The affordable housing finance sector recorded a difficult quarter in Q2FY26 as early-bucket delinquencies rose across lenders and bounce rates climbed to 20–22%. Elara Securities said this shift could keep credit cost elevated at 35–50 basis points over FY26–FY28, materially above the long-standing 20–30 bps range that supported high returns across affordable housing financiers. The brokerage added that the strain reflects weakening repayment behaviour in the sub-Rs 10 lakh borrower segment and the broader impact of softer cash flows across semi-urban markets.
The deterioration comes alongside slower disbursement trends. Originations moderated through Q2, with lenders reporting uneven borrower income cycles and higher rejections during screening. Elara said the operating environment now looks significantly different from the stable years that drove the sector’s earlier expansion. Borrowers appear more sensitive to local economic swings, and lenders are encountering more variability in new accounts despite tighter filters.
Elara Securities on housing finance sector: Early-bucket stress; valuation targets diverge
Company-level data shows clear signs of stress. Aadhar Housing Finance saw its 1+DPD rise to about 7% in Q2FY26, a substantial jump for a franchise that had maintained relatively steadier early-bucket performance in earlier periods. Elara values Aadhar at a target price of Rs 550 against a CMP of Rs 499, implying an upside of roughly 10% based on the report’s data.
India Shelter posted one of the sharpest increases in early buckets. Its 30+DPD rose to 4.7% in Q2FY26, up from 3.1% in Q4FY25 and 3.6% in Q2FY25. The brokerage’s target price for the stock is Rs 1,002 against a CMP of Rs 855, translating into an upside of about 17%.
Home First Finance also saw its 30+DPD increase to 3.7% in Q2FY26 compared to 3.0% in the previous quarter. While the jump is less pronounced than that of some peers, it confirms the theme of weakening borrower discipline. Elara’s target for Home First stands at Rs 1,353 against a CMP of Rs 1,168, indicating an upside potential of nearly 16%.
Aptus Value Housing Finance, traditionally one of the most efficient operators in the sector, has been relatively insulated from the early-bucket drift. The brokerage, however, cautioned that no lender is fully shielded if bounce rates stay high. Aptus carries the highest target among its peers in%age terms. Elara assigns it a target price of Rs 439 against a CMP of Rs 287, implying a potential upside of 53%, the strongest in the coverage universe.
Aavas Financiers, known for conservative underwriting, reported more stable early-bucket patterns but softer disbursement performance in a few regions. The brokerage’s target price for Aavas is Rs 1,832 versus a CMP of Rs 1,736, suggesting an upside of about 6%.
Elara Securities on housing finance sector: Credit cost expected to reset higher
Bounce rates at 20–22% are central to Elara’s assessment. Such levels often precede slippages, particularly in lower-income, self-employed borrower categories. The brokerage expects the elevated bounce trend to persist into the next few quarters, keeping credit cost structurally higher. Net interest margins for many lenders remain steady, but the brokerage said they are unlikely to offset the combined drag of slower growth and higher provisioning.
The report attributes the broader deterioration to several structural factors: dependence on semi-informal income profiles; seasonal fluctuations in cash flows; more aggressive sourcing by some lenders during the expansion cycle; and a roughly 20% overlap with MSME-linked borrowers, who are facing their own credit-quality challenges this year.
Elara Securities on housing finance sector: Growth outlook moderates after years of rapid expansion
After expanding at nearly 35% CAGR over five years, the housing sector growth is expected to moderate to 17–20% between FY25 and FY28. Elara said lenders are recalibrating growth plans as they prioritise collections and strengthen credit filters. Aavas and Home First may retain steadier growth momentum due to more urban-focused borrower pools and strong franchise visibility, while Aadhar and India Shelter may remain cautious until early-bucket trends stabilise. Aptus, which enjoys a stronger yield profile and operates with one of the highest return ratios in the sector, may sustain growth better than peers, but even it will face a more demanding environment if collections do not improve.
Elara Securities on housing finance sector: Valuations show early signs of caution
Valuations across the affordable housing cohort have corrected by around 2.1% over the past six months. The move is modest but signals that investors are beginning to question whether the sector’s earlier credit-cost assumptions will hold. With target prices now implying modest upside for Aavas and Aadhar, and more meaningful upside for Home First and India Shelter, the disparity between companies is becoming more visible.
Elara Securities believes that the upcoming quarters will be defined by collection behaviour. Bounce rates, 1+DPD and 30+DPD, will offer the earliest signals of whether credit cost begins to ease or settles at the higher band projected by the brokerage. Stage 3 levels remain stable for now, but Elara noted that relying solely on headline NPAs would mask the underlying stress already visible in the early buckets.
