JM Financial's Q1 FY26 outlook: These are its top NBFC stock picks
Disbursement growth is anticipated to moderate, particularly for microfinance institutions (MFIs) and vehicle financiers (VFs), while diversified NBFCs and housing finance companies (HFCs) are expected to see stronger momentum.
- Jul 7, 2025,
- Updated Jul 7, 2025 6:35 PM IST
JM Financial Institutional Securities expects a stable performance from non-banking financial companies (NBFCs) in the first quarter of FY26, projecting nearly 17 per cent year-on-year (YoY) growth in assets under management (AUM) for its coverage universe of 22 NBFCs. Return on equity (RoE) is seen holding steady around 13 per cent, marginally lower than 14 per cent recorded in the same period last year.
Disbursement growth is anticipated to moderate, particularly for microfinance institutions (MFIs) and vehicle financiers (VFs), while diversified NBFCs and housing finance companies (HFCs) are expected to see stronger momentum. The brokerage highlights that margin performance will vary across segments — vehicle financiers are likely to witness a slight uptick, whereas HFCs may face compression due to transmission lags.
Credit costs are expected to remain flat to marginally lower across most NBFCs. Among segments, diversified financials are projected to deliver the strongest performance, followed by HFCs/MSMEs, vehicle financiers and lastly, MFIs.
JM Financial warns that MFIs may face another difficult quarter, citing higher credit costs and seasonal softness, in addition to MFIN (Microfinance Institutions Network) regulatory constraints.
For vehicle financiers, a moderation in AUM and disbursement growth is anticipated in line with slowing auto sales. The brokerage flags stress in non-VF books for players like Cholamandalam Investment and Finance (CIFC) and Shriram Finance (SHFL), while Mahindra Finance (MMFS) has already reported a sequential increase of 10 basis points (bps) in stage-2/3 assets.
In contrast, HFCs and MSME lenders are expected to maintain stable asset quality, with the exception of Fedbank Financial Services (Fedfina), which is likely to see elevated credit costs due to stress in its small-ticket loan against property (LAP) portfolio. Among diversified NBFCs, performance is likely to outshine, supported by robust growth and easing credit pressures.
JM Financial's preferred picks for Q1 FY26 include Bajaj Finance and Aditya Birla Capital among diversified NBFCs, Shriram Finance in the vehicle finance category, PNB Housing Finance and Aadhar Housing Finance in the HFC/affordable housing segment and Five-Star Business Finance along with SBFC Finance in the MSME lending space.
JM Financial Institutional Securities expects a stable performance from non-banking financial companies (NBFCs) in the first quarter of FY26, projecting nearly 17 per cent year-on-year (YoY) growth in assets under management (AUM) for its coverage universe of 22 NBFCs. Return on equity (RoE) is seen holding steady around 13 per cent, marginally lower than 14 per cent recorded in the same period last year.
Disbursement growth is anticipated to moderate, particularly for microfinance institutions (MFIs) and vehicle financiers (VFs), while diversified NBFCs and housing finance companies (HFCs) are expected to see stronger momentum. The brokerage highlights that margin performance will vary across segments — vehicle financiers are likely to witness a slight uptick, whereas HFCs may face compression due to transmission lags.
Credit costs are expected to remain flat to marginally lower across most NBFCs. Among segments, diversified financials are projected to deliver the strongest performance, followed by HFCs/MSMEs, vehicle financiers and lastly, MFIs.
JM Financial warns that MFIs may face another difficult quarter, citing higher credit costs and seasonal softness, in addition to MFIN (Microfinance Institutions Network) regulatory constraints.
For vehicle financiers, a moderation in AUM and disbursement growth is anticipated in line with slowing auto sales. The brokerage flags stress in non-VF books for players like Cholamandalam Investment and Finance (CIFC) and Shriram Finance (SHFL), while Mahindra Finance (MMFS) has already reported a sequential increase of 10 basis points (bps) in stage-2/3 assets.
In contrast, HFCs and MSME lenders are expected to maintain stable asset quality, with the exception of Fedbank Financial Services (Fedfina), which is likely to see elevated credit costs due to stress in its small-ticket loan against property (LAP) portfolio. Among diversified NBFCs, performance is likely to outshine, supported by robust growth and easing credit pressures.
JM Financial's preferred picks for Q1 FY26 include Bajaj Finance and Aditya Birla Capital among diversified NBFCs, Shriram Finance in the vehicle finance category, PNB Housing Finance and Aadhar Housing Finance in the HFC/affordable housing segment and Five-Star Business Finance along with SBFC Finance in the MSME lending space.