PFC, REC Shares Decline After Merger Announcement
The recent announcement regarding the proposed merger of Power Finance Corporation (PFC) and REC has stirred investor sentiment, leading to a noticeable drop in their share prices. Here’s what you need to know:
Key Details of the PFC and REC Merger
– The merger requires statutory approvals and detailed structuring but aims to consolidate both companies into a single balance sheet. This move could potentially create a more robust and efficient lender for India’s power and infrastructure sectors.
– On the trading front:
– PFC shares fell by 1.5%, closing at Rs 413.55.
– REC shares declined by 3.5%, ending at Rs 357 during Monday’s session.
– This merger proposal aligns with the Union Budget’s initiative to restructure two of India’s largest public sector non-banking financial companies (NBFCs) in the power financing sector.
Background of the Merger
– PFC currently holds a 52.63% stake in REC, following an acquisition of the government’s holding.
– In a regulatory filing, PFC indicated that its board recognized the government’s proposal to merge the two firms to scale operations, enhance efficiency, and improve credit flow to the power sector.
– Finance Minister Nirmala Sitharaman proposed this restructuring during her Budget speech on February 1.
– The Cabinet Committee on Economic Affairs had previously cleared the transaction, allowing PFC to acquire the government’s stake in REC. This setup has fostered a holding-subsidiary relationship between the two institutions.
Importance of PFC and REC
Both PFC and REC play vital roles in financing India’s power sector:
– Power Finance Corporation (PFC): Under the Ministry of Power, PFC provides funding throughout the power value chain, including generation, transmission, distribution, and renewable energy.
– Rural Electrification Corporation (REC): Initially established to finance rural electrification projects, REC has significantly contributed to India’s quest for near-universal electricity access.
Share Performance and Market Reactions
– As for recent performance, PFC shares increased by 0.6% on Friday, closing at Rs 417.6, while REC saw a decline of over 2%, closing at Rs 372.6.
– Despite the recent downturn, both stocks have delivered substantial multibagger returns over the past three years:
– PFC has appreciated by approximately 260%.
– REC has grown by around 217%.
Technical Insights
– PFC: The 14-day Relative Strength Index (RSI) stands at 74.1, suggesting it is in the overbought territory, which may lead to a short-term correction. Nonetheless, it’s trading above all 8 key simple moving averages (SMAs), indicating strong bullish momentum.
– REC: With a 14-day RSI of 53.2, REC reflects neutral momentum. It is currently trading above 6 out of 8 SMAs, displaying a mildly bullish technical outlook.
In conclusion, while the PFC and REC merger announcement has led to a temporary dip in share prices, the long-term outlook remains positive as both entities continue to be foundational pillars in financing India’s growing power sector. Investors should stay informed about further developments and potential impacts on stock performance.