Post HDFC Q1: Shares fell, should investors worry?

Saikat Das
moneycontrol.com

This is a stark contrast. Investors had rewarded the largest mortgage lender HDFC on its Jan-March quarterly performance. Shares had hit 52 weeks high at Rs 895. However, the exuberance did not recur just after three months when HDFC shares dropped more than 3 percent to close at Rs 803 on Friday.

The housing finance major reported a 17 percent rise in its first quarter (April-June) standalone net profit at Rs 1,173 crore. However, it fell short of market expectation. According to a CNBC TV18 poll estimate, the net profit and NII both were expected to grow by 20 percent each.

Also read: HDFC Q1 net profit up 17% to Rs 1,173 cr, shrs fall 4%

What triggered the panic?

During the quarter, HDFC could not earn profit on sale of investments, which was about Rs 20 crore in the corresponding quarter of the previous year. Investment gains stood at Rs 105 crore in January-March, FY13; while it was at Rs 316 crore for the full year.

"We do not have any trading book in line with banks. Our investment portfolio included all long term holdings, wherein we book profit from time to time. It depends on market conditions as well. Whenever we find the time right, we sell them and gain from it. This has nothing to do with our credit quality," Conrad D'Souza, member of executive management at HDFC told moneycontrol.com.

Rate cut

According to D'Souza, the housing finance major is not deliberating any rate cut currently. The recent RBI liquidity measures are temporary in nature. Going forward, the lender will take a call depending on market conditions.

"It is too early to take a call. Time is not right to assess situation. We will only think about interest rate cut when a (policy) trajectory is clearly seen," he said.

Home loan demand

A weak economy does not necessarily translate into poor demand for housing. HDFC did not see any contraction in home loan demand, which is coming across India. Smaller cities and towns are contributing in a big way to the overall demand, said D'Souza adding that HDFC continues to see pick-up in home loans.

So, have the fundamentals changed for HDFC?

"Fundamentals remain unchanged for HDFC. There is nothing to be worried. Individual loans grew good. Overall credit growth is well placed in a slack season. The first quarter earnings did not have any surprise element. Numbers are typically of HDFC nature," said Santosh Singh, a banking sector analyst with Espirito Santro Securities.

Borrowing

So far the lender has been reducing its share of bank borrowings due to higher rate of interest. It routed its fund raisings through bonds, commercial papers like money market instruments. However, D'Souza hinted that it would again increase the portion of bank loans if bank interest rates fall.

"Cheap money is criterion. We will change our borrowing composition whenever we will find options for cheap money," he concluded.

saikat.das@network18online.com