The announcement of Japan-based MUFG Bank to invest Rs 39,618 crore or $4.4 billion in a preferential issue to acquire a 20% stake in Shriram Finance, is a vote of confidence in the broader Indian financial system and growth opportunities in the long-term. This is also a testament to foreign investor confidence in the regulatory environment led by RBI.
The macro view: Why foreigners are ignoring NIM pressure
Foreign investors are clearly looking beyond short-term blips, like the pressure on net interest margins (NIMs) faced by several financial institutions on a y-o-y basis in the September 2025 quarter, given the steps taken by RBI to lower the cost of funding. Credit growth, too, was broadly sluggish in Q2FY26.
Also, foreign investors have not been deterred by the India-US trade deal that has been in limbo for several months, and are looking at sustained 6.5 to 7% annual growth of the Indian economy for the decades ahead.
Clearly, the growing digitisation of the Indian economy creates new opportunities for NBFCs and banks, going forward, and foreign investors not only want to leverage the opportunities here but are also keen to globalise developments in online payments / UPI to other countries.
Rise of Japanese investment in Indian financial sector
Recent deal announcements have shown the increasing role of Japanese financial institutions, and they will play an increasingly important part in the strategy to take Indian NBFCs / banks to the next level.
For instance, a few days earlier, Mizuho Securities Co Ltd, a subsidiary of Tokyo-based Mizuho Financial Group, bought the stake held by US-based private equity, KKR, in Mumbai-based Avendus, and details of the transaction are sketchy since it is an unlisted entity.
And Sumitomo Mitsui Banking Corporation had also acquired a 24.2% stake in Yes Bank at the end of the September 2025 quarter, and that is worth nearly Rs 16,450 crore.
Japan, and other east Asian nations like Korea and Taiwan, have one of the most modern and sophisticated internet and mobile-based tech systems, and have transformed their respective financial / banking systems. It does appear increasingly likely that with the increasing role of Japanese finance companies here, one will witness the introduction of next-generation technology in the Indian financial system.
Valuations of Shriram Finance deal
The preferential issue to Japan-based MUFG at Rs 840.9 per share, or nearly 2.6 times its consolidated book value, according to Screener.in.
Rival, Mahindra and Mahindra Financial Services trades at nearly 2.2 times its consolidated book value, according to Screener.in
Performance in the September 2025 quarter
Shriram Finance’s assets under management (AUM) grew 15.7% y-o-y to Rs 281,310 crore in the September 2025 quarter, according to its investor presentation. The company’s loan portfolio is spread across commercial vehicles, passenger vehicles, construction and farm equipment, MSME, and gold loans, amongst others.
For HDFC Bank , the largest sector bank, its advances at the end of the September 2025 quarter were Rs 27.46 lakh crore, a growth of 10%. HDFC Bank’s advances to deposit ratio has been hovering well over 90% in the merged entity and it has been cautious in growing its loan book for several quarters.
For other key operational parameter, Shriram Finance’s Net Interest Margin (NIM) was 8.19% in Q2FY26 vis-a-vis 8.74% a year earlier. HDFC Bankhad highlighted its NIM on interest earning assets was 3.4% on total assets in the September 2025 quarter vis-à-vis 3.7% a year earlier.
And asset quality of Shriram Finance was fairly stable — net stage 3 (%) was 2.49% in the September 2025 quarter vis-a-vis 2.64% a year earlier.
The ratio of stage III loan assets to gross assets is a financial metric that shows the proportion of a financial institution’s loans that are considered non-performing or past due, typically by more than 90 days.
Meanwhile, HDFC bank’s % of net NPAs to net advances was 0.42% in the September 2025 quarter vis-à-vis 0.41% a year earlier.
Strong loan growth helped Shriram Finance’s consolidated net profit grow 11.5% y-o-y to Rs 2,310 crore in the September 2025 quarter.
Meanwhile, higher provisioning also resulted in HDFC Bank’s standalone net profit rising only 10.8% y-o-y to Rs 18,641 crore in the second quarter of FY 26.
Efficiency kings – Return on equity (ROE)
Shriram Finance has a consolidated ROE of 15.6% according to Screener.in. Mahindra and Mahindra Financial Services has a consolidated ROE of 10.9%.
HDFC Bank’s ROE was 14.3% on a standalone basis, according to Screener.in. The banking operations are reflected in the standalone results of HDFC Bank.
Valuations and outlook
Shriram Finance shares were up 4.5% to Rs 942.7 in mid Monday morning trade, and earlier in the trading day they had hit a 52-week high of Rs 949.9. The stock trades at nearly 2.9 times its consolidated book value, according to Screener.in.
Mahindra and Mahindra Financial Services trades at 2.2 times its consolidated book value.
HDFC Bank trades at approximately 2.8 times its standalone book value.
Clearly, these leading finance stocks have factored the growth opportunities in the short term.
Having said that, if one were to look at the Price to book value metric for some of Shriram Financial’s peers, then, perhaps, a case could be made that the stock is cheap.
Bajaj Finance, the heavyweight, trades at 6.1x while Cholamandalam Investment at 5.2x.
Which way the stock price heads from here on is impossible to say. For now, the fact is that the stock has had a dream run this year, even as the overall market has struggled. Let’s see what 2026 brings for this stock now.
Disclaimer:
Note: We have relied on data from www.Screener.in throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Amriteshwar Mathur is a financial journalist with over 20 years of experience.
Disclosure: The writer and his family do not hold the stocks discussed in this article.
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