InCred turns upbeat on vehicle financiers; lifts outlook on key NBFCs

InCred Equities on Financial Services sector: Domestic brokerage InCred Equities has turned increasingly positive on vehicle financiers such as Shriram Finance and Mahindra & Mahindra Financial Services (MMFS) on the back of a constructive shift in sector trends and expectations of stronger momentum in the second half of FY26. 

 

The brokerage, which has ‘Add’ ratings with target prices of ₹870 for Shriram Finance and ₹380 for M&M Financial Services (MMFS), published its Financial Services Q2FY26 review dated November 21, noting that while lenders saw a seasonal slowdown in disbursements in the September quarter, several key indicators are pointing to an upturn. 

 

According to the analysts, disbursement growth remained soft across most lenders in Q2FY26 due to seasonality and increased caution in SME/MSME segments. However, secured lending is expected to pick up in the second half. A broad-based improvement in net interest margins (NIMs) among NBFCs, excluding Bajaj Finance (BAF) and SBI Cards, was aided by the rate cut, even as credit costs stayed elevated. Both NIM and credit cost trends are expected to improve going forward.

 

A large part of the constructive stance, analysts believe, comes from a sharp demand rebound in the vehicle financing segment. Disbursements were muted (<10 per cent Y-o-Y/Q-o-Q) during the quarter due to the anticipated GST rate cut, but activity surged from October 2025, with strong traction in passenger vehicles and small/light commercial vehicles. Used-vehicle demand also firmed up as inventory stabilised. Shriram Finance is scaling up new vehicle loans, while MMFS is gaining momentum in used vehicles. 

 

With credit costs largely stable (excluding MMFS) and NIMs improving, InCred Equities analysts expect a stronger H2 for these lenders, reiterating its high-conviction ‘Add’ on Shriram Finance (Target ₹870) and ‘Add’ on MMFS (Target ₹380).

 

The brokerage also reviewed the affordable housing segment, noting contrasting performance. Home First Finance Company (HFFC) adopted a cautious stance with modest 4 per cent Q-o-Q disbursement growth amid US tariff-linked stress, while Aavas Financiers posted a robust 36 per cent Q-o-Q rebound following last quarter’s recognition-led disruption. 

 

Both lenders expect a better second half, though InCred Equities remains watchful for oversupply risks in certain pockets. The brokerage maintains ‘Add’ ratings with target ₹1,650 for HFFC and target ₹2,100 for Aavas Financiers, citing favourable risk-reward profiles.

 

For Bajaj Finance, analysts observed a portfolio mix shift as the lender slowed SME loans but ramped up personal loans and gold lending. Credit costs remained elevated at 2 per cent and NIMs were flat. Despite this, the brokerage expects AUM growth to be driven by personal loans, mortgages and other secured products, reaffirming its high-conviction ‘Add’ rating on Bajaj Finance (Target ₹1,250).

 

On SBI Cards, the brokerage highlighted another subdued quarter with a 3 per cent Q-o-Q decline in revolver AUM, high campaign-driven opex and credit costs at 9 per cent. It maintains a ‘Reduce’ rating with a target of ₹700 on the back of mono-line concentration risk. For Spandana Sphoorty Financial, the brokerage retains Hold (Target ₹260) due to prevailing uncertainties, while ‘Add’ is maintained on Ugro Capital (Target ₹270) for its favourable risk-reward ratio. 

 

In the AMC space, QAAUM growth of 5-7 per cent Q-o-Q was led by inflows despite volatile markets, with yields remaining flattish and lower treasury gains weighing on profitability. 

 

InCred has ‘Add’ ratings on Nippon Life India AMC (Target ₹1,000), Aditya Birla Sun Life AMC (Target ₹1,100) and UTI AMC (Target ₹1,600), while maintaining ‘Hold’ on HDFC AMC (Target ₹5,800) given stretched valuations.