Jefferies Sees 27% Upside for HDFC Bank in Bull Case; CEO Transition Key to Re-Rating

Brokerage sees potential for stronger growth, better margins and improved execution as HDFC Bank moves closer to resolving its leadership succession

HDFC Bank remains under pressure in 2026, but global brokerage Jefferies believes the lender could have meaningful recovery potential if its upcoming leadership transition results in faster execution, stronger deposit mobilisation and an improvement in profitability.

Jefferies has retained a 'Buy' rating on HDFC Bank and assigned a base-case target price of ₹880, while its bull-case target stands at ₹935. The bull-case target implies a potential 27 per cent gain based on the reference price used by the brokerage.

The brokerage's view comes at a time when HDFC Bank has been among the weaker-performing Nifty 50 constituents this year. The stock was trading around ₹720 on September 28, with the shares under pressure amid broader market weakness and continuing investor focus on the bank's leadership transition.

CEO Transition at the Centre of the Story

A major factor behind Jefferies' assessment is the impending appointment of HDFC Bank's next Managing Director and CEO.

Current MD and CEO Sashidhar Jagdishan has decided not to seek another term and is scheduled to retire when his current term ends on October 26, 2026. HDFC Bank's board has already approved two candidates and submitted their names to the Reserve Bank of India for regulatory approval.

The bank has not officially disclosed the names of the shortlisted candidates. Reports have identified Deputy MD Kaizad Bharucha as the likely internal candidate and Anup Bagchi of ICICI Prudential Life Insurance as the likely external candidate, although the final appointment remains subject to the regulatory process.

Jefferies believes a new CEO could potentially reorganise senior management and business structures, allowing the lender to focus more directly on growth, profitability and execution.

Deposit Growth Is a Key Priority

One of the biggest challenges for HDFC Bank is maintaining strong deposit growth while operating in a competitive banking environment.

Jefferies highlighted the need to restore momentum in retail deposits, particularly in the LCR-related deposit segment. The brokerage noted that HDFC Bank's deposit growth has lagged some major peers.

A stronger deposit franchise is important because sustained loan expansion requires the bank to maintain adequate funding. Improving the mix and cost of deposits could also help the lender manage funding expenses and support margins.

The bank's recent performance in FCNR-B deposits has provided another positive signal. According to Jefferies, HDFC Bank mobilised around $11-12 billion within two months, which could help it refinance some higher-cost deposits and borrowings at relatively lower rates.

Fee Income Could Provide Another Growth Lever

Jefferies has also pointed to the potential for improvement in fee income.

Despite the larger customer base created through the merger with HDFC Ltd and the opportunity to cross-sell financial products, fee growth has remained relatively subdued in recent quarters.

The brokerage noted that fee growth on a constant-exchange-rate basis was around 8 per cent and 11 per cent year-on-year in the previous two quarters.

A successful leadership transition and better execution could therefore focus attention on extracting greater value from HDFC Bank's expanded customer and distribution franchise.

Loan Mix and Margin Recovery

Another factor in Jefferies' assessment is the composition of HDFC Bank's loan book.

The bank has seen stronger growth in corporate and secured lending, while the share of loans to public-sector entities has also increased. However, changes in the loan mix, combined with downward repricing of loans, have contributed to pressure on net interest margins.

Jefferies believes a recalibration towards segments offering better risk-adjusted returns could provide scope for an improvement in return on assets over time.

Around 70 per cent of HDFC Bank's loans are linked to external benchmarks or floating rates, according to the brokerage. This means changes in interest rates can have a significant influence on the bank's lending economics.

Bull Case Assumes Faster Loan Growth

Jefferies' projections show a clear difference between its base and bull scenarios.

In the bull case, the brokerage estimates a loan compound annual growth rate of approximately 14 per cent over FY25-FY29E, compared with around 13 per cent in the base case.

It also estimates NIM at approximately 3.4 per cent in the bull scenario, compared with 3.3 per cent in the base case.

While the difference may appear modest, even a relatively small improvement in margins can have a meaningful impact on earnings for a bank with HDFC Bank's large balance sheet.

Asset Quality Remains an Important Monitorable

Asset quality is another important component of the brokerage's outlook.

Jefferies expects HDFC Bank's gross non-performing asset ratio to moderate to around 1 per cent in FY27, with net NPA at approximately 0.3 per cent under its bull-case assumptions.

In its base case, the brokerage sees GNPA at around 1.2 per cent and NNPA at 0.4 per cent.

Maintaining asset quality while accelerating loan growth will therefore remain important for the bank's earnings trajectory.

Merger Benefits Still Offer Long-Term Potential

The merger between HDFC Ltd and HDFC Bank created a much larger financial-services platform and expanded opportunities for cross-selling.

However, investors have continued to monitor how effectively the bank converts the expanded customer base, branch network and product ecosystem into faster growth and stronger profitability.

Jefferies has previously highlighted the bank's strong retail asset franchise and the potential for the expanded branch network to support deposit mobilisation. At the same time, integration-related execution risks and a slower deposit ramp-up remain areas to monitor.

Why the Stock Has Remained Under Pressure

HDFC Bank's weak stock performance this year has reflected several concerns rather than a single issue.

Investors have focused on the post-merger growth trajectory, pressure on margins, deposit mobilisation, fee growth and the leadership transition.

The CEO succession question has become particularly important because investors want greater clarity on the strategic direction of the bank following Jagdishan's decision not to seek another term.

Earlier in September, the bank's submission of two candidates to the RBI helped reduce some of the uncertainty around the succession process, although the final appointment is still awaited.

What Could Drive a Re-Rating

The key factors that could influence HDFC Bank's valuation going forward include:

Clarity and continuity in the CEO transition
Faster retail deposit growth
Improvement in CASA and funding mix
Recovery in fee income
Better loan growth
Stabilisation or improvement in NIMs
Higher growth in risk-adjusted lending segments
Sustained asset-quality performance
Effective utilisation of the post-merger franchise

Jefferies' bull case essentially depends on several of these factors improving simultaneously rather than on a single catalyst.

Risks to the Bull Case

The positive scenario also carries execution risks.

A prolonged leadership transition could delay strategic decisions, while a change in senior management could create additional organisational adjustments. Deposit competition could continue to pressure funding costs, while weaker loan demand or an unfavourable credit mix could limit growth.

Margin recovery could also prove slower than expected if lending yields remain under pressure or funding costs stay elevated.

Broader market factors, including interest-rate movements, liquidity conditions, foreign investor flows and the performance of the financial sector, could also influence the stock independently of the bank's operating performance.

Market Outlook

HDFC Bank's near-term trajectory is likely to remain closely linked to the completion of its CEO succession process and the market's assessment of the incoming management team's ability to improve growth and execution.

Jefferies' ₹880 base-case and ₹935 bull-case targets illustrate how different assumptions around loan growth, margins and asset quality can produce materially different valuation outcomes. These are brokerage estimates, not assured outcomes.

For investors tracking HDFC Bank, the key indicators to monitor will be deposit growth, CASA trends, loan growth, NIM, fee income, asset quality and management changes. The broader banking environment, interest-rate cycle and market liquidity will also remain important factors in determining how quickly the lender can translate its large franchise into improved earnings performance.