines over the past few months. With governance issues now appearing to have been resolved, analysts expect the market’s focus to shift back to the bank’s operating performance, including loan growth, deposit mobilisation, asset quality and profitability. 

Several brokerages also retained their target prices, citing HDFC Bank’s strong franchise, improving post-merger integration and attractive valuations relative to its historical averages. 

Legal review clears management 

The independent review, conducted by U.S.-based law firm Wilson Sonsini Goodrich & Rosati and Indian law firm Wadia Ghandy & Co., concluded that there was no evidence to substantiate the governance concerns raised by Chakraborty. 

The investigation examined board and committee records, internal documents and interviews with directors and senior executives before concluding that neither the bank’s board nor its management had acted improperly. The review also found no evidence of misconduct in relation to the bank’s handling of issues surrounding certain overseas bond transactions. 

The findings remove a significant overhang for the lender, whose shares had come under pressure after Chakraborty’s unexpected exit raised questions over boardroom governance. 

Attention turns to CEO’s reappointment 

The completion of the legal review is also expected to support the reappointment process of Managing Director and CEO Sashidhar Jagdishan, whose current term is nearing its end. 

Analysts believe the Reserve Bank of India is now likely to take up the bank’s application without the uncertainty created by the governance review. A timely extension of Jagdishan’s tenure would provide continuity at a time when HDFC Bank is still integrating its merger with parent HDFC Ltd. and working to improve its deposit franchise. 

With governance concerns receding, brokerages believe investor attention will increasingly return to the bank’s fundamentals. Analysts expect improving deposit growth, stable asset quality and gradual margin recovery to drive earnings over the coming quarters, while the removal of the governance overhang could help narrow the stock’s valuation discount and improve institutional investor sentiment. 

Source

• https://www.nseindia.com/get-quote/equity/HDFCBANK/HDFC-Bank-Limited