Shares of Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) fell up to 3% [1] on Thursday.
The decline follows a rating downgrade from Morgan Stanley, signaling investor concern over the future growth trajectory of India's power financing sector. This volatility comes at a critical juncture as the two companies face a proposed merger.
Morgan Stanley downgraded both stocks to Equal-Weight and reduced their target prices [1]. The financial institution said slower loan growth was a primary driver for the change in outlook. Additionally, the firm lowered its earnings estimates for the fiscal years 2028 and 2029 [1].
Market analysts said the downgrade occurred ahead of the proposed merger between PFC and REC [1]. The merger is intended to consolidate the financing of power projects in India, but the revised earnings forecasts suggest potential headwinds for the combined entity.
The price drop reflects immediate market reactions to the revised projections for the 2028 and 2029 fiscal periods [1]. While both companies remain central to India's energy infrastructure, the shift to an Equal-Weight rating suggests that Morgan Stanley no longer views these stocks as outperformers relative to the broader market.
Investors are now weighing the long-term benefits of the proposed merger against the short-term warnings regarding loan growth and profit margins [1]. The reaction on Thursday highlights how sensitive these state-backed financiers are to shifts in global analyst sentiment.
“Shares of PFC and REC fell up to 3% on Thursday.”
The downgrade by a major global firm like Morgan Stanley suggests a cooling outlook for the credit expansion within India's power sector. By lowering earnings estimates for FY28 and FY29, analysts are signaling that the rapid growth phase for these lenders may be plateauing, which could complicate the valuation and integration process of the proposed PFC-REC merger.
