The Indian non-banking financial company (NBFC) sector is preparing to close out the financial year 2026 on a stronger note, even as the prospects in the new financial year grow increasingly turbulent. Reports from top brokerages expect the quarter ending in March to show significant credit growth and improved asset quality.
Data from ICICI Securities suggests that the sector will likely demonstrate healthy growth in their assets under management, estimated at 13% year-on-year. This momentum has been underpinned by a sustained demand for vehicle finance, particularly following recent GST cuts, and a significant turnaround in the microfinance (MFI) segment. Similarly, YES Securities notes that interactions with management teams indicate a “strong quarter” for the coverage universe, with seasonal improvements in growth and collections outperforming the trends seen in the previous fiscal year.
Sector Standouts
This resilience is best reflected in the performance of individual industry leaders. According to ICICI Securities, Bajaj Finance remains a top pick due to its diversified AUM and limited exposure to oil shocks, with credit costs expected to moderate significantly. Similarly, Emkay Global highlights Aditya Birla Capital and L&T Finance as standout performers, both expected to clock AUM growth of approximately 24% year-on-year. In the housing and microfinance segments, YES Securities expects a “decisive rebound” for affordable housing players like Aavas Financiers and HomeFirst Finance, while ICICI Securities points to CreditAccess Grameen and Fusion Microfinance as key beneficiaries of a sustained recovery in the MFI cycle.
However, the celebratory mood of the Q4 results is being tempered by an “uncertain start to FY27.” Emkay Global in its report said that since mid-March, the geopolitical situation in West Asia has failed to improve, causing Indian g-sec yields to rise by approximately 40 basis points. This shift has significant implications for the cost of funds. While Q4 may represent the peak of the current net interest margin (NIM) expansion cycle, analysts at ICICI Securities warn that the anticipated margin reprieve for the first half of FY27 has now been “advanced,” with margins likely to trough sooner than expected due to hardening money market rates.
Yield Curve Challenge
Looking ahead, the sector faces a dual challenge of potential demand destruction caused by war-related disruptions and the risk of deteriorating asset quality if inflationary pressures persist. Lenders are already becoming wary, with YES Securities suggesting that many may tighten credit selection parameters in the coming months. Despite these macro risks, the steep recent correction in stock prices may offer a silver lining. As Emkay Global notes, while earnings estimates for the coming years are being trimmed, the current valuations may have already absorbed much of the geopolitical shock, leaving room for resilient players like Aditya Birla Capital and Shriram Finance to navigate the brewing storm.