The market is too pessimistic about a gradual profit recovery. Higher loan rates should help before low-cost deposits recover, supporting my $27.60 twelve-month target without requiring a return to the bank's former valuation premium.
Key points
- ₹51.29 a share is the FY28 profit supported by today's price under my valuation assumptions.
- 3.25% FY28 interest margin requires only a small recovery from September's level.
- $27.60 per ADS is my October 2027 target, supporting Buy.
The call
The market is too pessimistic about recovery. At my 15-times earnings valuation and forecast exchange rate, today's price supports FY28 earnings below September's annualized pace. The shares have nevertheless trailed the market over three, six and twelve months; a falling price alone is not my reason to buy.
Cheap deposits lag headline growth at both banks (%)- HDFC Bank reported
- ICICI Bank reported
Sources: HDFC results and both earnings calls, Oct. 17, 2026; Q2 FY27 year-over-year growth.
Higher loan rates should lift profits before cheap deposits recover. I forecast average FY28 bank assets of ₹53 trillion and a 3.25% interest margin, meaning interest income after funding costs divided by assets. ICICI's warning of another quarter of funding pressure argues for gradual improvement, not an immediate rebound.
Valuation
| Driver | My estimate |
|---|
| FY28 bank net interest income | ₹1.72 trillion |
| FY28 consolidated net profit | ₹957 billion |
| FY28 diluted earnings per ordinary share | ₹61.34 |
| October 2027 rupees per dollar | ₹100 |
| October 2027 earnings multiple | 15 times |
| October 2027 target per ADS | $27.60 |
FY28 ends March 2028. My model deducts ₹880 billion of expenses and ₹210 billion of provisions, allows ₹570 billion of other bank income, applies 25% tax, then adds ₹55 billion from subsidiaries after consolidation adjustments. I assume 15.6 billion diluted ordinary shares; each ADS represents three.
A modest lending-margin recovery supports upsideAnalyst FY28 forecasts; target dollars per ADS at 15 times earnings and ₹100/$; all other inputs unchanged.
The multiple rewards the deposit franchise without restoring its old premium; the currency assumption allows further rupee weakness. A weaker margin, higher losses and a lower multiple together produce a $19.04 downside scenario, so this is a Buy, not a Strong buy.
Risks
- Funding stays expensive: watch cheap-deposit growth and the liquidity buffer.
- Faster small-business lending backfires: watch new bad loans and provisions.
- Leadership or regulatory changes delay recovery: watch the new plan and insurance-fee rules.
What would change my mind
Two consecutive quarters below September's 3.16% asset-based interest margin, despite loan repricing, would break my recovery thesis.