HDFC Bank Valuation Shifts to Fair; P/E and P/BV Reflect Renewed Price Attractiveness

Valuation Metrics: A Shift from Expensive to Fair

As of 20 Jan 2026, HDFC Bank’s P/E ratio stands at 19.53, a level that places it within the ‘fair’ valuation category according to MarketsMOJO’s grading system. This marks a significant moderation from previous levels when the stock was considered expensive relative to its earnings. The P/BV ratio currently reads 2.65, further supporting the view that the stock is fairly valued rather than overvalued. The PEG ratio, which adjusts the P/E for earnings growth, is at 2.02, indicating a moderate premium for growth expectations.

Comparatively, peers such as ICICI Bank also fall into the fair valuation bracket with a P/E of 20.11 and an EV/EBITDA of 22.88, while Kotak Mahindra Bank remains expensive with a P/E of 31.69 and Axis Bank is also classified as expensive despite a lower P/E of 16.7, reflecting differing growth prospects and risk profiles within the sector.

Historical Context and Price Performance

HDFC Bank’s current share price of ₹927.60 is below its 52-week high of ₹1,020.35 but comfortably above the 52-week low of ₹812.65. This price movement reflects a degree of consolidation after a period of strong gains. Over the past year, the stock has delivered a 13.35% return, outperforming the Sensex’s 8.65% gain over the same period. However, shorter-term returns have been less favourable, with a 1-month decline of 5.92% compared to the Sensex’s 1.98% fall, and a year-to-date drop of 6.47% against the benchmark’s 2.32% decline.

Longer-term returns remain robust, with a 10-year cumulative return of 258.30%, surpassing the Sensex’s 240.06%, underscoring the bank’s consistent growth and resilience over the decade.

Quality and Profitability Metrics

HDFC Bank’s return on equity (ROE) stands at 13.58%, reflecting a solid ability to generate profits from shareholders’ equity. The return on assets (ROA) is 1.79%, consistent with industry norms for private sector banks. The net non-performing assets (NPA) to book value ratio is 2.23%, indicating manageable asset quality risks in a sector often scrutinised for credit quality.

Dividend yield remains modest at 1.45%, suggesting the bank prioritises reinvestment and growth over high dividend payouts. This aligns with its PEG ratio of 2.02, which implies that investors are paying a premium for expected earnings growth, albeit at a more reasonable level than in previous years.

Market Capitalisation and Analyst Ratings

With a market cap grade of 1, HDFC Bank is firmly established as a large-cap entity within the private sector banking space. However, the recent downgrade in its Mojo Grade from ‘Buy’ to ‘Hold’ on 12 Jan 2026 reflects a more cautious stance by analysts, driven by the valuation shift and near-term headwinds in the banking sector.

The day’s trading saw a slight decline of 0.38%, with the stock fluctuating between ₹919.45 and ₹938.75, indicating some investor hesitation amid broader market volatility.

Peer Comparison and Sector Outlook

When compared with peers, HDFC Bank’s valuation appears more attractive than Kotak Mahindra Bank, which remains expensive with a P/E of 31.69, but slightly less so than Axis Bank, which trades at a P/E of 16.7 but is still classified as expensive due to other valuation metrics. ICICI Bank’s valuation is closely aligned with HDFC Bank, both considered fairly valued by current standards.

This relative valuation positioning suggests that HDFC Bank offers a balanced risk-reward profile within the private sector banking universe, especially for investors seeking exposure to a well-established franchise with steady earnings growth and manageable asset quality risks.

Investment Implications and Outlook

The transition of HDFC Bank’s valuation from expensive to fair suggests a more balanced entry point for investors who may have previously been deterred by stretched multiples. While the downgrade to a ‘Hold’ rating signals caution, the bank’s strong fundamentals, consistent profitability, and leadership position in the private banking sector continue to underpin its long-term investment case.

Investors should weigh the current valuation against the bank’s growth prospects, sector risks, and macroeconomic factors such as interest rate movements and credit demand. The moderate dividend yield and stable asset quality metrics provide additional comfort, though near-term price volatility cannot be ruled out given recent market trends.

Overall, HDFC Bank remains a core holding for many portfolios, but the recent valuation adjustment invites a more discerning approach, favouring investors with a medium to long-term horizon and a tolerance for sector cyclicality.

Summary of Key Financial Metrics

To recap, the key valuation and financial parameters for HDFC Bank as of January 2026 are:

• P/E Ratio: 19.53 (Fair valuation)


• Price to Book Value: 2.65


• PEG Ratio: 2.02


• Dividend Yield: 1.45%


• Return on Equity (ROE): 13.58%


• Return on Assets (ROA): 1.79%


• Net NPA to Book Value: 2.23%


• Mojo Score: 60.0 (Hold rating, downgraded from Buy)

These figures illustrate a company that has moderated its valuation premium while maintaining solid operational metrics, making it a stock to watch closely as market conditions evolve.

Conclusion

HDFC Bank’s valuation recalibration to a fair level offers a more attractive entry point for investors seeking exposure to India’s private banking sector. While the downgrade to a Hold rating reflects caution amid valuation and market pressures, the bank’s robust fundamentals and competitive positioning continue to support its medium to long-term prospects. Investors should consider this valuation shift in the context of broader sector trends and peer comparisons to make informed decisions.

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