HDFC Bank at 16-year low P/E: 2026 targets, risks

Why HDFC Bank is back in focus

HDFC Bank has moved into the spotlight after a sharp de-rating, even as multiple brokerages argue the risk-reward now looks more favourable at current levels. Nomura said the RBI’s FCNR(B) 2026 window could be a “potential blessing” for the bank, at a time when the stock is trading at what was described as decade-low multiples. The bank’s shares were cited at around ₹756 in one snapshot, with the stock down 24% year-to-date (YTD). Another reference point in the same set of notes put the stock at ₹766, underscoring that the discussion is centred on the mid-₹700 zone.

The broader debate is whether the market is pricing a temporary governance and sentiment overhang, or a longer period of subdued rerating. Several reports also highlighted that HDFC Bank’s historical valuation premium has faded, taking the stock closer to peer-level multiples. Against that backdrop, FCNR(B) flows, leadership clarity, and upcoming financial prints are being watched as the next set of triggers.

Nomura’s FCNR(B) 2026 argument and expected flows

Nomura’s central point is that the RBI’s FCNR(B) scheme could address multiple pressures “in a single window,” making HDFC Bank a potential standout beneficiary. The brokerage estimated that the bank could garner about 15% of overall FCNR flows. In Nomura’s framing, that is equivalent to about 3% of HDFC Bank’s current deposit base.

The emphasis on deposits matters because deposit mobilisation was explicitly flagged as a downside risk by Nomura in a separate note that discussed the bank’s growth outlook. If deposit traction weakens, it can constrain loan growth, and it can also affect margins if funding costs rise. Nomura’s FCNR(B) thesis is therefore positioned as a possible relief valve that supports funding stability during a period of elevated macro uncertainty.

The valuation reset: from premium franchise to peer-like pricing

The stock’s fall from ₹1,020 to ₹756 “in a matter of months” was cited as a key marker of the speed of the re-rating. At ₹756, HDFC Bank was described as trading at 15.6x trailing earnings, characterised as a 16-year low valuation for India’s largest private sector bank. Price-to-book (P/B) was referenced at 2.1x, described as well below historical norms.

Separately, another valuation comparison said the bank at around ₹766 was valued at approximately 2 times its trailing consolidated net worth. That was contrasted with 2.6 times in July 2024, and 3.9 times five years earlier. The same context also argued that even without a near-term revaluation, increases in book value could help sustain returns.

Fundamentals cited alongside the de-rating

Despite the governance and sentiment overhang, the material provided pointed to strong underlying profitability metrics. A robust FY26 return on assets (RoA) at 1.9% was cited. For comparison, FY24 RoA was referenced at 2%.

Capital strength was also highlighted, with the bank described as having a 17.4% CET1 ratio. The mix of a lower valuation multiple and solid balance-sheet indicators is a key reason some analysts frame the current level as an entry point for long-term investors, while still acknowledging that sentiment can remain fragile until governance and leadership questions are resolved.

What is keeping investors cautious: governance and leadership visibility

A major near-term overhang discussed was governance uncertainty following the sudden resignation of former chairman Atanu Chakraborty. He cited certain “happenings and practices” within the bank over the past two years that were not aligned with his personal values and ethics.

Nomura also pointed to uncertainty around the MD and CEO renewal, and broader leadership visibility, as reasons some investors remain cautious even when valuations look compelling. Another note explicitly said the lender needs to rebuild leadership strength, provide clarity on the MD’s term extension beyond October 2026, and appoint a credible long-tenured chairman, failing which the stock could remain under pressure in the near term.

Macro backdrop: crude, CAD and FII positioning

The macro narrative in the material stayed cautious. Nomura said foreign institutional investors (FIIs) remained cautious on India as the West Asia conflict keeps crude elevated and macro tail risks alive. A wider current account deficit (CAD) and rupee pressure were also cited as weighing on sentiment. In that framing, outflows reflected selective trimming rather than fresh conviction buying.

Nomura added that FIIs were most constructive on ICICI Bank, where franchise quality and earnings consistency were seen as commanding premium interest. This relative preference matters because it can influence sector fund flows, particularly when macro conditions are described as weak and investors tilt toward “quality large banks” expected to hold up better amid potential stress.

Broker targets cluster above spot, but views differ on timing

Across the notes, several broker targets were cited, showing a wide range of outcomes and time horizons. Nomura was quoted with different targets in different contexts, including ₹950 and ₹1,080. In a separate post-bonus update, Nomura revised its target price to ₹1,095 after HDFC Bank’s 1:1 bonus issue (record date Aug 27, 2025), while maintaining a Buy rating. That revised target valued the core bank at 2.3x June-27F book value per share (BVPS), with subsidiaries contributing ₹120 per share.

Other brokerages referenced included JPMorgan (Overweight, target ₹1,010) and Jefferies (target ₹1,240). Axis Direct was cited with a Buy rating and a target of ₹1,020. JM Financial was referenced with an Add rating and a target of ₹1,050, alongside a note that it applied a 15% discount to ICICI Bank due to relatively lower growth.

Key numbers at a glance

Broker calls and targets mentioned

Market impact: what investors are watching next

Several near-term signposts were explicitly identified. One note said the next 6–12 months will determine whether ₹756 was a major opportunity or a value trap. It also listed the external review results, the CEO reappointment decision, and the Q4 FY26 earnings print as the most important data points to watch.

Separately, broker commentary suggested that improved operating performance in the coming year will be important for the stock’s trajectory, while swift regulatory engagement and interim leadership can provide comfort on continuity. These are not forecasts of outcomes, but they explain why valuation alone may not be enough to drive a rerating without clearer governance and leadership visibility.

How the July 2023 merger still shapes the narrative

The reverse merger of HDFC Ltd into HDFC Bank was completed in July 2023 and was initially celebrated by the markets, with both share prices rising about 10% on the day of the announcement. The current valuation debate, however, shows how quickly a premium can compress when integration complexity, deposit dynamics, and leadership questions intersect.

This context also explains why FCNR(B) 2026 is being discussed as potentially helpful: it directly links to the funding side of the balance sheet, which is a key variable for banks trying to sustain credit growth while managing margins.

Conclusion

HDFC Bank’s stock has de-rated to levels described as a 16-year low on trailing P/E, even as multiple brokerages maintain constructive long-term views and targets above current prices. Nomura’s case rests on FCNR(B) 2026 potentially boosting deposits, while the market remains sensitive to governance and leadership clarity following the chairman’s exit and the CEO renewal timeline beyond October 2026. The next round of disclosures and events highlighted in the material, including external review outcomes, the CEO reappointment decision, and Q4 FY26 earnings, are likely to be central to how investors reassess the risk-reward.