Why Does Morgan Stanley Stay Bullish on HDFC Bank Despite Slower Deposit Growth?
Morgan Stanley has reaffirmed its Overweight stance on HDFC Bank with a target price of ₹1,225, following the lender’s steady Q2FY26 performance. The brokerage observed that loan growth continues to improve sequentially, while deposit growth moderated but remains healthy enough to support market share gains in advances.
The report highlighted that HDFC Bank’s asset quality remains robust with stable slippages and strong recoveries. The bank’s operating leverage is gradually improving, as core cost metrics normalize after integration-related expenses in FY25. Morgan Stanley believes that the current phase represents the trough in NIMs and expects gradual improvement over FY26–FY28, supported by loan repricing and better asset-liability alignment.
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Morgan Stanley also noted that the bank’s Q2 earnings were steady, with Profit Before Provisions and Operating Profit (PPoP) growth remaining resilient. The firm expects core PPoP growth to strengthen over FY26–FY28 on the back of higher loan market share, normalization of NIMs, and sustained cost discipline. Deposit market share remains a key strength despite moderation, reflecting strong customer stickiness post-merger.
According to the brokerage, HDFC Bank’s fundamentals remain among the strongest in the Indian financial system. The combination of scale, technology-driven lending, and stable leadership underpins its consistent performance. While short-term valuation multiples may remain capped, the long-term growth story remains intact.
| Parameter | Q2FY26 Performance | Morgan Stanley View |
|---|---|---|
| Loan Growth | Improving | Market share gains to continue |
| Deposit Growth | Moderated | Still strong vs peers |
| Asset Quality | Stable | Low credit costs maintained |
| NIMs | Trough reached | Expected improvement in FY27 |
| Target Price | ₹1,225 | Overweight maintained |
Morgan Stanley’s note further mentions that the merger integration phase is nearly complete, allowing the bank to refocus on accelerating retail deposit mobilization and digital acquisition. The firm expects FY26–FY28 to be a period of steady improvement in growth, margin, and return ratios as scale efficiencies kick in.
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With one of the strongest balance sheets and robust asset quality in the industry, HDFC Bank remains a core holding for institutional portfolios. Morgan Stanley believes sustained double-digit earnings growth over the next three years will justify a premium valuation versus peers.
Investor Takeaway
Indian-Share-Tips.com Nifty Expert Gulshan Khera, CFP®, who is also a SEBI Regd Investment Adviser, believes HDFC Bank’s long-term growth trajectory remains intact. Improving loan growth, resilient margins, and a superior risk profile make it one of the most dependable compounders in Indian banking. Investors can consider accumulating on dips for steady long-term returns.
For more detailed market insights and expert coverage of banking leaders, visit Indian-Share-Tips.com, which is a SEBI Registered Advisory Services.
Related Queries on HDFC Bank
- Why Did Morgan Stanley Maintain Overweight on HDFC Bank?
- Is HDFC Bank’s Loan Growth Recovering After the Merger?
- How Stable Are HDFC Bank’s Margins and Asset Quality?
SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.
