Jefferies Sees Up to 72% Upside in NBFC Stocks on Strong Q4 Growth and Improving Asset Quality

Global broking has projected up to 72% upside in select non-banking financial company (NBFC) stocks, citing an expected 30% profit growth in the March quarter alongside stable margins and improving asset quality, even as geopolitical tensions in West Asia continue to weigh on broader market sentiment.

The broking's latest sector report shows that domestic financials are strong, with NBFCs becoming a key investment theme because of steady credit demand, disciplined lending practices, and better repayment trends.

Profit Growth and Earnings Momentum

According to Jefferies, NBFCs under its coverage are expected to deliver profit growth of around 30% in the fourth quarter of FY26, compared to 28% in the previous quarter. Excluding gold-focused NBFCs, profit growth is estimated at 22%.

The anticipated improvement largely results from a seasonally strong quarter marked by higher loan disbursements and better operating efficiency. The broking noted that earnings momentum remains intact across segments, supported by consistent demand and operational stability.

The March quarter is typically a high-activity period for lenders, and current trends suggest that this seasonal strength has translated into improved financial performance for NBFCs.

We expect loan growth, measured through assets under management (AUM), to remain robust. Jefferies estimates AUM growth at 18% year-on-year for covered NBFCs in Q4 FY26, which is slightly higher than the 17% growth recorded in the previous quarter.

Excluding gold loan companies, AUM growth is projected to remain stable at 16% year-on-year, indicating broad-based expansion across lending segments such as consumer finance, housing finance, and small- business loans.

Net interest margins (NIMs), a key profitability metric, are expected to remain range-bound on a quarter-on-quarter basis. The brokerage emphasized that while margins may not expand significantly, stability in NIMs reflects balanced funding costs and lending yields.

This combination of steady loan growth and stable margins is expected to support overall profitability in the sector.

Asset Quality and Credit Trends

A key positive highlighted in the report is the improvement in asset quality. Jefferies expects credit costs and asset quality trends to improve sequentially in Q4 FY26, supported by better repayment behaviour and controlled delinquencies.

The brokerage noted that the impact of geopolitical tensions, including developments in West Asia, has so far been limited on domestic credit trends. However, it cautioned that ongoing macroeconomic uncertainties will remain an important factor to monitor.

Improving asset quality is particularly significant for NBFCs, as it directly impacts profitability through lower provisioning requirements and stronger balance sheets.

Jefferies has identified several preferred stocks across different NBFC segments, with varying upside potential based on target price estimates.

Market Context and Key Monitorables

The report underscores that domestic financials remain relatively insulated from global volatility, positioning NBFCs as a key focus area for investors amid uncertain external conditions.

However, Jefferies emphasised that management commentary during upcoming earnings calls will be critical for assessing the sustainability of growth, particularly in light of global macro risks and evolving credit demand.

While the near-term outlook appears stable, the brokerage indicated that future performance will depend on continued strength in loan growth, asset quality trends, and the broader economic environment.