Non-banking financial company stocks can continue to outperform as their gains this year have been driven mainly by earnings upgrades and forward-rate benefits rather than higher valuations, Jefferies said. The brokerage expects earnings growth and revisions to remain the main drivers of stock performance over the next six to 12 months and reiterated its positive view on the sector.
NBFC stocks have gained 4% so far in CY26, outperforming banks and the Nifty by about 12 percentage points and 3 percentage points, respectively. Jefferies said the gains came largely from upgrades to earnings per share estimates, while valuation multiples for most stocks remain below their peak levels.
Earnings Lead
The brokerage said NBFC returns this year were driven by earnings revisions rather than a broad expansion in valuation multiples.
"NBFC returns have been driven mainly by earnings/EPS upgrades and lower bond yields, not by a re-rating," Jefferies said. It added that valuations for Bajaj Finance, ICICI, Shriram Finance, Piramal Enterprises, PNB Housing Finance and Bajaj Finserv remain below their peak levels despite the rally.
Jefferies expects earnings momentum to remain strong as asset quality stays stable and credit costs remain contained. It said better asset quality could support further expansion in positive earnings revisions, while seasonal tailwinds may also support earnings in the second half.
The brokerage expects earnings per share for its NBFC coverage universe to grow at a compound annual rate of 23% to 28% between FY26 and FY28. It expects assets under management to grow by 18% during the period.
Growth Outlook
Jefferies said the sector has delivered strong earnings and asset quality over the past 12 months, even as banks faced a weaker second quarter. The brokerage said its NBFC picks have outperformed banks over the past three months and continue to have stronger earnings momentum.
"Earnings growth should stay strong and AUM visibility is much better than at the start of the year," Jefferies said.
The brokerage said banks could also improve after the second half of the year, but expects NBFCs to continue to outperform in the near term. It expects 23% to 28% earnings growth annually and 18% AUM growth between FY26 and FY28.
Top Picks
Jefferies named Bajaj Finance, ICICI Bank, ABC and Shriram Finance as its top picks.
It said Bajaj Finance offers healthy growth and lower exposure to rural risks, while ICICI could benefit from an improvement in credit costs. The brokerage expects EPS growth of about 20% over FY26-FY28 for ICICI.
For Shriram Finance, Jefferies said wider spreads could support further growth in earnings, while the company's valuation remains below its historical range.
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