Shares of Power Finance Corporation (PFC) and REC Limited fell by up to 3% today after Morgan Stanley downgraded both stocks. The brokerage expressed concern over slowing loan growth compared to the broader power sector. Additionally, analysts noted that the upcoming merger may provide limited cost savings, as both companies already run highly efficient operations.
Shares of Power Finance Corporation (PFC) and REC Limited dipped by up to 3% in intraday trade on Thursday, August 20, 2026, after Morgan Stanley released a cautious report on both lenders. The brokerage downgraded both public sector undertakings from 'Overweight' to 'Equal-weight' and sharply reduced their price targets, citing concerns over future earnings and growth trends.
Morgan Stanley’s report highlighted a widening gap between the two companies' loan growth and the overall credit expansion within India’s power sector. In the first quarter of the 2027 fiscal year, loan growth at PFC and REC moderated to 4% and 1%, respectively. The brokerage noted that this slower pace trails behind the broader credit growth seen across the power industry, suggesting that the companies are currently not keeping up with the sector's general expansion.
Regarding the proposed merger, which is set to create a giant entity with a loan book exceeding ₹11 lakh crore, the report offered a balanced view. While the merger could offer benefits through larger scale and reduced competition, Morgan Stanley warned that cost savings might be minimal. This is because both PFC and REC already operate with highly efficient, low-cost structures, meaning there is limited room to cut expenses further through integration.
The merger plan, which includes a share swap ratio of 88 PFC shares for every 100 REC shares, has already received in-principle approval from the President of India and the Ministry of Power. The companies are working toward completing the process by April 1, 2027.
Following the downgrade, Morgan Stanley reduced PFC’s price target by 20% to ₹410 and cut REC’s target by 16% to ₹360. For investors, the upcoming months will be critical to watch the companies' ability to revive loan growth. The key monitorable will be whether both lenders can match the credit acceleration seen in the wider power sector and how smoothly the complex integration process proceeds as the April 2027 target date approaches.