Morgan Stanley’s Take on PFC, REC, HDB Financial, PNB Housing & Can Fin Homes

The latest Morgan Stanley India housing finance report signals a shift in regulatory clarity and growth expectations for major lenders.

How often has one seen stock prices swing overnight because of a policy line from the Reserve Bank of India? Investors in housing finance companies know this well. In October 2025, Morgan Stanley released its financial sector report, and the reaction was immediate. 

The brokerage’s views on PFC, REC, HDB Financial, PNB Housing Finance, and Can Fin Homes turned into a talking point across the market.

Morgan Stanley Financial Sector Views With New Rules

The Morgan Stanley report, released on 2 October 2025, argued that RBI’s revised rules on “Forms of Business and Prudential Regulation” have removed the earlier concern that banks must cut their holdings in their housing finance arms. This change gave relief to companies such as HDB Financial, PNB Housing, and Can Fin Homes.

The report also underlined that risk weights on NBFC lending to operational infrastructure projects would be reduced. For lenders like Power Finance Corporation (PFC) and Rural Electrification Corporation (REC), this meant a lower cost of funds and more capacity to lend. The brokerage projected loan growth at 12 percent annually for PFC and REC between FY2025 and FY2028.
 

These numbers show why PFC and REC housing finance stocks are in focus. Their growth projections are aligned with wider housing credit expansion.

PFC REC Housing Finance Stocks Under Watch

PFC and REC were both rated “Overweight” by Morgan Stanley. The REC model assumes a cost of equity of 13.4 percent and terminal growth of 6 percent. The forecast points to a price-to-book ratio of 1.2 in FY2027 and a price-to-earnings multiple near 7. PFC was valued on a similar residual income model but with a 20 percent holding discount.

Housing demand trends confirm this optimism. The National Housing Bank (NHB) reported in March 2025 that its RESIDEX index showed property prices rising in 48 of 50 tracked cities during Q4 FY2025. Only Thiruvananthapuram and Howrah showed small declines.
 

This table sets PFC and REC against sector averages. While not higher than the sector in loan growth, their return on equity forecasts are stronger.

PNB Housing Can Fin Homes Analysis In Spotlight

PNB Housing Finance was modelled with a probability-weighted residual income method. The report used a cost of equity at 12.5 percent. Strong loan growth, net interest margin expansion, and cheaper borrowing could drive upside. The risks are clear too. In August 2025, the stock lost 17 percent in one day after the CEO resigned, a reminder of leadership risks.

Can Fin Homes was valued on a residual income model with a 12 percent cost of equity and 6 percent terminal growth. Its upside lies in steady mid-income housing demand. The risks include margin compression or operational setbacks.
 

The table highlights how valuation assumptions are similar but business risks differ. PNB Housing faces leadership and execution risk. Can Fin Homes is steadier but could be exposed to margin pressure.

HDB Financial Market Outlook Gains Clarity

HDB Financial, owned by HDFC Bank, was valued at 2.6 times FY2027 book value. The cost of equity was placed at 12.8 percent, with a 6 percent terminal growth rate. Morgan Stanley argued that margins and operating ratios could drive growth. The downside lies in slower margin recovery or higher credit costs.
 

This table shows why HDB Financial is grouped with housing finance stocks. While not a pure-play housing lender, its link to HDFC Bank makes it an important part of the sector’s outlook.

Morgan Stanley India Housing Finance Report In Wider Context

The brokerage view needs to be seen along with official data. The NHB “Trend and Progress of Housing in India” report of March 2025 showed that affordable housing disbursements had grown by more than 100 percent compared to 2024. It also said that the gross bad loan ratio for PNB Housing had fallen to 1.19 percent in Q3 FY2025 from 1.73 percent a year earlier.

The government’s PMAY (Urban) 2.0 scheme, launched in September 2024, is also pushing demand in the low and middle income categories. A PIB release in December 2024 said that 39 percent of loans went to economically weaker and low income groups, 44 percent to middle income groups and 17 percent to high income groups.

This new report reminds of past coverage on housing stocks. In July 2025, home finance stocks had surged in six trading sessions. At that time, Morgan Stanley was cautious and said the impact of PMAY was being overstated. The October 2025 report gives a more balanced view, showing both risks and opportunities.

As LoansJagat reported in “Retail Mortgage Loans by NBFCs, HFCs to Touch ₹20 Trillion by FY28”, housing finance in India is set for strong growth in the coming years. 

How Government And Banks Reacted In The Past

Government and RBI actions often change the outlook for housing finance firms. In earlier years, RBI had imposed stricter risk weights on NBFC lending, which slowed growth. In contrast, the 2025 move reduced these weights for operational infrastructure projects. This shift is seen as supportive for PFC and REC.

Banks too have taken different positions. In 2019, HDFC had to trim exposure in line with earlier prudential rules. Now with relaxed norms, HDB Financial is expected to expand without structural pressure.

Conclusion

The October 2025 Morgan Stanley financial sector report brought clarity to investors. PFC and REC are projected as steady growth stories, HDB Financial as a banking-linked NBFC with potential, and PNB Housing along with Can Fin Homes as housing finance players balancing opportunity with risk.

What sets this coverage apart is how the report was tied with official housing data, loan disbursements, and government-backed schemes. The wider picture shows that India’s housing finance sector is in transition, shaped by regulation, demand, and leadership events.

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