Indian Economy News

NBFCs enter new cyclical recovery, PAT seen rising 24% in FY27: Motilal Oswal

Non-banking financial companies (NBFCs) are entering a new cyclical recovery, with improving loan growth, asset quality and profitability expected to drive a broad-based earnings upgrade, according to a report by Motilal Oswal Financial Services. The brokerage expects profit after tax (PAT) for its NBFC coverage universe to grow 24% in FY27 and 18% in FY28, with the 1QFY27 earnings season validating this recovery, supported by healthy loan growth across secured and unsecured segments, faster-than-expected normalisation in credit costs, moderation in funding costs, resilient margins and improving operating leverage. Diversified NBFCs' PAT is projected to rise 40% in FY27 and 28% in FY28, while vehicle financiers' PAT is expected to grow 39% and 18% respectively, and housing finance companies are likely to see more moderate PAT growth of 8% in FY27 and 13% in FY28.

The report flagged risks including the ongoing West Asia crisis, which could push up crude oil prices and domestic inflation, potentially delaying monetary easing and raising borrowing costs. Monsoon conditions and a possible El Nino development were also flagged as key monitorables, particularly for rural-focused lenders, as weaker rainfall could hurt rural incomes, reduce credit demand and raise delinquencies in microfinance and vehicle financing. Motilal Oswal expects interest rates to rise by 25-50 basis points over the next 6-9 months, which could pressure margins for NBFCs with limited pricing power. Asset quality was highlighted as the "most notable surprise," with collection efficiencies improving and fresh slippages moderating after nearly two years of stress in microfinance and unsecured loans, with the sector's focus now shifting from recovery to the durability of the earnings and return-ratio cycle.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.