IIFL Finance breaks key support post RBI ban; chart hints more pain ahead

With Tuesday's 20 per cent fall, IIFL Finance was seen trading below its 20-Month Average for the first time after a gap of 3 years. Chart suggests bias to remain weak below this particular level.

IIFL Finance was locked at the 20 per cent lower circuit at Rs 479 in Tuesday's intra-day deals after the Reserve Bank of India (RBI) barred the NBFC from sanctioning or disbursing fresh gold loans with immediate effect, citing 'material supervisory concerns'.

The non-banking financial company (NBFC), however, was allowed to service its gold loan portfolio through usual collection and recovery processes.

IIFL Finance has a gold loan portfolio of Rs 24,692 crore, which is 32 per cent of its loans, valued at Rs 77,444 crore at the end of the third quarter of FY24.

Following an inspection of the company's financial position as on March 31, 2023, the regulator observed deviations in assaying and certifying purity and net weight of the gold at the time of sanctioning loans and at the time of auction upon default.

RBI also found breaches in the loan-to-value ratio, significant disbursements and collections of loan amount in cash far in excess of the statutory limit, non-adherence to the standard auction process, and lack of transparency in charges on customers. READ MORE

It may be recalled that little more than a month back, the Central Banker had barred Paytm Payments Bank from accepting deposits or top-ups with effect from February 29, on account of persistent non-compliance and material supervisory concerns.

Post which, shares of Paytm more-than-halved (sank 58 per cent) and hit a record low of Rs 318 in mere 12 trading sessions. In spite, of recovering over 31 per cent from the lows, the stock still trades 45 per cent lower when compared with the price prior to the adverse news.

What's in store for the stock IIFL Finance? Here's what the chart suggests:

IIFL Finance

Current Price: Rs 479

Downside Risk: 30%

Resistance: Rs 505

Amid today's sharp 20 per cent fall, the stock seems to have given a breakdown from its seven-month consolidation pattern. Long-term chart shows, that the stock was broadly consolidating in the range of Rs 550 - Rs 650 in the last seven months.

However, today the stock not only broke the trading range on the lower-side, but is also seen trading below its 20-MMA (Monthly Moving Average) for the first time after a gap of over 3 years. 

The 20-MMA stands around Rs 505, and is considered as a strong long-term support level. The stock is likely to trade with a weak bias, as long as it sustains below this key level. 

The monthly chart suggests, that the stock may test its super trend line on the way down, which stands at Rs 397; below which, the next major support stands at Rs 335 - its 50-MMA. Thus, hinting at a downside risk of up to 30 per cent from current levels for the stock. CLICK HERE FOR THE CHART

On the weekly scale, the stock is presently seen testing support at its 100-WMA (Weekly Moving Average) which stands at Rs 477. However, given the negative crossovers on the key momentum oscillators the stock is likely to face downward pressure in the near-term.