LIC Approved to Increase Stake in HDFC Bank to 9.99%, Stocks Soar

Reserve Bank of India (RBI) has approved Life Insurance Corporation of India (LIC) to acquire an additional 4.8% stake in HDFC Bank, elevating its overall stake to 9.99%. This move comes as HDFC Bank’s share dropped 14% following Q3 results because of margin strain, a decline in earnings per share (EPS) and slower than anticipated deposit growth.

LIC's permission to increase its stake is valid until 24 January 2025, as per the exchange filing by HDFC Bank. LIC is not obligated to raise its stake to the maximum limit of 9.99%. Experts highlight that no penalty will be imposed on LIC if it chooses not to increase its stake. As of December 2023, LIC holds a 5.19% stake in HDFC Bank, according to data available on the BSE. The permission for LIC to increase its stake in HDFC Bank has the potential to uplift investor confidence, especially amidst the recent drop in the bank's stock value.

HDFC Bank & LIC Performance

HDFC Bank has faced its worst decline since COVID-19, primarily attributed to disappointing Q3 results. December quarter figures released on 16 January, fell short of street estimates, impacting liquidity measures and net interest margins (NIMs), led to a notable decline in HDFC Bank shares, causing a drop in both the Nifty 50 and Sensex. The stock decreased 15% in five consecutive sessions post Q3 earnings, hit a 52-week low of ₹1,382.40 on 24 January.

HDFC Bank has faced a decline of 14.20% in the past month, a decrease of 11.77% over the last six months, and a drop of 9.74% over the past year lagging behind the Nifty50's rise of over 22%. However, over the last five years, it has shown a positive growth of 39.39%. Meanwhile, Life Insurance Corporation has shown positive trends with a 6.55% increase in the last month, a growth of 42.98% over the past six months and a 39.38% rise over the past year. HSBC maintains a "buy" recommendation for the lender but has lowered the target price from ₹2,080 to ₹1,950.

Final Words

RBI's nod for LIC to boost its ownership in HDFC Bank might help the bank recover from the challenges faced in Q3. This move could influence how investors feel about the bank, and LIC's strategic decision could play a vital role in changing the story of HDFC Bank's performance in the upcoming months.