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The NBFC sector is poised at an interesting juncture. The international brokerage firm Jefferies, in its latest report on the NBFC sector highlighted mixed trends in Q1FY26 with moderating growth and rising stress across segments. According to the brokerage, gold loan financiers have seen strong profit growth but auto and affordable housing lenders are under pressure.
Jefferies on NBFC sector: NBFCs face a softer start in Q1
In its review of the June quarter for the sector, Jefferies pointed at that profit trends across NBFCs have been uneven. While some companies reported strong earnings, others struggled with slower disbursements and rising stress.
“Profit growth was mixed for NBFCs, with growth moderating and stress rising in most segments except gold loans,” the brokerage said, linking the pressure to weak economic activity and unseasonal rains.
They pointed out that “gold financiers stood out, with Muthoot reporting close to 90% profit growth.” On the other hand, “auto NBFCs and affordable housing finance players saw demand cooling down.”
The brokerage, in its report, has also listed out select stocks that comprise its top picks in the NBFC sector-
Jefferies top NBFC picks
Despite the near-term challenges, the brokerage continues to prefer a few names in the sector. According to the brokerage house,
-Bajaj Finance: This NBFC is one of their top picks. They believe that a diversified portfolio can absorb pressure from individual segments. They expect the stress in MSME loans to be manageable. They have a Buy rating on the Bajaj Finance share price with a target of Rs 1,100 per share. This implies nearly 22% upside from current levels.
-Cholamandalam Investment & Finance: Jefferies sees Cholamandalam Investment & Finance as another favourable pick in the segment. According to them, the short-term demand softness may weigh on the stock. But Jefferies sees “attractive entry points” with sequential improvement expected in margins and growth.
-Shriram Finance (SHFL): Another key pick by Jefferies is Shriram Finance, they highlighted that “valuations appear reasonable at 1.8x FY26 estimated book value.” They consider it as a “preferred bet in the housing and vehicle finance space.”
–Muthoot Finance: Seen as a defensive play, Jefferies sees this company, “supported by strong momentum in gold loans.”
Jefferies on NBFC sector: Loan growth shows signs of fatigue
The overall loan growth in NBFCs slowed to 18% year-on-year in Q1 compared to 19% in the previous quarter. According to Jefferies, “the slowdown was broad-based, barring gold loans.”
“Disbursement growth at auto NBFCs fell to 6% from 9% in Q4, while affordable housing finance slowed to 11% from 14%,” the report noted. They believe that “most players are now betting on a post-monsoon pickup and festive season demand to revive growth.”
Jefferies on NBFC sector: Rising stress across borrowers
The brokerage cautioned that asset quality pressures were visible across categories. Weak cash flows and unseasonal rains hit segments like commercial vehicles and small business loans.
“Credit costs surprised negatively for most NBFCs, with GNPA rising beyond usual first quarter seasonality,” Jefferies said. The brokerage also flagged concerns in small-ticket unsecured MSME loans and used car financing, though it noted that stress in personal loans was stabilising.
Affordable housing finance companies were not immune either, with stress reported in pockets like Surat’s gem industry and Coimbatore’s textile market.
Jefferies on NBFC sector: Margins steady, but improvement likely ahead
On the earnings side, net interest margins (NIMs) held steady during the quarter. However, Jefferies expects an expansion in the coming months.
“NIMs should improve for most NBFCs Q2 onward, especially for SBI Cards and Cholamandalam Investment,” Jefferies highlighted. Both Bajaj Finance and Cholamandalam Investment & Finance have guided for 10–15 bps margin expansion in FY26. Large housing finance companies like LIC Housing also reported a small uptick in spreads.
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