Rates have been unpredictable, rural demand has been a worry, and borrowers have turned more cautious. In the middle of all this, a global brokerage has chosen to back four consumer finance stocks.
The brokerage house Jefferies believes these lenders still have room to grow, with one of them offering an upside of nearly 20%.
What is driving this optimism? Let’s take a look at the stocks the brokerage is betting –
Jefferies has picked Bajaj Finance, Cholamandalam Investment and Finance Company, Aditya Birla Capital, and Shriram Finance as its top picks among Non-Banking Financial Companies, commonly called NBFCs, and Housing Finance Companies, or HFCs.
Why is Jefferies positive on NBFCs?
According to the Jefferies report, June-quarter earnings were stronger than expected across its coverage universe.
Jefferies said, “June Q was another strong quarter for NBFCs/HFCs we cover, with 38% profit growth led by 20% AUM growth, range-bound NIMs and lower credit costs.”
The brokerage noted that credit costs came in below expectations at several lenders. Disbursements also accelerated, while loan growth remained healthy.
Jefferies added that “Healthy disbursements and AQ trends should sustain earnings momentum with scope for some EPS upgrades.”
Bajaj Finance: Top pick with 18% upside
Bajaj Finance is among Jefferies’ preferred stocks. The brokerage has retained its positive view with a target price of Rs 1,280.
This implies an upside of around 18% from the current market price.
The company is among the diversified NBFCs that Jefferies believes are better placed because of relatively lower exposure to rural demand risks and unsecured lending stress.
The brokerage said, “Diversified NBFCs Bajaj Finance/Aditya Birla Capital look better placed on lower El Niño/rural risks and benign unsecured trends.”
Cholamandalam: Growth remains the key trigger
Cholamandalam Investment and Finance Company has a target price of Rs 2,100.
That indicates an upside potential of around 12.9%.
Jefferies remains positive on the company’s growth trajectory. The brokerage expects healthy disbursements and improving earnings momentum to support the stock.
The broader auto finance segment also performed strongly during the quarter. According to Jefferies, “Auto NBFCs led with 55% PAT growth off a weak base.”
Aditya Birla Capital: Sees nearly 20% upside potential
Jefferies has set a target price of Rs 475 to Aditya Birla Capital. This translates into an upside of nearly 20%.
The brokerage expects diversified NBFCs to remain supported by strong loan growth and relatively benign asset-quality trends.
Jefferies said, “Strong June Q and healthy July trends suggest growth and AQ should hold up better than usual in seasonally weakest Sept Q.”
Shriram Finance: 10% upside seen
Shriram Finance has a target price of Rs 1,210 against the current market price of Rs 1,099.
That works out to an upside of around 10.1%.
The brokerage sees improving growth and lower credit costs as important factors supporting the outlook for the company.
Jefferies noted that “sector valuations have rebounded from post conflict lows, but are still near avg.”
What could investors watch next?
Jefferies remains positive on the sector, but it flags rural demand and asset quality as key monitorables.
The brokerage also expects net interest margins to remain broadly rangebound in FY27.
Disclaimer: This article is based on research reports from one or more brokerage firms and is for informational purposes only. The views, target prices, and recommendations expressed are those of the respective brokerage firms and do not reflect the official policy or position of Financial Express. This should not be construed as an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor before making any investment decisions.