The growing apprehension across West Asia and upcoming Q4 results, has put the spotlight on domestic investment themes including financials.
International brokerage house, Jefferies, in its latest report, noted that the sector could see steady growth supported by strong lending activity, stable margins and improving asset quality.
Despite the geopolitical ripples caused by the West Asia conflict, Jefferies remains optimistic about the resilience of domestic finance. The brokerage house also projects a jump in profitability across several niches, from gold loans to affordable housing
Let’s take a look –
Growth expected to pick up in March quarter
The end of the fourth quarter is traditionally a period of high activity for lenders, and this year appears to be no exception.
According to Jefferies report, “Profit growth at covered NBFCs should improve to 30% (22% ex gold NBFCs) vs. 28% in Q3 in a seasonally strong Q4 led by healthy disbursement, rangebound NIMs & better asset quality.”
In simple terms, NBFCs are expected to report better profits compared to the previous quarter, mainly because loan disbursals have remained strong and repayment trends have improved.
The brokerage further added, “Strong quarter for NBFCs: For 4QFY26, we expect 30% profit growth (28% 3QFY26) at covered NBFCs (ex-Piramal, IIFL).”
Loan growth remains steady
Loan growth, or assets under management (AUM), is expected to remain stable.
Jefferies report added, “Healthy growth in loans: We expect AUM growth for covered NBFCs (ex-PIRAMALF, IIFL) to grow 18% YoY (17% in Q3) in Q4; ex gold, AUM growth should be stable at 16% YoY.”
Margins to stay stable, not expand much
Net Interest Margin (NIM), which is the difference between interest earned and interest paid, is expected to remain steady.
The report highlighted, “Range bound NIMs: We expect stable NIMs QoQ for our coverage NBFC.”
Loan books and asset quality resilience
Another key takeaway from the report is the improvement in asset quality.
The brokerage house Jefferies in its report added, “Stable asset quality, ceasefire: We expect asset quality and credit cost trends to improve QoQ in a seasonally strong 4Q.”
Jefferies on NBFCs: Preferred picks now
The brokerage has also shared its preferred picks across different NBFC segments. Some of the key stocks include –
Key NBFCs to watch
Cholamandalam Investment – ‘Buy’ rating and a target price of Rs 2,040. This implies a 31% upside potential.
Shriram Finance – ‘Buy’ rating and a target of Rs 1,220. This indicates a 19% upside potential.
Mahindra Finance – ‘Hold’ rating with a target of Rs 380, a 28% upside.
Housing Finance Companies (HFCs)
LIC Housing Finance – ‘Hold’ rating and a target of Rs 540. This indicates a limited 2% upside.
Can Fin Homes – ‘Buy’ rating and a target of Rs 1,140, a 37% upside.
Affordable Housing Finance Companies (AHFCs)
Aptus Value Housing – ‘Buy’ rating. The target set is Rs 365. This implies the highest upside of 72%.
Home First Finance – ‘Buy’ rating, with target is Rs 1,460, a 38% upside.
Aavas Financiers – ‘Buy’ rating. Jefferies set a target of Rs 1,875, a 55% upside.
Consumer Finance stocks on the radar
Bajaj Finance – ‘Buy’ rating and a target of Rs 1,270. This translates to a 39% upside.
SBI Cards – ‘Hold’ rating and a target of Rs 880. This indicates a 31% upside.
Gold Finance
Muthoot Finance – ‘Buy’ rating and a target of Rs 4,750, implying a 36% upside.
Manappuram Finance – ‘Hold’ rating and a target of Rs 285, suggesting a modest 6% upside.
Diversified NBFCs
HDB Financial Services – ‘Buy’ rating and a target of Rs 900, indicating a 44% upside.
Piramal Enterprises – ‘Hold’ rating and a target of Rs 1,780, showing a limited 2% upside.
Aditya Birla Capital (NBFC) – ‘Buy’ rating with a target of Rs 425, implying a 26% upside.
IIFL Finance – ‘Hold’ rating with a target of Rs 600, suggesting a 34% upside.
What should investors watch?
According to the Jefferies report, management commentary on future growth will be crucial.
While the impact of global factors like the West Asia conflict has been limited so far, the report indicates that the upcoming months will be key to watch.
