Tata Capital, Piramal Finance, L&T Finance: Nomura sees 21-26% upside on 3 NBFC stocks

Nomura on Thursday initiated coverage on four NBFC stocks, assigning a ‘Buy’ rating to Tata Capital Ltd, L&T Finance Ltd and Piramal Finance Ltd. The foreign brokerage also initiated coverage on HDB Financial Services Ltd with a ‘Neutral’ rating. It expects the four covered NBFCs to deliver high-teens to 20 per cent-plus loan growth compounded annually over FY26-28. Nomura said three of the four NBFCs to deliver return on equity (ROE) expansion of above mid-teens by FY28. 

"With our favorable outlook on loan growth and room for profit expansion we initiate coverage of Tata Capital with a Buy rating. We also initiate coverage of Piramal and LTF with Buy ratings given the structural transformations here, both have large long-term potential and can provide significant upside in the medium term," Nomura said.

The domestic brokerage said a recovery of loan growth momentum would be critical for a re-rating for HDB Financial Services. 

Nomura said the India lending sector is dominated by banks, with a more than 70 per cent share of system credit as of FY25. During FY19-25, banking system credit growth was just 2 percentage points slower than NBFC system credit growth. But in recent years, NBFCs are not just looking for new products to expand into but are also developing AI engines that could possibly disrupt lending processes in the industry.

For Piramal Finance, Nomura suggested a target of Rs 2,150, suggesting 21 per cent upside. It set a target of Rs 325 on L&T Finance, Rs 400 on Tata Capital and Rs 760 on HDB Financial Services, suggesting 13-26 per cent upsides. 

Nomura said the India NBFC sector is set to witness a steep rise in competition, as many lenders are now focused on expansion into new products and markets. Investment in and development of AI engines across the sector, it said, is increasing and could potentially drive structural transformations in lending processes. 

"There is currently a regulatory gap in this area, and anticipate the RBI will establish a framework regarding AI usage in the financial sector," Nomura said.