5 days ago
MOFSL Names Four NBFC Stocks After Sector Rerating
MOFSL, a financial research firm, believes many lending companies are recovering.
Their recent results showed that loans are growing and profits are improving.
Fewer borrowers are falling behind on payments, and collection efforts have become stronger.
The firm said this recovery is broader than earlier recoveries that mainly came from lower provisions for bad loans.
It also said demand remains strong for vehicle, housing, gold, personal, and small-business loans.
MOFSL selected Bajaj Finance, L&T Finance, PNB Housing, and Five-Star Finance as preferred stocks.
Five-Star Finance is seeing better loan disbursements and asset growth.
Bajaj Finance is expected to see faster profit growth, although possible regulatory changes create risks.
MOFSL identified Bajaj Finance, L&T Finance, PNB Housing, and Five-Star Finance as its top NBFC picks.
The NBFC sector has rerated over the past three months as earnings upgrades strengthened investor confidence.
June-quarter results showed healthy loan growth, improving asset quality, resilient margins, and better operating leverage.
Collection efficiencies improved after nearly two years of stress in microfinance and selected retail-loan segments.
MOFSL cited proposed RBI restrictions on revolving or Flexi credit and possible credit-life insurance commission changes as near-term risks.
- Who
- MOFSL and the NBFC companies it covers, including Bajaj Finance, L&T Finance, PNB Housing, and Five-Star Finance.
- What
- MOFSL highlighted four NBFC stocks as top picks following a sector rerating and improving earnings outlook.
- Where
- Across the NBFC sector covered by MOFSL.
- When
- Over the past three months, with the assessment supported by June-quarter earnings.
- Why
- Improved loan growth, asset quality, margins, operating leverage, and collection efficiency have led to earnings upgrades.
MOFSL’s bullish case
Risks and reservations
Sustainability of recovery
MOFSL’s bullish case
The recovery is supported by several improving factors, including loan growth, margins, asset quality, operating leverage, and lower credit costs.
Risks and reservations
The sector still faces potential regulatory changes involving revolving or Flexi credit and credit-life insurance commissions.
Portfolio quality
MOFSL’s bullish case
Tighter underwriting, stronger collections, lower borrower leverage, and greater secured lending have improved portfolio quality.
Risks and reservations
The sector recently experienced nearly two years of stress across microfinance, unsecured loans, and selected secured retail segments.
Growth strategy
MOFSL’s bullish case
Demand remains strong across vehicle finance, housing, gold loans, MSME lending, personal loans, and digital lending, with lenders emphasizing profitable growth.
Risks and reservations
The article does not provide a separate bearish earnings forecast, but regulatory changes could affect the preferred lenders’ outlook.
Key facts
- Top picks
- Bajaj Finance, L&T Finance, PNB Housing, and Five-Star Finance
- Sector performance
- NBFC stocks experienced a meaningful rerating over the past three months.
- Earnings outlook
- MOFSL reported upward revisions to FY27 and FY28 earnings estimates across its NBFC coverage universe.
- Asset quality
- Collection efficiencies improved and fresh slippages moderated after nearly two years of stress in several lending segments.
- Credit growth
- Loan growth remained healthy across most retail-lending segments, supported by underlying demand and continued credit formalization.
- Five-Star Finance
- Disbursement volumes and assets under management improved, while early-stage delinquencies declined meaningfully.
- Bajaj Finance
- Broad-based loan growth, resilient margins, improving asset quality, and lower credit costs are supporting faster profitability growth.
- Key risks
- Potential RBI restrictions on revolving or Flexi credit and possible changes or caps to credit-life insurance commissions.
Quotes
Motilal Oswal
Domestic brokerage house covering the NBFC sector
“More importantly, the strength and breadth of the recovery have already translated into meaningful upward revisions to FY27/FY28 earnings estimates across our NBFC coverage universe – earlier than would typically be expected at this stage of the financial year”
businesstoday.in
“Bajaj Finance and L&T Finance remain our preferred picks. The key near-term risks remain the proposed RBI restrictions on revolving/Flexi credit and potential changes (or capping) to credit life insurance commissions”
businesstoday.in
Sources
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