India's non-banking financial company (NBFC) sector is showing signs of a broad-based cyclical recovery, according to Siddhartha Khemka of Motilal Oswal Financial Services. The brokerage highlighted that first-quarter results for FY27 point to stronger loan growth across lenders, alongside improving asset quality, lower credit costs and emerging operating leverage.

The upturn comes after a period of pressure on the sector, when elevated credit costs and stress in unsecured lending portfolios had weighed on earnings at several lenders, with the latest quarterly results indicating that the recovery is now extending beyond a handful of large players to a wider range of lenders. NBFCs are a significant source of credit in India, particularly in segments such as consumer durables, two-wheelers, rural and microenterprise lending, where they often complement bank financing, so a broader pickup in their loan books is a widely watched indicator of underlying credit demand in the economy.

Earnings estimates for leading NBFCs are also being upgraded, Khemka noted, raising expectations of sustained profitability and a potential valuation re-rating across the sector's major names. For the recovery thesis to hold, investors typically track whether loan growth, asset quality and credit cost trends continue improving through the coming quarters.

Among individual stocks, Motilal Oswal has set a target price of Rs 1,300 for Bajaj Finance and Rs 380 for L&T Finance, both of which it views as positioned to benefit as the earnings recovery broadens. These are brokerage views and not investment advice.

Source: Economic Times Markets