Jefferies picks 4 NBFCs with up to 20% upside that may continue outperforming Nifty, bank stocks. Here’s why

International brokerage Jefferies has picked four stocks — Bajaj Finance, Cholamandalam Investment and Finance Company, Aditya Birla Capital and Shriram Finance — to outperform the Nifty and bank stocks.

The brokerage’s positive view is driven largely by upgrades to earnings per share (EPS) and book value per share (BVPS) estimates, rather than multiple expansion.

Jefferies has set a target price of Rs 1,280 for Bajaj Finance, implying 19% upside; Rs 1,860 for Cholamandalam Investment and Finance Company, implying 20% upside; Rs 475 for Aditya Birla Capital, implying 15% upside; and Rs 1,210 for Shriram Finance, implying 8% upside.


The brokerage said earnings and asset-quality visibility are stronger, while valuations remain below the multiples seen at the start of the year. Although further re-rating may be modest, strong earnings growth and EPS upgrades should continue to drive outperformance.

Top picks - Bajaj Finance and Aditya Birla Capital offer healthy growth, lower exposure to rural risks and could see positive surprises on credit costs. Cholamandalam should benefit from broad-based segment momentum and lower credit costs, supporting a 28% EPS CAGR and 20% ROE over FY26-28E, Jeffires said.

At Shriram Housing Finance, spreads should surprise positively, but visibility on achieving the 18% growth target for FY27 remains the key trigger, with Jefferies expecting 17% growth.

The brokerage noted affordable housing finance companies should see improving loan growth drive earnings growth, while prime housing finance companies may lag as spreads are expected to remain under pressure until lending rates are raised.

Strong earnings, healthy momentum intact - NBFCs delivered strong earnings and asset quality in 1HCY26, with feedback suggesting growth and asset quality are holding up better than usual in the seasonally weak September quarter. Marginal cost of funds has inched up, but NIMs should remain range-bound as prospects of rate hikes have receded in the near term and bond yields have eased.

Asset quality trends remain healthy, while better-quality vintages originated over the past two years, particularly in unsecured lending that had seen stress earlier, are helping contain credit costs and creating scope for positive earnings revisions. Seasonal tailwinds for growth and asset quality in the second half should also help, although the base turns tougher.

Earnings to drive next outperformance

Despite the rally over the past three months, the sector is trading near its average P/B, with many large NBFCs still below their start-of-year multiples despite strong earnings and asset-quality delivery.

Earnings growth should remain strong, while asset-quality visibility is much better than at the start of the year. Bond yields have softened, and NBFCs can benefit from strong FCNR (B) inflows.

Further re-rating may be modest, but earnings growth and upgrades should drive stock performance over the next 6-12 months. Jefferies expects 23-28% EPS CAGR for Bajaj Finance, Aditya Birla Capital and Capri Global Capital, and 18% for Shriram Housing Finance over FY26-28E.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)