The overheated and overextended markets found a reason to correct following HDFCBANK’s quarterly numbers on the January 17^th session. In the December quarter, a standalone net profit of Rs 16,372.54 crore was reported by the company, reflecting a year-on-year increase of 33.54%, as opposed to Rs 12,259.49 crore in the corresponding quarter of the previous year. This profit figure closely aligned with the expectations of financial analysts. Additionally, the net interest income (NII) for the quarter, representing the difference between interest earned and interest expended, saw a YoY growth of 23.9%, reaching Rs 28,470 crore compared to Rs 22,990 crore in the same quarter last year. However, the NII growth fell slightly below the anticipated 25% as per analyst estimates.

Markets did not like this; the stock tanked over 8% on that day. Regardless of this, a close study of HDFCBANK’s charts presents an interesting picture. In our previous edition of the “ChartTalk” newsletter, we technically analyzed RELIANCE and how it qualified as one of the star inclusions for the portfolio. Just like RELIANCE, this banking behemoth is one of those technically well-placed stocks that can perform well during this year and qualifies as an equally good inclusion in the portfolio.

Let us first take a look at HDFCBANK’s relative comparison over the past year. The one-year rolling performance of HDFCBANK shows that the stock has underperformed the key indices of which it has been a part. The Nifty, Nifty Bank, and Nifty Financial Services indexes have returned positive returns of 18.75%, 8.49%, and 9.47% respectively. However, during the same time, HDFCBANK has grossly underperformed and has given a negative performance of (-6.10%).

Not just a Banking Behemoth…

Interestingly, if we look at the weight that HDFCBANK enjoys in different key indices, one can clearly see that it is not just a banking behemoth but an Indices behemoth as well.

HDFCBANK is the most weighted stock in Nifty 50 with 13.52%. Besides this, the stock makes up for a third of the Banknifty and Financial Services Index by being the highest-weighted stock at 29.39% and 33.16% respectively.

Highlighting the importance of “WHEN” in Technical Analysis

HDFCBANK marked its high of Rs. 1725 on October 22, 2021. Since then, the stock has never moved past that level again. It was on December 29th last year that the stock tested Rs. 1721.40 level again. This means that those who invested in the stock earned practically nothing until the end of 2023. The stock returned just 1.70% while Nifty gained over 19.96% over the same time.

On the other hand, those who could technically time the entry in the stock Rs. 1450 levels earned over 13% in just over seven weeks.

However, post reaction to the quarterly results, the stock is back to the levels from where it broke out.

Taking a look at the larger picture, the stock is near its long-term pattern support again after the stock declined following the reaction to the quarterly result. This pattern support is just above the 200-week MA which rests at Rs. 1420.

The uptrend that the stock witnessed in the last quarter of 2023 had come with strong volume support. This is reflected in the sharp rise that OBV had confirming the participation of volumes in the upmove. RSI is neutral and does not show any divergence against the price.

Conclusion:

Going by the pattern analysis, the stock eyes at good support in the range of  Rs. 1380-1420 levels. The present reaction to the quarterly numbers provides an entry point for investors looking to add HDFCBANK to their portfolio. However, it is strongly recommended to do this in a staggered manner. The best way would be to invest 50% of the available funds at the current price and the remaining can be added once after there is a technical confirmation of a potential base in place. As and when a high is taken out, any move above Rs. 1725 would result in a multi-month breakout in the stock.

Foram Chheda, CMT
Technical Research Analyst