Housing finance companies are heading into a more demanding operating phase as private banks step up activity in prime mortgages and funding conditions turn less supportive.
In its latest sector review, JP Morgan says near-term pressure on net interest margins across housing finance companies is building as loan yields soften while borrowing costs stop easing at the same pace. The brokerage says interest rate discussions dominated March quarter commentary and the broad expectation across management teams is that rates have bottomed and could remain unchanged over the next two to three quarters.
JP Morgan says competition and growth trends remain uneven across the market. Large housing finance companies are losing share in prime mortgages to banks, while private lenders have resumed expansion after a restrained phase. Loan yields across housing finance companies contracted quarter on quarter and cost of funds remains an important near-term variable.
Within this backdrop, JP Morgan maintains selective preferences across covered names.
JP Morgan on PNB Housing Finance: ‘Overweight’
JP Morgan retains its ‘Overweight’ rating on PNB Housing Finance and sets a price target of Rs 1,150, implying an upside of 8.6%.
JP Morgan says PNB Housing Finance remains its preferred housing finance company as it continues to favour lenders that can deliver balance sheet expansion and earnings growth at reasonable valuations.
According to the brokerage’s estimates, PNB Housing Finance is expected to deliver loan growth of 19% to 20% across FY27 and FY28. The report also says the recent credit rating upgrade could help keep growth in funding costs relatively contained compared with peers.
The brokerage says management commentary pointed to strong disbursement trends during the March quarter, though pricing pressure intensified and balance transfer movement remained particularly elevated in the prime mortgage book, compressing spreads. Management also guided for affordable housing to emerge as the fastest-growing segment during FY27.
JP Morgan says, “We continue to prefer HFCs that can deliver balance sheet and earnings growth at a reasonable price. PNB Housing is our top pick.”
JP Morgan on LIC Housing Finance: ‘Neutral’
JP Morgan retains its ‘Neutral’ rating on LIC Housing Finance and sets a price target of Rs 580, implying an upside of 7.6%.
The brokerage noted that LIC Housing Finance presented one of the strongest growth outlooks in the housing finance universe, with management guiding for loan book growth of 10% to 12% and total disbursements of around Rs 78,000 crore in FY27. The report added that Street expectations remain lower because execution has not consistently matched guidance in earlier periods.
The brokerage says April disbursements rose 21% year on year despite seasonally softer conditions. Management also indicated that protecting margins took priority over pursuing growth aggressively. LIC Housing Finance is also expanding distribution through business aggregators, introducing co-lending initiatives and building a dedicated affordable housing vertical.
JP Morgan says, “LIC Housing Finance had one of the most bullish guidance sets, with disbursement growth of ~17% and book growth of 10–12%, significantly above Street expectations. Yet, Street loan growth estimates remain at ~8% y/y in FY27, as past execution has been disappointing.”
JP Morgan on Bajaj Housing Finance: ‘Underweight’
JP Morgan retains its ‘Underweight’ rating on Bajaj Housing Finance and sets a price target of Rs 70. This implies a downside of 15.9%.
According to the brokerage report, Bajaj Housing Finance remains one of the strongest franchises in the sector but valuation remains demanding relative to expected returns. Management guided for assets under management growth of 21% to 23% in FY27 and also indicated that net interest margins could moderate during the year, with lower operating expenses and provisions expected to partly offset the impact.
The brokerage says competition intensified during the March quarter across both private and public sector lenders while balance transfer movement remained elevated. Management also said money market rates remained significantly higher and balance transfer trends had not moderated during the quarter.
JP Morgan says, “Bajaj Housing Finance remains the best-in-class franchise, but 19.6x/2.38x FY28 PE/PB for 12–13% RoE poses downside risks.”
JP Morgan on HDFC Bank: ‘Overweight’
JP Morgan retains its ‘Overweight’ rating on HDFC Bank and sets a price target of Rs 990. This translates to an upside of 28.3%.
JP Morgan added that private banks have resumed growth in prime mortgages after a restrained phase and identifies HDFC Bank among the lenders driving that trend.
As per JP Morgan report, housing loans have been an important contributor to retail acceleration over the last three quarters. HDFC Bank recorded mortgage disbursement growth of 28% year on year and 15% quarter on quarter in the March quarter.
The brokerage also says the bank plans to expand mortgage distribution to 7,800 to 8,000 locations from around 6,800 currently, supporting its growth ambitions in housing loans.
JP Morgan says, “Private banks resuming growth in prime mortgages after a period of restraint.”
JP Morgan on ICICI Bank: ‘Overweight’
JP Morgan retains its ‘Overweight’ rating on ICICI Bank and sets a price target of Rs 1,600, indicating an upside of 26.1%.
JP Morgan says ICICI Bank has accelerated mortgage growth after remaining measured in earlier quarters. The bank’s mortgage portfolio increased 13.2% year on year and 4.7% quarter on quarter during the March quarter. The brokerage says management linked that acceleration to stable benchmark rates and improving return profiles.
JP Morgan says commentary across large private banks suggests mortgage growth could continue strengthening, keeping competitive intensity elevated in prime housing finance.
JP Morgan says, “ICICI’s management highlighted that it had been ‘holding back’ in prior quarters and is now actively pursuing mortgage growth as benchmark rates have settled, and returns turning incrementally positive.”
Conclusion
JP Morgan says housing finance companies are approaching a period where margins could remain under pressure in the near term as funding costs become more important and competition in prime mortgages intensifies. The brokerage says private banks have resumed growth while housing finance companies continue to adjust pricing, distribution and product mix to defend growth.
Within that setup, JP Morgan continues to favour PNB Housing Finance among housing finance companies, retains a ‘Neutral’ view on LIC Housing Finance and maintains an ‘Underweight’ stance on Bajaj Housing Finance while remaining constructive on select private lenders.
Disclaimer: The investment ratings, target prices, and market commentary discussed in this report are based on institutional research updates and do not constitute direct buy, sell, hold recommendations, or specific financial planning guidelines for retail investors. Housing finance companies (HFCs) and banking stocks are deeply sensitive to structural credit cycles, net interest margin (NIM) fluctuations, competitive banking actions, and Reserve Bank of India (RBI) monetary policy directives, meaning individual stock performance and returns can vary significantly. Readers are strongly advised to consult a SEBI-registered investment advisor or a qualified financial analyst before making specific equity or asset allocation decisions based on banking and housing sector forecasts.
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