However, the question now remains which of these two bank stocks should investors buy. Motilal Oswal Financial Services recently reshuffled its model portfolio, raising its weight in SBI by 100 basis points and reducing exposure to HDFC Bank.
HDFC Bank crashed more than 17% in March, with the sentiment souring further after its former part-time Chairman Atanu Chakraborty resigned from his role, stating that some practices within the bank did not match his personal values and ethics.
The RBI later said that there are no material concerns regarding the lender’s governance or conduct. While announcing the outcome of the central bank’s Monetary Policy Committee (MPC) yesterday, Governor Sanjay Malhotra said the RBI will undertake a comprehensive review of the matters placed before bank boards after the crisis at India’s private lender. “Nothing related to governance, conduct noticed during supervisory inspection,” he said about HDFC Bank.
HDFC Bank currently has a market capitalisation of nearly Rs 13 lakh crore, and the stock has gained over 10% in the past one week. Its P/E ratio currently stands at 15.59.
State Bank of India (SBI) shares, meanwhile, crashed more than 18% in March, as PSU lenders were the worst victims of the March massacre on Dalal Street. However, the stock sharply rebounded in April, accompanying its PSB peers. The PSU lender currently has a market capitalisation of nearly Rs 10 lakh crore, and the stock has gained 5% in one week. Its P/E ratio currently stands at 11.20.
What is the best pick for you?
Both HDFC Bank and SBI demonstrate strong fundamentals, supported by superior asset quality and proactive provisioning, said Vinod Nair, Head of Research at Geojit Investments. He, however, noted that SBI’s valuation is currently trading above historical multiples, which may limit near term upside potential.
“In contrast, from a valuation and risk reward perspective, HDFC Bank appears more attractive at current levels, as post-merger synergies are expected to support margin improvement going ahead,” he said, highlighting that RBI Governor Sanjay Malhotra has stated that there are no material concerns around HDFC Bank’s conduct or governance, based on the central bank’s assessment.
HDFC Bank and SBI have both seen a sharp recovery after a meaningful correction, but the investment case for each remains distinct, driven by different fundamentals and risk profiles, said Harshal Dasani, Business Head at INVasset PMS.
HDFC Bank appears better placed from a structural perspective
HDFC Bank appears better placed from a structural perspective, the analyst said. “Following the overhang from its merger and concerns around deposit mobilisation, the bank is now witnessing gradual stabilisation in margins and liquidity. Deposit growth is improving, credit growth remains healthy, and operational efficiencies are expected to normalise over the coming quarters. The stock had underperformed for an extended period, so the recent recovery is supported by improving fundamentals rather than purely sentiment. It continues to offer relatively stable, long-term compounding potential,” he added.
The analyst explained that SBI, in contrast, is more of a cyclical and valuation-driven play. The bank benefits from strong credit growth, improved asset quality, and periodic treasury gains. Its relatively lower valuation compared to private peers leaves room for sharper rallies, particularly during PSU-led upcycles. However, Dasani cautioned that SBI remains more sensitive to macro variables such as interest rates and bond yields.
“For investors, HDFC Bank suits a steady, long-term approach, while SBI offers higher upside potential with relatively higher volatility. A balanced allocation between the two could be the most pragmatic strategy at current levels,” the analyst said.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)