Shares of REC Limited and Power Finance Corporation Ltd rose up to 1.5% on July 10 after global brokerage Morgan Stanley initiated coverage with 'overweight' calls.
The brokerage has a price target of Rs 485 on REC and a target of Rs 508 on PFC, implying a potential upside of 23% and 21%, respectively, from July 9 closing levels.
At 9:45 am on July 10, PFC shares were trading 1.2% higher at Rs 423 apiece while those of REC were trading 1.4% higher at Rs 397 apiece.
"PFC and REC should each achieve 12% F25-28e loan CAGRs and 17-19% average ROE. At a F27e P/E of 5-6x for self-sustaining low-mid teens loan growth and a 3.8-4.5% dividend yield, with asset quality likely to be stable, we find risk-reward compelling," said the brokerage.
The asset quality cycle remains benign, with limited incremental slippages and potential gains from bad loan recoveries, it said.
Last month, PFC, REC shares rallied after the Reserve Bank of India (RBI) lowered provisioning to 1% during construction and exempted existing projects from higher requirements.
The RBI mandated a general provision of only 1% of funded outstanding during the construction phase for all projects except for commercial real estate (CRE), as compared to 5% proposed in the draft norms released in May last year. This provisioning would come into effect from October 1, 2025, the RBI said.
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