Ambit Capital Bets on HDFC Bank, Sees 40% Upside in 2026

Ambit Capital's Top Banking Pick

Ambit Capital has identified HDFC Bank as its leading pick in the Indian banking sector, placing it ahead of ICICI Bank, Axis Bank, and State Bank of India (SBI). The brokerage's endorsement comes despite the bank's recent stock underperformance, which has been largely attributed to market concerns over its loan-to-deposit ratio (LDR). Ambit maintains a strategic preference for large private sector banks over their public sector counterparts, citing that the recent valuation surge in PSU banks is not supported by their core profitability or return ratios.

Addressing Loan-to-Deposit Ratio Concerns

A key factor weighing on HDFC Bank's stock in the second half of fiscal year 2026 has been its stretched loan-to-deposit ratio. This metric raised uncertainty among investors about the bank's capacity to gather new deposits and sustain its credit growth momentum. However, Ambit Capital believes this "LDR crisis is overstated." The brokerage points to HDFC Bank's consistent track record of gaining deposit market share. Even after its significant merger, the bank demonstrated strong capabilities in deposit collection, recording mid-teens growth in previous quarters. While the pace moderated to 12% in the second and third quarters of FY26, Ambit attributes this to adequate liquidity and projects a rebound. The firm forecasts that HDFC Bank's growth momentum will resume, driving a healthy 15% deposit growth over FY27-28.

Revised Price Targets and Sector Pecking Order

In its report, Ambit Capital adjusted its 12-month price target for HDFC Bank downward from ₹1,150 to ₹1,050. Despite the revision, this new target still suggests a substantial potential upside of approximately 40% from the stock's closing price of ₹771.20 on the day of the report. This highlights the brokerage's strong conviction in the bank's recovery potential. Ambit also provided targets for its other preferred banks, reinforcing its positive stance on the sector's leaders.

Broader Banking Sector Outlook

Ambit Capital acknowledged the challenging macroeconomic environment, citing geopolitical volatility and recent supply shocks as reasons for moderating its credit growth estimates by 0.5-1.5% for FY26-28. This led to a slight reduction in its earnings CAGR forecast for the sector to 15.7% from 17.3%. The brokerage believes the recent price corrections across banking stocks already factor in a potential demand shock and its near-term impact on earnings. According to Ambit, the Indian banking landscape is currently grappling with a valuation discount as persistent uncertainty forces a recalibration of risk premiums. While this may keep valuation multiples range-bound in the short term, the firm emphasizes that the long-term fundamentals of the banks remain resilient and their balance sheets are healthy, presenting a good buying opportunity at current levels.

A Look at Consensus Analyst Views

While Ambit's 40% upside projection is optimistic, it is part of a broader positive consensus on HDFC Bank, although with varying targets. For instance, Jefferies has maintained HDFC Bank as its top pick with a significantly higher price target of ₹2,400. The consensus among analysts aggregated by platforms like Trendlyne and Investing.com points to an average 12-month price target in the range of ₹1,150 to ₹1,170. The overall analyst rating is a "Strong Buy," based on a high number of buy ratings versus very few hold or sell recommendations. This widespread support underscores the market's underlying confidence in the bank's robust franchise and long-term growth prospects.

Fundamental Strength and Performance

HDFC Bank's operational metrics support the positive outlook. Recent business updates for Q2 FY26 showed a solid 15.1% year-on-year growth in average deposits, reaching ₹27.15 lakh crore, while advances grew by 9%. The bank's net profit for the quarter also rose by 10.8% to ₹18,641.3 crore. These figures indicate that despite margin pressures and a challenging environment, the core business continues to expand at a respectable pace. The bank's asset quality remains best-in-class, providing a stable foundation.

Key Risks to Consider

Ambit Capital also outlined the primary risks to its investment thesis. These include increasing geopolitical uncertainty, which could further disrupt supply chains and dampen credit demand. Additionally, any adverse policy actions by the regulator could impact the operating environment for banks. Investors will be closely watching for stabilization in global markets and domestic liquidity conditions, which are key to a sustained re-rating of the banking sector.

Conclusion

Ambit Capital's report presents a strong, data-backed case for HDFC Bank, viewing the current market pessimism as a strategic entry point. The brokerage's confidence is rooted in the bank's proven ability to attract deposits and manage profitable growth, even in a challenging macro environment. While Ambit has slightly lowered its price target to ₹1,050, the projected 40% upside signals a firm belief in the bank's fundamental value. For investors, the key takeaway is that despite near-term headwinds, the long-term outlook for India's leading private bank appears resilient and promising.