PFC and REC were trading in the red after the boards of both state-run power financiers approved the merger of REC into PFC, a move that will create a power financing entity with an aggregate loan book of over Rs 11 lakh crore. Under the approved scheme, REC shareholders will receive 88 equity shares of PFC for every 100 shares held in REC.

Trigger

• PFC and REC boards approved the merger of REC into PFC.
• The merged entity will have an aggregate loan book of over Rs 11 lakh crore.
• REC shareholders will get 88 equity shares of PFC for every 100 REC shares held.
• The record date will be announced later by the boards of the two companies.
• The merger remains subject to approvals and the merged entity continuing to qualify as a government company.

The fall in both stocks appears to be driven by near-term event uncertainty rather than a negative view on the merger itself. While board approval is an important first step, investors are still waiting for clarity on the record date, regulatory approvals, implementation timeline and the final structure of the merged entity.

The share-swap ratio is also likely driving trading activity. Once a fixed exchange ratio is announced, arbitrage investors typically adjust positions between the two stocks depending on the market price differential. This can create short-term pressure in either or both counters, especially when the final record date is still pending.

Profit booking is another factor. Both PFC and REC have seen strong investor interest over the past year, supported by PSU re-rating, high dividend yields, strong loan growth and the government’s power sector capex push. The merger announcement may have triggered a “sell-on-news” reaction as investors lock in gains after the earlier run-up.