HDFC Bank shares drop 25% in 2026. Buying opportunity or falling knife?

The shares of heavyweight HDFC Bank have seen a sharp downturn, falling more than 25% so far this year as governance worries kept its 42 lakh shareholders on the edge. While some investors may be eyeing the stock after the sharp correction, analysts cited several reasons why patience is warranted.

The sharp decline in HDFC Bank’s share price intensified in March after its former part-time Chairman Atanu Chakraborty resigned, stating that some practices within the bank were not matching with his personal values and ethics. “Certain happenings and practices within the bank that I have observed over the last two years are not in congruence with my personal values and ethics. This is the basis of my aforementioned decision. I confirm that there are no other material reasons for my resignation other than those stated above,” Chakraborty wrote in his resignation letter.

The stock lost 12% in three days after his resignation on March 18, leading to a massive share sell-off that wiped off around Rs 1.6 lakh crore from the bank’s market value in just three sessions. Keki Mistry, meanwhile, was appointed as an interim part-time chairman for a period of three months, as approved by the RBI.

The stock later recovered some losses, but saw a new bout of selling recently after a report by The Indian Express said that the lender’s Audit Committee had ordered a formal “Internal Vigilance Investigation” into payments totalling Rs 45 crore to a PSU disguised as marketing spend. The bank has issued a clarification, saying that the lender’s Internal Audit function conducts reviews, identifies and presents its observations from time to time. As such, the observations of Internal Audit function are comprehensively addressed by the Bank and that applies to the matter in question.

The shares of HDFC Bank have declined 6% in one week, 4% in one month and 25% so far in 2026. In the longer term, the stock has declined around 24% in one year, 7% in three years and 2% in five years. The company has a market capitalisation of more than Rs 11.43 lakh crore.

Should you buy HDFC Bank shares?

The sharp correction in HDFC Bank shares has been a result of the resignation of the part-time chairman and the internal vigilance investigation into interest payments and has thus brought valuations at an attractive levels, resultantly improving the risk-reward proposition, said Dnyanada Vaidya, Research Analyst of BFSI at Axis Direct. “At the current juncture, we believe governance issues will tend to have an impact on investor sentiment at least in the near-term despite expectations of improving operational performance over the medium term. That said, the amount of the interest payments is not substantial in the context of the bank's overall scale,” he added.

Axis Direct prefers private banks such as ICICI Bank and Kotak Mahindra Bank, and recommends investors to avoid fresh entry into HDFC Bank.

Vaqarjaved Khan, Senior Analyst of Fundamental at Angel One, meanwhile said that HDFC Bank’s 25% crash in 2026 is not a fundamental story - it's a governance discount, and the market is right to apply one. When a non-executive chairman resigns citing ethical concerns, and an internal probe implicates senior leadership in what appears to be regulatory arbitrage on deposit pricing, investors cannot simply look through it, he said, while noting that RBI's reassuring statement in March provided a floor, but it is not a green light.

“That said, at roughly 2.1x trailing book a level last seen during the post-merger integration anxiety of 2023 the valuation is beginning to price in a scenario that may prove too pessimistic. The franchise is intact, loan growth is resilient, and NIM recovery is a FY27 story, not a permanent impairment. Investors can buy in tranches as valuations have already discounted the negative implications,” he said.

Long term investors can buy the dip in HDFC Bank shares

HDFC Bank is likely to deliver credit growth at par with industry during FY27 and may outpace in FY28, said Sunny Agrawal, Head of Fundamental Research at SBI Securities. “Looking at the attractive valuations, long term investors can use the correction to add the stock in the portfolio. From funds flow perspective, HDFC Bank is also under pressure due to persistent FII selling. FIIs have trimmed holding from 49.2% in December 2024 to 44.05% in Q4 FY26,” he said.

Harshal Dasani, Business Head at INVasset PMS meanwhile said that HDFC Bank is not an outright avoid, but the old “quality at any price” argument has clearly been damaged. A stock falling nearly a quarter in a year is not just reacting to earnings, it is repricing trust, he said, adding that the concern is sharper because banking is built on governance premium.

Better to avoid fresh exposure in HDFC Bank shares?

Fundamentally, HDFC Bank is not broken, but fresh exposure warrants patience until the governance overhang reduces, deposit cost pressure moderates, and management commentary becomes cleaner, according to Dasani. “Existing holders can view it as a core banking franchise going through a confidence reset rather than a structural collapse. The stock may recover only when trust compounds again, not merely when valuation looks inexpensive,” he added.