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Over the past few days, a number of NBFCs under our coverage (ie BAF, LTF, MMFS) have given 2Q/1HFY27 business updates. The updates offer a strong business momentum picture of the quarter gone by. BAF's consolidated AUM for Q2FY27 at Rs5.85trn at ~27% yoy/6.9% qoq being higher than that of Bajaj Housing AUM at ~24.8% yoy/5.7% qoq indicates stronger growth in the BAF standalone book, despite festive demand being pushed to 3Q. LTF continues to deliver strong retail asset growth of ~29% yoy/5.5% qoq, at Rs1.35trn, led by robust disbursement of ~Rs240bn (27% yoy growth), in turn led by strong urban credit demand. MMFS reported on expected lines, with Business Assets growing ~15% yoy/6.4% qoq, at ~Rs1.46trn, led by strong disbursement of ~Rs164.9bn (22% yoy/6% qoq). MMFS’s asset quality continues to improve, with GS2+GS3 at ~8.2%, on the back of improving collection efficiency at 97%; this reflects seasonal asset quality improvement despite rising concerns around drought and El Niño.

BAF and BHFL sustain strong growth momentum

BAF continued to deliver strong growth, with AUM rising ~27% despite the festive season shifting to 3QFY27, potentially prompting Management to revise up its growth guidance. The customer franchise expanded 16% yoy/3.6% qoq to 128.8mn, while ~13.45mn new loans were booked during the quarter. Strong new-loan additions, coupled with faster growth in standalone BAF AUM vs the housing subsidiary, suggest improving growth momentum across key lending segments. For BHFL, Housing AUM grew ~24.8% yoy/5.7% qoq to Rs1.58trn, remaining above the FY27 growth guidance of 21-23%. Quarterly disbursements came in at Rs199.3bn, up 25% yoy and 2.2% qoq.

LTF: Retail growth momentum remains strong

LTF posted another quarter of robust retail momentum, delivering strong retail AUM growth of 28.6% yoy at ~Rs1.35trn, comfortably outpacing its medium-term ‘Lakshya 31’ target of >20% CAGR. Growth was led by retail disbursements surging ~27% yoy to ~Rs240bn, powered by stellar execution across non-rural segments—notably, Gold Finance (~Rs 32.3bn, growing 68% qoq), Urban Finance (~Rs103.2bn, growing 27% yoy), and SME (~Rs18.2bn, growing 24% yoy). This strength in diversified urban offerings comfortably insulated the business from softer tractor demand, which kept Farmer Finance disbursements flat at ~Rs16.4bn, alongside keeping Rural Business Finance steady (~Rs63.5bn). With retailization scaling to 99% (vs 98% yoy), the company remains firmly on track to deliver its strategic transformation milestones.

MMFS: Growth and asset quality trends encouraging

MMFS posted strong results on both growth and loan quality in a seasonally weak quarter, with business assets growing ~15% yoy and 6.4% qoq, at ~Rs1.46trn, accelerating from ~12.7% yoy in 1QFY27. Disbursements remained robust at ~Rs164.9bn, up ~22% yoy, likely driven by healthy traction in auto and trade financing, which comfortably cushioned the softer tractor finance demand. Asset quality continues to improve despite seasonality, with GS3 improving to 3.35–3.45% (vs 3.45% in 1QFY27 and 3.94% in 2QFY26) and GS2 moderating to 4.7–4.8% (vs 4.9% in 1QFY27 and 5.8% in 2QFY26), bringing GS2+GS3 down to ~8.2% (vs 8.3% in 1QFY27 and 9.7% in 2QFY26). Aided by improving collection efficiency to 97% (vs 95% in 1QFY27 and 96% in 2QFY26) and a comfortable liquidity buffer of over Rs162bn

Growth robust despite modest macro headwinds

We expect another good quarter for NBFCs and HFCs, characterized by robust disbursement momentum, healthy balance-sheet expansion, and broadly stable-to-improving asset quality across our coverage. That said, margin trajectories and fee income face a few near-term headwinds: the ongoing West Asia conflict; a rising yield curve coupled with an expected ~50bps repo rate hike in 2H; and Insurance commission structures. On the credit front, localized drought declarations occurred primarily toward quarter-end, keeping any operational impact in 2Q negligible to a large extent. At the company level, Shriram Finance is expected to report a largely steady quarter in terms of both growth and asset quality. Meanwhile, CIFC is set to deliver strong growth alongside improving asset quality. A similar trend is anticipated for Poonawalla and Piramal, with both franchises positioned to demonstrate strong growth trajectories supported by improving asset quality metrics.

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