IEX shares get another downgrade as Bernstein assigns 'underperform' call

Shares of Indian Energy Exchange (IEX) Ltd. have been downgraded by the brokerage firm Bernstein, which now views the company's outlook more negatively than before. On Tuesday, Bernstein reduced its rating for IEX to "underperform" from its previous "market-perform" stance. The brokerage has lowered its price target to ₹99, marking the first instance of a sub-Rs 100 target for IEX, implying a potential 29% downside from current levels. This comes amid concerns over the regulatory order on market coupling, which Bernstein views as worse than its historical negative perspective on IEX's business model.

Bernstein's adjustment reflects its view that the regulatory environment poses significant challenges for IEX. The firm highlighted that, despite IEX's intent to challenge the regulatory order, discussions have been extensive, and implementation is deemed inevitable. Bernstein also anticipates a forthcoming discussion paper on transaction charges.

Shares of IEX closed 4% lower on Monday at ₹138.79, having exited the futures and options (F&O) ban. The brokerage believes that the previous argument by IEX, stating that price cuts would cause the other two exchanges to "die", no longer holds after the new regulations.

Furthermore, Bernstein pointed out the low barriers to entry in the market, noting that the net worth required to establish an exchange is just ₹50 crore, which could attract new players like Manikaran. Bernstein's stance indicates that the bad news for IEX is "not over yet", reinforcing its more cautious outlook on the stock amidst evolving regulatory challenges and market dynamics. The potential for new entrants could further complicate the competitive landscape, adding to the uncertainty faced by IEX.