IGI Logo

For our coverage universe of 23 NBFCs, we expect AUM growth to be ~17% YoY in 2QFY26 (~17%/20% YoY in 1QFY26/2QFY25) with marginal improvement in RoEs at 13.6% in 2QFY26E (13.1% in 1QFY26). Disbursement growth is likely to pick up across all sub-segments led by the looming festive season for auto financiers, diversification into non-MFI segments for MFIs, gold price pickup for gold financiers and housing pickup post a seasonally weaker 1Q. Overall margins are expected to improve/be steady for most, led by decline in CoFs. With many players revising credit cost guidance upwards, we do not expect material improvement in credit costs in 2Q. For diversified financiers, we expect YoY AUM growth to moderate led by softer disbursements over recent quarters while credit costs are likely to remain similar to that in 1Q. For VF players, we expect disbursement/AUM growth to gradually pick up led by festivities while credit costs are expected to marginally inch up on account of higher stress in non-VF book for CIFC/SHFL. MMFS also has reported ~10-20bps increase in its stage-3 sequentially. For HFC/AHFCs, credit cost is expected to remain benign and moderate. For MSME lenders, we expect inch up in credit costs. For MFI players, 2QFY26E is expected to continue its underperformance with no material improvement across the sector in terms of write-offs. In terms of sub-segments, HFCs/AHFCs are expected to deliver relatively strong numbers followed by diversified financials, MSMEs, VF and then MFI. Our preferred plays among NBFCs are: BAF/AB Cap (in diversified NBFCs), SHFL (in VFs), Aadhar/Aavas (in AHFCs) and Fedfina (in MSMEs/Gold).

* Diversified NBFCs – expect growth to slow-down; credit costs to be steady: We expect YoY AUM growth for diversified financiers to be lower in 2QFY26E due to subdued disbursements over the last 2 quarters. However, overall margins are expected to pick up with CoFs benefit, coming in from fresh disbursals at lower rates. Credit costs are expected to be flat QoQ for most players. Our top pick in the space is BAF followed by ABCAP.

* Housing financiers – disbursements growth to pick up; credit cost to remain benign: Disbursements growth is expected to pick up mainly driven by PNB HF (disbursement growth: 22% YoY in 2Q) and Aavas (disbursement growth: 24% YoY in 2Q). Margins are likely to remain range-bound as HLs are majorly offered at floating rates. Credit cost should remain benign across companies with PNB HF expected to report negative credit cost driven by recoveries. Our top picks in the space are Aadhar Housing and Aavas Financiers.

* Vehicle financiers –disbursements growth to pick up gradually, asset quality to watch out for: VFs’ (SHFL, CIFC and MMFS) AUM growth moderation is likely to continue driven by lower disbursement growth over the past few quarters. However, 2H is expected to be strong led by GST cuts–led demand and volume pickup. MMFS reported ~5.4% QoQ growth in disbursements. For CIFC, we expect disbursement growth to gradually pick up, leading to ~4.5% QoQ AUM growth. Credit cost is expected to move up QoQ from non-VF book for CIFC/SHFL. MMFS too reported 10-20bps increase in GS3, which should drive up its CC.

* MSME/LAP and others – growth to pick up in gold loans, while MSME to remain under pressure: We expect Five-Star to deliver a subdued growth of 3% QoQ due to shift to higher ticket size where competition is relatively higher while SBFC is expected to continue to deliver its guided growth of 5-7% QoQ. Fedfina AUM growth is expected to be strong (+4.5% QoQ) led by rising gold prices. We expect a slight inch-up in credit costs for SBFC and Fedfina for 2Q, while Five-Star’s credit costs are also likely to be elevated.

* NBFC-MFIs – write-offs likely to continue; growth to pick up marginally: We expect writeoffs to continue for NBFC-MFIs while, at the same time, x-bucket CEs improve. We continue to build in higher credit costs for all NBFC-MFIs in our coverage (similar to 1QFY26) and expect earnings to gradually pick up only from 2HFY26. Growth is likely to pick up gradually from 2Q onwards led by non-MFI book on account of new MFIN guardrails and RBI relaxation to increase MFI exposure limit to 60% qualifying assets from the earlier 75%.

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361