IEX shares have 35% downside potential, Bernstein says post negative market coupling news

Shares of Indian Energy Exchange Ltd. (IEX) will be in focus on Thursday, July 24, in reaction to a negative development with regards to market coupling norms, which have been a major overhang on the stock.

The Central Electricity Regulatory Commission (CERC) has approved he implementation of the Market Coupling norms, with the Day Ahead Market (DAM), in accordance with the Power Market Regulations of 2021.

Under the first Phase of these norms, coupling of the Day-Ahead Market (DAM) will be implemented by January 2026, under which, different power exchanges will act as Market Coupling Operators (MCOs) on a round-robin basis.

A Market Coupler collects all buy and sell orders from all the power exchanges, which is then aggregated and matched to discover a uniform market clearing price, across all exchanges regardless of platform.

The CERC staff will also initiate stakeholder consultation for DAM coupling and propose necessary regulatory amendments.

Grid India will serve as a fourth market coupling operator for backup and audit purposes. It will also develop a software for Term-Ahead Market coupling, run a three-month shadow pilot for the same, and submit feedback post completion of the process.

For the Real-time Market (RTM), coupling will be considered at a later stage after the DAM experience as it needs further regulatory and operational examination.

How does this impact IEX?

The decision to implement market coupling against the report submitted by Grid-India has come as a negative development as this would mean IEX loses its business moat of being the "best platform" for price discovery.

Additionally, the introduction of market coupling can meaningfully shift volumes to competitive exchanges. Currently, IEX has a market share of nearly 85% in the spot market.

IEX will also be reporting its quarterly results later today.

Brokerage firm Bernstein retained its market-perform rating on IEX but cut its price target down to ₹122 from ₹160 earlier, which implies a potential downside of 35% from current levels.

It said that the CERC order is worse and different from what they had anticipated and that this regulatory overhang is the biggest reason why IEX is a difficult stock for institutional holding.

Bernstein was working with a 50% chance of coupling and a high certainty that transaction charges will reduce over time. "Now coupling is certain from January 2026 and the transaction charge should also come down sooner due to competitive intensity itself," the brokerage said.

Shares of IEX ended 2.4% lower on Wednesday at ₹187.9. The stock has remained flat in the last one month. The stock is also in the F&O ban today, which means no new positions can be created in the stock.