Religare Research prefers private sector banks over PSU banks due to their adequate capital levels, better margins, credit quality and strong loan growth prospects. ''We expect mid-size private sector banks to gain significant market share in the SME and MSME segments, translating into much higher growth than the sector,'' it said. 

Religare, opined, ''We believe that any further meaningful re-rating for HDFC Bank is dependent on its return to a 30% YoY profit growth trajectory. Credit cost and margins are at all-time highs and revival in loan growth is the only factor that can drive higher profit growth, in our view. Pending this, the stock can only generate book value growth (~20%) for investors from a 1-2-year perspective.''

''However, we remain positive on the stock from a medium-to-long-term perspective due to its best-in-class liability franchise and superior management quality. HDFC Bank should remain a core holding for investors from a long-term perspective,'' it added.

Shares of the company declined Rs 6.55, or 0.63%, to trade at Rs 1,030. The total volume of shares traded was 29,708 at the BSE (11.39 a.m., Tuesday).