- Gold-loan NBFCs led asset growth in 1QFY27, with Manappuram up 57% YoY and Muthoot 43%
- BofA Securities retains Overweight rating on Muthoot Finance and IIFL Finance bonds
- Asset quality improved or remained steady across six high-yield NBFCs in the June quarter
Gold-loan focused non-bank lenders posted the strongest show of the June quarter, with Muthoot Finance and IIFL Finance emerging as BofA Securities' preferred credits among India's high-yield non-banking financial companies (NBFCs), even as asset quality and profitability improved broadly across the sector.
In its June quarter (1QFY27) review of six Indian high-yield NBFCs, BofA Global Research said gold financiers led both sequential and annual asset growth, with Manappuram Finance's assets under management (AUM) up 57% year-on-year, followed by Muthoot Finance at 43% and IIFL Finance at 38%. Shriram Finance and Piramal Finance also posted healthy growth of 15% and 25% respectively, while Sammaan Capital returned to growth after last year's balance-sheet reset.
Asset quality trends were favourable across nearly all six lenders, the brokerage said, with gross and net non-performing asset ratios improving or holding steady through the quarter. Profitability also recovered meaningfully as credit costs normalised, particularly at Manappuram and IIFL Finance.
BofA is bullish on gold loan NBFCs in India and is overweight on two stocks.
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BofA retained its Overweight recommendation on Muthoot Finance and IIFL Finance bonds, citing improving fundamentals, strengthening credit profiles and relatively attractive spreads. Muthoot continues to benefit from a favourable gold-loan environment, resilient growth and contained credit costs, the brokerage said, while IIFL Finance's earnings trajectory and franchise strength support its case, with the company's ongoing income-tax matter seen as manageable given its balance-sheet strength.
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Shriram Finance, Manappuram Finance, Piramal Finance and Sammaan Capital remain Marketweight, BofA said, as strengthening credit metrics and recent rating upgrades are largely already reflected in current valuations.
On the macro backdrop, BofA's economists raised India's FY27 GDP growth forecast to 6.9% from 6.5% in June, citing stronger consumption and investment activity, even as geopolitical volatility persists. The brokerage expects the Reserve Bank of India to begin normalising policy from December 2026, taking the repo rate to 5.75% from 5.25% currently, as inflation stays contained despite weather-related risks from a weak monsoon.
Weather-related disruptions to rural cash flows and the longer-term effect of artificial intelligence-led job losses in select service industries are emerging risks worth monitoring for retail and small-business loan portfolios, BofA cautioned, even as the overall funding and liquidity backdrop for NBFCs remains supportive.
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