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NBFCs enter earnings upgrade cycle as Q1FY27 validates cyclical recovery

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NBFCs enter earnings upgrade cycle as Q1FY27 validates cyclical recovery

Healthy loan growth across secured and unsecured segments, faster-than-expected credit-cost normalisation, relative moderation in funding costs, resilient margins and emerging operating leverage are supporting the earnings trajectory

NBFC earnings estimates rose 4% for FY27 and 1% for FY28 over three months, with vehicle finance leading upgrades. Asset quality has improved after nearly two years of stress, with better collections, lower slippages and faster credit-cost normalisation. Loan growth remains healthy across vehicle finance, housing, gold loans, MSME, personal loans and digital lending without a deterioration in risk discipline.Resilient margins and emerging operating leverage could support further earnings upgrades and valuation re-rating, despite macroeconomic and regulatory risks.

NBFCs are entering a new cyclical recovery, with the first-quarter FY27 earnings season showing broad-based improvement in loan growth, asset quality, margins and operating leverage. The strength of the recovery has already resulted in upward revisions to FY27 and FY28 earnings estimates across the sector. Unlike previous cycles, when earnings upgrades were primarily driven by lower-than-expected credit costs, the current recovery is being supported by multiple earnings levers. Healthy loan growth across secured and unsecured segments, faster-than-expected credit-cost normalisation , relative moderation in funding costs, resilient margins and emerging operating leverage are supporting the earnings trajectory, according to Motilal Oswal Financial Services . Advt

The NBFC lending coverage universe, excluding Muthoot Finance, PFC and REC, has seen around 4% and 1% upgrades to FY27 and FY28 earnings estimates respectively over the past three months. Over the past six months, the upgrades stand at around 6% and 3%.


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