Bajaj Finance, Bajaj Finserv, ABCL top Kotak's NBFC picks ahead of Q1 earnings

Shares of Bajaj Finance and Bajaj Finserv were in focus on Monday after Kotak Institutional Equities reiterated its positive stance on the NBFC sector ahead of the June quarter earnings season.

Bajaj Finance was trading 0.59% higher at Rs 1,037.50 on the NSE, while Bajaj Finserv was down 0.78% at Rs 1,880.90. The brokerage named the Bajaj twins and Aditya Birla Capital (ABCL) as its top large-cap picks.

Kotak said, "We expect most non-banks under coverage to deliver strong earnings" in the June quarter, forecasting core profit before tax (PBT) growth of 22-58% and earnings growth of 12-69%, driven by "healthy growth prints, stable asset quality defying seasonal weakness and yoy NIM expansion."

The brokerage expects broad-based strength across lending segments, noting that "channel checks and business releases to date suggest exceptionally strong demand/growth during the quarter across most segments-personal loans, vehicles, MSME, affordable housing, MFIs, etc."

On margins, Kotak expects most NBFCs to report year-on-year net interest margin (NIM) expansion of 9-80 basis points as lower borrowing costs continue to flow through earnings. It also expects "5-35 bps yoy reduction in credit costs for most players," supporting profitability.

Kotak believes improving liquidity conditions and easing concerns over fuel prices could result in a more optimistic management outlook. "We expect NBFCs to raise guidance on growth," it said, adding that diversified lenders are already delivering loan growth above 20%.

The brokerage also expects affordable housing finance companies to recover after a prolonged slowdown, saying they "have reported early signs of improvement in 4QFY26 and we expect a pickup in momentum in FY2027E."

Within its coverage universe, Kotak said, "We like Bajaj twins and ABCL the most, Aptus, Aadhar and Home First in the mid-caps."

The brokerage retained its positive stance on the sector, saying there is scope for earnings upgrades in a supportive economic environment, although recent gains in large-cap NBFC stocks have reduced valuation upside.