IIFL Finance shares surge 10%, snap 4-day losing streak; here's what technical charts suggest

The BSE and NSE have also revised their circuit limits for the IIFL Finance stock to 10% from 20% earlier. The stock was locked in a lower circuit of 20% for two consecutive sessions on March 5, and March 6 after the Reserve Bank of India barred the company from issuing gold loans.

In terms of technicals, the relative strength index (RSI) of the stock stands at 19.2, signaling it's trading neither in the oversold zone. This implies that stock may rebound. IIFL Finance shares are trading lower than the 5 day, 20 day, 30 day, 50 day, 100 day and 200 day moving averages.

The counter has a one-year beta of 0.5, suggesting very low volatily.

"The stock has re-tested its long-term breakout mark of 388 and successfully reversed from the same. Overall, the technicals are indicating good demand near 380-385 levels. Technically speaking, at current levels, the risk-reward is favorable on the buy side, and we can expect the stock to head higher towards 480 and 500. However, any downside move below 375 should negate the view on the same," said Riyank Arora, Technical Analyst at Mehta Equities.

"The IIFL finance stock has been trading at a 1.5 Price to book before today with a ROE of 17, with last few quarters being good for the company, which further corroborated this hypothesis," said Rahul Ghose, CEO at Hedged.

On the technical front, Ghose said the stock has come to a buy-level between 350 and 380 from where it is currently bouncing. "A long position can be initiated once we get some momentum on the upside above 450, keeping a stop loss at 422."

Following the RBI ban, global broking firm Jefferies has downgraded the NBFC stock to 'Hold' from its earlier rating of 'Buy' and also slashed its price target to ₹435 from ₹765 per share earlier. Jefferies believes that the gold loan ban will hurt the company's profitability.

The brokerage further said that the central bank's move can dent earnings due to rapid unwinding of its profitable gold loan book, which is nearly one-third or 32% of the company's Assets Under Management (AUM).

While the timing of the ban lifting is uncertain, it assumes that if the ban stays for nine months, its Assets Under Management may fall 1% in financial year 2025, while Gold Loan AUM may halve.

Jefferies has cut its financial year 2025-2026 Earnings per Share (EPS) estimate by 26% and 27% and its return on equity estimate by 460-480 basis points.

B&K Securities also wrote in its note that Gold loan segment holds substantial importance for IIFL Finance and that it was expected to be a major growth driver going ahead.

It mentioned that 25% of consolidated profitability stems from the gold loan business, which is likely to be affected by the RBI restrictions.

On Monday, the RBI had instructed IIFL Finance to stop disbursing gold loans after it observed some material supervisory concerns in the company's gold loan portfolio, including serious deviations in assaying and certifying purity and net weight of the gold at the time of sanction of loans and at the time of auction upon default.

Tuesday's 20% drop for IIFL Finance shares was the biggest in a single day since its demerger in May 2019.