Nomura has turned more selective on the non-banking financial company (NBFC) space ahead of the June quarter earnings season. The brokerage said it now prefers Bajaj Finance over Cholamandalam Investment & Finance after the valuation gap between the two narrowed sharply. It also said it continues to see 11-21% upside in Bajaj Finance, Shriram Finance, Tata Capital and Mahindra & Mahindra Financial Services (MMFS) despite the recent rally, while cautioning against stocks with excessive valuations.
“We prefer BAF over CIFC and raise caution around stocks with excessive valuations,” Nomura said. “Some of our diversified lenders still have room for multiple rerating, and we still see 11-21% upside for BAF, SHFL, Tata Capital and MMFS after the recent rally,” the brokerage added.
Nomura expects diversified lenders under its coverage, barring HDB Financial Services, to post more than 20% year-on-year growth in assets under management (AUM) during the June quarter. While the brokerage expects credit costs to remain broadly range-bound, it believes higher borrowing costs from bank funding lines will keep margins under pressure across most lenders.
Nomura on Bajaj Finance
Nomura reiterated its ‘Buy’ rating on Bajaj Finance and said the company remains its preferred diversified NBFC.
The brokerage expects Bajaj Finance to report 24% year-on-year AUM growth to Rs 5.47 lakh crore in the June quarter, while net profit is projected to increase 24% to Rs 5,897 crore. Net interest income is expected to rise 21% year-on-year to Rs 12,385 crore.
Nomura believes asset quality should remain resilient, with credit costs broadly stable at 1.7%, although higher funding costs are likely to result in modest margin compression.
“We expect strong AUM growth of 24% y-y for BAF. However, elevated cost of funds could result in NIM compression. We expect only slight moderation of credit costs on a q-q basis at 5 bps,” Nomura said.
Nomura on Cholamandalam Investment & Finance
Nomura retained its ‘Neutral’ rating on Cholamandalam Investment & Finance but said the stock has become less attractive after its recent re-rating.
The brokerage expects the company to deliver 22% year-on-year AUM growth and 27% growth in net profit during the June quarter. However, it also forecasts a 29-basis-point sequential compression in net interest margin and a 36-basis-point increase in credit costs.
Nomura said its valuation analysis indicates that Cholamandalam is now pricing in long-term loan growth similar to Bajaj Finance while trading at only a 7% discount on one-year forward price-to-book multiples.
“Our what’s-in-price analysis indicates that CIFC is now pricing in same long-term loan growth like BAF, and only a 7% discount on 1-year-forward P/B multiples. We prefer BAF over CIFC and raise caution around stocks with excessive valuations,” Nomura said.
Nomura on Shriram Finance
Nomura maintained its ‘Buy’ rating on Shriram Finance and continued to identify the stock as one of its preferred ideas within the sector.
The brokerage expects Shriram Finance to remain relatively insulated from funding cost pressures and believes stronger earnings growth should offset slower loan growth.
“Given SHFL’s immunity to cost-of-funds pressure, we continue to like the stock, as net profit growth should compensate for any lower loan growth,” Nomura said.
Nomura also continued to see upside in Shriram Finance despite the recent rally and expects the company to report 38% year-on-year growth in net profit in the June quarter.
Nomura on Mahindra & Mahindra Financial Services
Nomura reiterated its ‘Buy’ rating on Mahindra & Mahindra Financial Services and said improving disbursement trends remain encouraging.
The brokerage noted that MMFS reported 21% year-on-year growth in disbursements and said the changes implemented by the management over the past few quarters are beginning to reflect in operating performance.
“MMFS’s pickup in disbursals (21% y-y reported) is promising, in our view, especially in light of the changes undertaken by management over the past few quarters,” Nomura said.
For the June quarter, Nomura expects MMFS to post 13% year-on-year AUM growth and 35% growth in net profit, while forecasting credit costs of around 2%.
Nomura on Tata Capital
Nomura reiterated its ‘Buy’ rating on Tata Capital and continued to include the stock among its preferred names with further upside potential following the recent rally.
The brokerage said Tata Capital remains one of the diversified lenders where it continues to see scope for multiple re-rating alongside Bajaj Finance, Shriram Finance and MMFS.
Nomura on HDB Financial Services
Nomura retained its ‘Neutral’ rating on HDB Financial Services.
The brokerage expects the company to report 11% year-on-year growth in gross loans and 39% growth in net profit during the June quarter, aided by a favourable base. It also expects disbursement growth to improve to 16% year-on-year, with loan growth picking up further during the second half of FY27.
“We expect a healthy pickup in disbursement growth at 16% y-y in 1Q27F and loan growth to pick up from 2H27F,” Nomura said.
Nomura on Aadhar Housing Finance
Nomura reiterated its ‘Buy’ rating on Aadhar Housing Finance and expects the affordable housing lender to report 20% year-on-year growth in both its loan book and net profit during the June quarter.
The brokerage said it will closely monitor asset quality trends in the loans-against-property portfolio while expecting home loan asset quality to remain broadly steady.
“Aadhar HFC should report a healthy 20% y-y growth in both loans and net profit in 1Q27F. We await details on asset quality behavior of the loans against property, while we expect rangebound steady behavior in home loans,” Nomura said.
Nomura on CA Grameen
Nomura maintained its ‘Buy’ rating on CA Grameen and said the microfinance lender continues to witness a steady recovery.
The brokerage highlighted the company’s pre-quarterly update, which indicated 16% year-on-year AUM growth, while noting that gross Stage 3 assets are now only 40 basis points above pre-crisis levels.
“The gross stage 3 (%) for CA Grameen is now only 40bp higher than pre-crisis levels (4Q24). This is a promising recovery trend, in our view,” Nomura said.
NBFC stocks: Nomura outlook
Nomura expects the June quarter to remain broadly supportive for the NBFC sector, with robust loan growth and stable credit quality offsetting the impact of elevated funding costs on profitability. The brokerage said management commentary on borrowing costs from banks and bond issuances will be a key monitorable during the earnings season, along with asset quality trends in vehicle finance and SME lending, and the progress of the monsoon for rural-focused financiers.
Against this backdrop, it continues to favour Bajaj Finance, Shriram Finance, Tata Capital and Mahindra & Mahindra while preferring Bajaj Finance over Cholamandalam Investment & Finance as valuations across the sector become increasingly differentiated.
**Disclaimer:** This article reviews third-party institutional brokerage research and sectoral valuation metrics for informational and educational purposes. It tracks market consensus and comparative stock performance within the NBFC sector, and does not constitute a direct investment offer, solicitation, or personal financial advice. Since equity investments are subject to market risks and valuation fluctuations, readers are advised to assess their risk tolerance and consult a SEBI-registered investment advisor before making any financial commitments.
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