The non banking financial company sector is currently facing a mix of challenges and opportunities, according to a new report by international brokerage house Jefferies. The firm noted that the first quarter of FY26 brought uneven performance across players, with some enjoying profit growth while others struggled with slower loan disbursements and rising stress in their portfolios.
One of the strongest performances came from gold loan financiers, where companies like Muthoot Finance reported close to ninety percent profit growth. This was in sharp contrast to auto finance and affordable housing lenders, which witnessed cooling demand amid weak economic activity and unseasonal rains. Jefferies observed that profit growth across the sector has moderated, and stress levels are visible in several segments.
Despite these pressures, the brokerage has identified specific names that it believes are well positioned to deliver strong returns over the medium term. Bajaj Finance remains one of its top recommendations. Analysts believe that the company’s diversified portfolio gives it resilience to withstand stress in individual segments. While micro and small business loans remain an area of concern, Jefferies expects the overall stress to be manageable. It has maintained a Buy rating on Bajaj Finance with a target price of Rs 1,100, which suggests an upside of nearly 22 percent from current levels.
Cholamandalam Investment and Finance is another stock the brokerage favors. Although near term softness in demand may weigh on the company, Jefferies believes that sequential improvement in margins and growth creates an attractive entry opportunity for investors. The report also highlighted that both Bajaj Finance and Cholamandalam are guiding for margin expansion of up to fifteen basis points during FY26, which could support profitability going forward.
Shriram Finance has also made it to the preferred list. Jefferies pointed out that valuations remain reasonable at 1.8 times estimated book value for FY26. With strong positioning in vehicle finance and housing segments, the stock is considered a reliable bet within the sector.
Muthoot Finance, supported by strong momentum in gold loans, has been highlighted as a defensive play. Its steady growth and consistent earnings make it a safer choice for investors looking for stability in the NBFC space.
At the sector level, Jefferies flagged concerns around rising stress across borrowers, especially in commercial vehicle loans, small ticket unsecured business loans, and used car financing. Credit costs have increased beyond seasonal trends, pushing up gross non performing assets. While stress in personal loans appears to be stabilising, affordable housing companies continue to face challenges in markets like Surat’s gem industry and Coimbatore’s textile belt.
On the positive side, net interest margins have held steady during the first quarter. Jefferies expects margins to expand in the coming quarters, especially for large players like SBI Cards and Cholamandalam Investment. The festive season and a potential pick up in post monsoon demand are also expected to provide relief and drive loan growth in the second half of the financial year.
Overall, while the NBFC sector faces short term pressures, Jefferies believes that select stocks are well positioned for growth. For investors, names like Bajaj Finance, Cholamandalam, Shriram Finance and Muthoot Finance could be the right picks to ride through the volatility and benefit from structural growth opportunities in the sector.
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