The financial sector continues to be in focus as the government’s push for consumption and capex stays in the spotlight. The global brokerage firm. Jefferies has identified three financial stocks it believes are poised for steady gains going forward. It sees as much as 38% upside potential in select stocks.
Here is a detailed analysis from Jefferies on the investment rationale for each of these stocks.
Jefferies top picks in financial sector
Jefferies top picks in the sector include Cholamandalam Investment and Finance Company, Shriram Finance and Bajaj Finance. The brokerage house has a ‘Buy’ rating on all three.
For Cholamandalam Investment and Finance Company, the brokerage has set a target price of Rs 2,040, which implies nearly 18% upside from the current market price.
For Shriram Finance, the target price is Rs 1,220, suggesting about 13% upside from current levels.
Bajaj Finance has a target price of Rs 1,270, indicating close to 25% upside from the current levels.
So why is the brokerage constructive on these three stocks? Let’s take a look –
Profit growth is improving across the sector
According to the brokerage report, “For Q3FY26, profit growth for our covered NBFCs / HFCs (ex Piramal Finance, IIFL) improved to 28% YoY (20% 2Q).” This improvement was driven by steady loan growth, better Net Interest Margins and lower credit costs.
The report noted that profit growth was broad-based. It added that “Cholamandalam Investment and Finance Company, Shriram Finance, Bajaj Finance and select Housing Finance Companies (HFCs) and Affordable Housing Finance Companies (AHFCs) such as Can Fin Homes and Aptus Value Housing Finance reported 20–30% profit growth.”
Even in the case of Bajaj Finance, where headline Profit After Tax declined, the brokerage clarified that “Bajaj Finance headline PAT fell 6% on one-time overlay provision; excl this profit grew 23% YoY.”
The report noted that the underlying earnings momentum remains healthy for the sector, and the brokerage believes this trend can continue into the next financial year.
Loan growth and asset quality are stabilising
Another key factor supporting the brokerage’s view is improving loan growth and early signs of stability in asset quality.
The report added, “Loan growth for covered companies rose to 18% (17% 2Q).” Vehicle disbursements, which refer to fresh loans given out, accelerated during the quarter.
On asset quality, the brokerage added, “Asset quality improves, few pockets of stress persist.” Gross Non-Performing Assets were largely steady. It further noted that “Early CV delinquencies improved per Cholamandalam Investment and Finance.”
There are still stress areas, especially in unsecured personal loans, micro loans against property and some business loans. The report added that stress in smaller loan-against-property tickets “is unlikely to ease soon.”
For Bajaj Finance, tighter credit policies have led to some slowdown in certain segments, but according to the brokerage report, it “expects to push growth again if stress abates in Q1-Q2FY27.”
Margins have expanded, though re-rating may be limited
Margins are another reason for the positive stance. According to the brokerage report, “NIMs rose 2-60bps QoQ for our coverage.”
Companies such as Cholamandalam and Shriram Finance are expected to see better margins in the near term.
Shriram Finance, in particular, could benefit because its marginal cost of funds, which is the cost of fresh borrowings, is lower than its average cost.
However, Jefferies is also cautious about valuations. It clearly states, “We expect better profit growth in FY27, but post sharp re-rating last year, further meaningful re-rating seems unlikely.”
Conclusion
According to the brokerage report, improving profit growth, stabilising loan trends and better margins form the core reasons behind its positive stance on Cholamandalam Investment and Finance Company, Shriram Finance and Bajaj Finance.
The brokerage added, “We prefer select diversified NBFCs and auto NBFCs with strong earnings momentum/ compounding. Cholamandalam Investment and Finance Company, Shriram Finance and Bajaj Finance remain our top picks.”
Disclaimer: This article provides factual analysis only and is not, and 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.