Citi Research has upgraded HDFC Bank to 'Buy' from 'Neutral' with target price of Rs 1,325 in its report.

HDBK's is probably best positioned to ride India's growth up-cycle, as it plays out. It has raised capital has no asset quality, coverage issues, and a significant deposit, branch franchise to support growth. While it remains a credit conservative player, an up-cycle will lend it disproportionate opportunities, particularly relative to peers.

Commenting on the investment rationale, the stock broker said, ''HDBK has invested big in rural, for a while, and well ahead of peers. We believe pay-off time could be near: with the govt's push, and enabling technology & cost environment, HDBK could start seeing returns from what it has invested in over the years. It probably won't swing the overall needle significantly, but will start adding up

While our target 4.25X multiple is still high (and effectively boosted by new capital), its premium to peers is more moderate than in the recent past. While we do see an ROE range of about 20%, between the leverage potential, the possibility of raising its earnings growth trajectory from 20% to potentially 25% and the markets multiple up-move, this is comfortable. We see risks as predominantly external; any un-expected developments on a potential merger with HDFC.''

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