Bajaj Finance, HDB Financial, SHFL: 3 stocks to buy for up to 31% upside

Nirmal Bang Institutional Equities, in a fresh note, said it continued to remain positive on the NBFC sector, with Bajaj Finance Ltd, HDB Financial Services Ltd , and Shriram Finance Ltd (SHFL) as its three top picks. The brokerage noted that its NBFC universe delivered a strong June quarter, with aggregate PAT surging 42 per cent YoY and AUM expanding 21 per cent YoY, adding that the sector outlook remained positive, aided by anticipated FCNR(B) liquidity inflows. For now, the brokerage did not make any changes to its FY27-29 estimates.

Nirmal Bang has targets suggesting up to 31 per cent upside on its three preferred picks. HDB Financial is a 'Buy with a target of Rs 890, hinting at 31 per cent potential upside. Target for SHFL, another 'Buy',  is set at Rs 1,290. This target suggests 18 per cent potential upside. Bajaj Finance is also rated 'Buy' with a target of Rs 1,250, implying 16 per cent potential upside.

"NBFCs delivered a strong start to FY27 in 1QFY27, which is traditionally a weak quarter. Our NBFC universe reported PAT growth of 42 per cent YoY and 8 per cent QoQ on AUM growth of 21 per cent YoY and 5 per cent QoQ. Margins held up better than the funding backdrop suggested. NIMs declined 3 bps QoQ to 8.15 per cent, even as the year-long tailwind from cheaper liabilities ended," Nirmal Bang Institutional Equities said.

Nirmal Bang said diversified lenders including Bajaj Finance and HDB Financial saw improvement in Stage-3 assets sequentially in the June quarter while vehicle financiers such as Shriram Finance and Mahindra & Mahindra Financial reported a seasonal uptick. Credit costs rose 5 basis points QoQ to 1.7 per cent.

"Despite strong numbers across the board, the management commentary remained steady with no change in guidance, given uncertainty from the West Asia conflict and El Nino. With an improving liquidity scenario backed by FCNR(B) inflows, we expect margins to benefit and maintain our constructive stance on NBFCs, which have also undergone a strong recovery in asset quality over the past couple of years," Nirmal Bang said.

Diversified NBFCs are Nirmal Bang's preferred sub-segment, followed by vehicle financiers. "Our preferred picks are SHFL, BAF, and HDBFS," it said.