Credit cycle bottoming: Emkay’s top picks are Maruti, Shriram Fin, Bajaj Fin & IDFC First

Emkay Global expects a strong recovery in the credit cycle over the next two to three years, led by retail lending and supported by a gradual pick-up in wholesale credit. The brokerage believes concerns around penetration and leverage in retail are overstated, while the RBI’s liberalisation measures announced on October 1, 2025 should cushion some of the pressure facing wholesale credit.

According to Emkay, autos stand out as a key second-order beneficiary of the credit revival, while within financials, non-banking finance companies and mid-sized banks with strong exposure to unsecured and auto lending are better placed than larger banks. The brokerage has highlighted Maruti Suzuki, Shriram Finance, Bajaj Finance and IDFC First Bank as its top stock ideas from this theme.

Retail credit growth, which slowed to 11.6 per cent in FY25, is projected to accelerate to around 15 per cent in FY26, supported by improved liquidity, relaxation of lending restrictions and stronger consumer demand from fiscal stimulus. By FY27, Emkay expects retail credit to rise further to 17 per cent, as the consumption cycle gathers momentum, while wholesale lending should recover modestly to 10 per cent. The slowdown seen in FY25 was largely supply-driven, stemming from tight liquidity, weak deposit growth and regulatory tightening between November 2023 and November 2024. Demand, however, remains robust, with retail loan-to-GDP at 55 per cent and ample scope to rise further compared to global peers.

Wholesale lending, on the other hand, continues to lag due to structural challenges such as low inflation, banks’ risk aversion, the growing role of capital markets and weakening MSME credit. While corporate capex is picking up, reliance on debt has reduced. Emkay notes that the RBI’s liberalisation moves announced this month will help offset some of these headwinds over the coming quarters.

Another trend working in favour of NBFCs is the steady shift in credit market share. Banks’ share of corporate lending has already dropped by 580 basis points over the past five years to 49 per cent, as corporates increasingly turn to bond markets and NBFCs step up to serve retail borrowers. Emkay expects NBFCs to continue gaining ground, supported by their greater risk appetite and more aggressive retail lending strategies.

While the credit revival is a positive backdrop for lenders, Emkay said that banks may still face margin pressures and valuation headwinds, given asset-liability mismatches and persistent risk aversion. The brokerage sees stronger opportunities in consumer discretionary plays, especially autos, and in financials with meaningful retail and unsecured credit exposure.