IDFC is caught in the crosswinds of capital constraints, macroeconomic headwinds and a financial market downturn. But, core fundamentals, management quality and long-term value proposition remain attractive.

In 1Q09, income from investments and investment banking fees declined as capital markets went on a downturn. The ongoing downturn in the capital market will be good for the company's private/project equity business. In the short term, we expect RoI on existing assets to fall, though this should enable IDFC to acquire stakes at much reasonable valuations. The longterm benefits far outweigh the negatives from the expected fall in RoI.

Asset quality remains healthy with zero net NPLs. IDFC management flagged macro headwinds and indicated that it was not going to grow its loan book aggressively.

IDFC is expected to report an EPS of Rs 7.2 for FY09. ABN Amro Equities has set a Target Price of Rs 125, downward revision from Rs 181.IDFC would trade at 17.6x FY09F EPS and 2.4x FY09F book. ICICI Securities has set a target price of Rs 145 on IDFC stock.