IDFC gains; Morgan Stanley upgrades to 'overweight'

MUMBAI: IDFC was the top gainer on the Nifty after Morgan Stanley upgraded it to ‘Over Weight’ as its sees risk-reward skewed to the upside.

“In the past when markets snapped up, IDFC used to be a big outperformer given wholesale business. The stock price lag is likely driven by concerns around long-term ROE progression due to bank transition,” the report said.

According to the brokerage, the recent comments from the RBI Governor could be a game changer for IDFC.

The RBI governor has suggested that there is potentially a case to exempt banks from CRR / SLR norms on long-term bonds raised for infrastructure financing to ensure a level playing field with other infrastructure financiers.

“He also spoke of relaxing PSL norms on this lending. This could lift potential ROE over 20 per cent (long-term ROE to be sustained at ~14 per cent in base case without these benefits),” the report added.

The brokerage is of the view that IDFC is likely to be relatively immune to near-term earnings trajectory and trade more on policy / bank strategy news flow, unlike other stocks. Risk is no tangible outcome on the regulatory or policy side.

Morgan Stanley has raised IDFC’s target price of Rs 175 from Rs 115 earlier.

The stock ended at Rs 142.30, up 6.23 per cent, on the BSE. It touched a high of Rs 143.85 and a low of Rs 137 in trade today.