Strong demand, higher spreads on sales to aid HDFC: CLSA

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26 Aug, 2025 12:21

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Moneycontrol BureauBroking firm CLSA maintains a buy call on banking and financial services company HDFC on account of a potential uptick in growth coupled with healthy return on equity.  CLSA has a target price of Rs 1,650 on the stock.

The brokerage in a note says, “Mortgage demand growth remains healthy with some uptick in corporate lending. This, along with normalisation of sell-downs and higher spreads on incremental sales, can drive an uptick in net interest income growth from 9 percent YoY in FY16 to a 16 percent CAGR over FY16-19. Better access to funds and lower costs will also help. Finally, regulations still support affordable housing with lower risk weight on loans, transparency with the new real estate law and the govt’s affordable housing scheme.”

CLSA believes that the growth in housing loans remains healthy, especially in non-urban markets, with some pick-up in corporate lending. “Moreover, with normalisation of a sell-down to HDFC Bank, HDFC will not only retain more loans, but can also sell-down to other banks where spreads can be double the levels vs. HDFC Bank.”

Both the central bank and government’s policy continue to support housing, especially in the affordable segment, the note states. The RBI has lowered risk weight on loans for affordable housing (from 75 percent to 35 percent) and developers. Management believes that the real estate bill can improve transparency and will be a long-term positive, it adds.

“Also, government's tax-incentives (on home loans) and a new affordable housing scheme can improve home ownership among lower-income groups. Our strategy team highlights high employment potential in housing construction, indicating the government might continue its support to the sector as well,”  CLSA says in the note.