Earlier in February this year, Union Finance Minister Nirmala Sitharaman after presenting the Union Budget, said that the government will restructure Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) in order to streamline operations. The shares of the two companies had sharply jumped following the announcement.
The Cabinet Committee on Economic Affairs earlier cleared a proposal under which PFC acquired 52.63% of the government’s holding in REC. With this acquisition, PFC and REC are currently operating in a holding subsidiary structure. The proposed merger would consolidate the two entities into a single balance sheet, subject to statutory approvals and detailed structuring.
What should investors do?
Fresh exposure in PFC and REC will be better if staggered than chased after the merger headline, said Harshal Dasani, Business Head at INVasset PMS. He highlighted that the boards of the two companies have cleared the merger proposal, while completion may still depend on regulatory and structural approvals. “That means the trade is no longer only about power financing fundamentals. It is also about swap ratio, timing and execution clarity,” the analyst said.Between the two, PFC offers cleaner visibility because it is the parent entity and is better placed as the consolidation anchor, Dasani said, adding that REC’s underperformance may create a catch-up trade if the swap ratio is favourable, but that is not the same as fundamental comfort. “The core business remains structurally supported by power capex, transmission, renewable financing and improving state utility discipline, but valuations have already priced in a fair amount of that cycle,” he said.
“For fresh money, the prudent approach is to wait for the swap ratio or accumulate only in tranches. PFC looks better suited for conservative exposure. REC is more of a merger-arbitrage call and carries higher event risk. The one thing to avoid is treating the merger as guaranteed upside. In PSU financials, structure can matter as much as earnings,” the analyst further said.
PFC and REC share prices
PFC shares have fallen more than 3% in one week and 9% in one month to close at Rs 429.35 apiece on Wednesday. The stock is overall up nearly 19% in 2026 so far. In the longer term, the shares of the company delivered 6% returns over one year, 226% returns over three years and 362% in five years. The company currently has a market capitalisation of nearly Rs 1.43 lakh crore.
REC shares meanwhile declined over 3% in one week and 12% in one month, closing at Rs 333 apiece on Wednesday. The stock has declined 9% in 2026 so far and 15% in one year. In the longer term, the shares of the company jumped 158% in three years and 217% in five years. The company currently has a market capitalisation of more than Rs 88,210 crore.(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
