IIFL Finance Surge: Fairfax Provides $200 Million Support

  • IIFL Finance rallies 8% post commitment of $200 million liquidity support by Prem Watsa.
  • Recovery follows RBI’s gold loan business clampdown causing 35% stock fall in 2 sessions.
  • Fairfax India Holdings pledges support amid RBI embargo, easing investor concerns.
  • Stock exchanges revise IIFL Finance’s circuit limit downwards to 10%.
  • Jefferies downgrades IIFL Finance to ‘hold’, citing profit dent due to gold loan ban.
  • Analysts anticipate 1% YoY AUM decline and 51% YoY fall in gold AUM for FY25.

IIFL Finance, a well-known financial institution, achieves an exceptional 8% increase following a significant contribution from Canadian billionaire Prem Watsa. Watsa has pledged $200 million in liquidity support to the company if it faces funding limitations after the Reserve Bank of India’s (RBI) crackdown on its gold loan activities.

Recovery Amidst Turbulence :

once suffering a 35% fall in the previous two trading sessions, IIFL Finance miraculously recovers on March 7, demonstrating a durable recovery pattern. The stock’s spectacular recovery followed the disclosure of Prem Watsa’s intention to offer significant liquidity support to minimise any funding issues resulting from the RBI’s harsh actions against its gold loan business. Fairfax India Holdings Corporation, backed by Watsa, owns large shares in IIFL Finance and other IIFL subsidiaries.

In reaction to the RBI’s embargo-induced liquidity concerns among investors and lenders, Fairfax India issues a comforting remark. It expresses its willingness to spend up to $200 million in liquidity support, subject to mutually agreed-upon terms and regulatory approvals, if necessary.

Market Performance and Sentiment :

As the trading day unfolds, IIFL Finance shares trade at Rs 409.80 on the National Stock Exchange (NSE), up 7.2% from the previous day’s close. Despite a 9% fall over the previous year, IIFL Finance’s performance contrasts with the benchmark Nifty 50, which rose by a solid 26% during the same period.

Market Response and Analyst Comments :

In reaction to recent occurrences, the stock exchanges reduced IIFL Finance’s circuit limit from 20% to 10%. Following the RBI’s restriction on gold loans, Jefferies downgraded IIFL Finance from ‘buy’ to ‘hold’. Furthermore, Jefferies lowers its target price from Rs 765 per share to Rs 435 per share, citing additional hurdles for the stock.

Jefferies believes that the ban on gold loans will have a negative impact on IIFL’s profitability. The quick unwinding of the successful gold loan portfolio is projected to considerably reduce profitability. Given the ban’s unknown duration, analysts expect a 1% year-on-year decline in assets under management (AUM) and a significant 51% year-on-year reduction in gold AUM in FY25.

In conclusion :

while IIFL Finance’s relationship with Fairfax India provides some hope in the face of regulatory obstacles, market analysts remain wary about the company’s short- to medium-term prospects, reflecting the complicated dynamics of the financial ecosystem.


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