NBFC stocks: Valuations turn attractive, says Emkay Global; likes Bajaj Finance, Shriram Finance, L&T Finance

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Also Read: PSU Bank index jumps 4.4% on BJP-led NDA govt confirmation“We expect the AUM growth trend to continue in FY25, registering 16-27% for most players, though we expect some impact of elections on overall disbursement in segments like Commercial Vehicles (CV) and CE leading to a softer Q1FY25. However, a good monsoon and increased infra spend by the government would result in strong rural & urban demand across segments like Vehicle, MSME, and Mortgage," Singh said in a note.However, margins remained under pressure for most NBFC on account of repricing of lower-rate borrowings.

To counter the increasing CoFs, most of the players have diversified their source of borrowing and have been lowering their dependency on banks, while improving their asset mix by increasing their share of high-yielding assets like lending to MSMEs or increasing their share of used vehicle lending, Singh added. He expects NIMs to improve by 10-90 bps owing to improving asset mix and moderating CoFs.Also Read: ITC shares: Emkay Global downgrades rating, cuts target price on near-term headwindsMoreover, asset quality for all the players continued to improve sequentially, led by superior customer selection and tightening of credit underwriting policy.

The brokerage firm expects the overall asset quality to remain stable, while it sees some players’ credit cost reducing on account of superior customer selection and improving product mix.“With the growth outlook for our coverage NBFCs remaining robust, the asset quality is expected to remain stable with the burden of past legacy reducing for some. The overall financial health remains strong and improving for our coverage universe.