Aditya Birla Capital, Poonawalla Fincorp, PNB Housing shares among JM's top NBFC picks

JM Financial, in a fresh note on non-banking financial companies (NBFCs), said it prefers lenders with floating-rate asset books, low rural exposure and limited reliance on insurance income. The domestic brokerage said it continued to favour diversified NBFCs and housing finance companies (HFCs) and affordable housing finance companies (AHFCs) with largely floating-rate asset books, low rural/agri exposure and limited insurance-income reliance.

Among diversified NBFCs, Aditya Birla Capital Ltd (ABCAP) remained JM's top pick, followed by Tata Capital Ltd and Poonawalla Fincorp Ltd (PFL). Within vehicle financiers (VFs), it favours Cholamandalam Investment and Finance Company Ltd (CIFC). Among HFCs/AHFCs, it prefers PNB Housing Finance Ltd, Home First Finance Company India Ltd and Aadhar Housing Finance Ltd. Within microfinance institutions (MFIs), it prefers Satin Creditcare Network Ltd, while among MSME lenders, it favours Five-Star Business Finance Ltd and Fedbank Financial Services Ltd (Fedfina).

The brokerage said its NBFC coverage universe of 23 companies reported strong Q2FY27 earnings with PAT growth sustaining at 40 per cent YoY against 41 per cent in Q1 on robust operating performance and flat provisions. Disbursement growth improved to 27 per cent YoY in Q2 from 26 per cent in Q1, lifting AUM growth to 21 per cent YoY in Q2 from 19 per cent in Q1.

"AUM growth improved across all segments while disbursement momentum strengthened for VFs, HFCs and MSME lenders and moderated for diversified NBFCs and MFIs. NII growth remained healthy at 26 per cent as an inch-up in yields offset early signs of rising CoFs following the repo rate hike. Headline asset quality was stable, with credit costs steady at 1.3 per cent," JM said.

However, rising net slippages, Stage-2 and early-bucket delinquencies at select lenders, alongside drought-like conditions in Maharashtra, Karnataka and Telangana, point to potential emerging stress in rural/agri-linked portfolios, it said.

JM said several lenders have tightened underwriting and calibrated disbursements in affected districts. Rate hikes and the IRDAI draft on insurance commissions add to near-term headwinds, it said.