IIFL Finance shares showed a recovery on Thursday halting the two-day rout that saw the stock hitting lower circuits.

What Happened: The exact trigger for the surge today is not immediately clear but the company on Wednesday had announced that Canadian billionaire Prem Watsa had agreed to extend $200 million (₹1,655 crore) in liquidity support to the company in case it encountered any funding challenges post the regulatory clampdown on its gold loan business by the banking regulator.

Fairfax India Holdings, backed by Watsa, holds stakes in IIFL Finance and other IIFL Group companies.

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The stock had faced a significant decline of 35% in the last two sessions following the RBI’s decision to prohibit the company from issuing gold loans.

The circuit limit for IIFL Finance was revised downwards to 10% from 20% by the stock exchanges on March 6, after the RBI ban.

Following the regulatory action, brokerage firm Jefferies downgraded IIFL Finance to “hold” from “buy” and reduced the target price to ₹435 per share from ₹765 earlier.

Analysts anticipate further downside for the stock as a result of the gold loan ban. Jefferies stated that the prohibition is expected to impact IIFL’s profitability significantly, attributing it to the rapid unwinding of its profitable gold loan book.

The brokerage projects a 1% year-on-year decline in assets under management and a 51% decrease in gold AUM in FY25, assuming that the ban remains in place for nine months.

Price Action: IIFL’s share price shot up 10% to ₹420.40, hitting the upper circuit in morning trade on Thursday.

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