Synopsis : Jefferies expects the next phase of NBFC stock performance to be driven by earnings growth, improving asset quality and estimate upgrades rather than a broad valuation rerating. Aavas Financiers and Can Fin Homes offer the highest target-price upside among seven key picks, while Bajaj Finance and Aditya Birla Capital remain the brokerage’s top preferences.
Jefferies is turning selective on NBFC stocks, betting on earnings growth, improving asset quality and loan momentum
After a strong rally in several NBFC stocks, Jefferies believes the next phase of returns may look different.
The brokerage does not expect a broad valuation rerating across the sector. Instead, it believes earnings growth, estimate upgrades, improving asset quality and contained credit costs could become the main drivers of stock performance over the next 6-12 months.
Among its preferred names, Bajaj Finance and Aditya Birla Capital stand out as Jefferies’ top picks in consumer finance, while Cholamandalam Investment and Finance remains another key preference.
For investors looking at target-price upside, Aavas Financiers and Can Fin Homes stand out, with Jefferies seeing potential upside of around 35% and 33%, respectively, based on the reference prices used in its valuation table.
“Further rerating may be modest, but earnings growth and upgrades should drive stock performance over the next 6-12 months,” Jefferies said in its Consumer Finance report dated August 25, 2026.
The brokerage expects Bajaj Finance, Aditya Birla Capital and Cholamandalam Investment and Finance to deliver EPS CAGR of around 23-28% between FY26 and FY28. Shriram Finance is expected to deliver approximately 18% EPS CAGR over the same period.
Here is a closer look at Jefferies’ key NBFC stock calls.
Aavas Financiers: Highest upside at around 35%
Jefferies has maintained a Buy rating on Aavas Financiers with a target price of Rs 1,800.
Against the Rs 1,333 reference price used in Jefferies’ valuation table, this implies potential upside of approximately 35%.
The brokerage expects affordable housing finance companies to benefit from an improvement in loan growth, which could support earnings expansion.
Jefferies estimates that Aavas Financiers could deliver around 17% EPS CAGR between FY26 and FY28.
The broader opportunity lies in the affordable housing finance segment, where improving credit demand could support loan-book growth.
According to Jefferies, stronger loan growth could become an important driver of earnings for affordable housing finance companies.
For Aavas, the key factor will be whether this expected improvement in lending growth materialises while asset quality remains under control.
Can Fin Homes: Around 33% potential upside
Can Fin Homes is another housing finance stock where Jefferies sees significant target-price upside.
The brokerage has maintained a Buy rating and assigned a target price of Rs 1,075.
Compared with the Rs 810 reference price used in its valuation table, this indicates potential upside of around 33%.
Jefferies expects the housing finance sector to benefit from improving loan growth.
However, the brokerage also cautioned that prime housing finance companies could continue facing pressure on spreads until lending rates begin to rise.
Jefferies estimates Can Fin Homes’ EPS CAGR at around 9% between FY26 and FY28.
So, while Can Fin Homes offers one of the highest target-price upsides among the highlighted stocks, the earnings-growth outlook is more moderate compared with some of the consumer finance names.
Cholamandalam Investment: A key Jefferies preference
Cholamandalam Investment and Finance remains one of Jefferies’ preferred names in the NBFC sector.
The brokerage has maintained a Buy rating with a target price of Rs 2,100.
Against the Rs 1,847 reference price used in its valuation table, this implies potential upside of approximately 14%.
However, the attraction is not just the target-price upside.
Jefferies expects broad-based momentum across Cholamandalam's business segments and potentially lower credit costs to support strong earnings growth.
The brokerage estimates approximately 28% EPS CAGR between FY26 and FY28, along with core return on equity of around 20%.
“CIFC should gain from broad-based segment momentum and lower credit costs supporting 28% EPS CAGR, 20% ROE over FY26-28E,” Jefferies said.
For investors, the key factors to watch will be loan growth across its major business segments and whether improving asset quality helps keep credit costs under control.
Poonawalla Fincorp: Strongest earnings-growth estimate
Jefferies has maintained a Buy rating on Poonawalla Fincorp with a target price of Rs 560.
Compared with the Rs 476 reference price used in the report, this implies potential upside of around 18%.
What makes Poonawalla particularly interesting is Jefferies' earnings-growth estimate.
The brokerage expects the company to deliver the strongest EPS growth among the companies in its comparison set, with an estimated EPS CAGR of around 92% between FY26 and FY28.
The report also noted that Poonawalla has seen more than 20% accretion in first-year book value per share, supported by a capital raise.
Such a high projected earnings-growth rate also means execution will be critical.
Investors will need to watch whether loan growth, profitability and credit costs move broadly in line with Jefferies' expectations.
Shriram Finance: Spreads could surprise positively
Jefferies has maintained a Buy rating on Shriram Finance with a target price of Rs 1,210.
Against the Rs 1,119 reference price used in its valuation table, the implied upside is relatively modest at around 8%.
However, Jefferies expects the company's spreads to potentially surprise positively.
The bigger trigger for the stock, according to the brokerage, will be greater visibility on Shriram Finance achieving its 18% growth target for FY27.
Jefferies itself estimates FY27 growth at approximately 17%.
“At SHFL, spreads should surprise positively, but visibility on achieving 18% growth target for FY27 stays the key trigger,” Jefferies said.
The stock therefore represents a different kind of investment case.
Unlike Aavas Financiers or Can Fin Homes, where the target-price upside is higher, the focus for Shriram Finance is on execution, loan growth and the potential for positive surprises in spreads.
Jefferies expects Shriram Finance to deliver approximately 18% EPS CAGR between FY26 and FY28.
Bajaj Finance and Aditya Birla Capital remain Jefferies’ top picks
While Aavas Financiers and Can Fin Homes offer higher target-price upside based on Jefferies' valuation table, the brokerage's strongest preferences remain Bajaj Finance and Aditya Birla Capital.
Jefferies believes both companies offer healthy growth and have relatively lower exposure to rural risks.
The brokerage also sees room for positive surprises if credit costs remain better than expected.
“Top picks: BAF and ABCAP offer healthy growth, lower exposure to rural risks and can surprise positively on credit costs,” Jefferies said.
Jefferies expects Bajaj Finance, Aditya Birla Capital and Cholamandalam Investment to deliver EPS CAGR in the range of 23% to 28% between FY26 and FY28.
The brokerage's view is that the next phase of returns for these companies could come primarily from earnings growth rather than a major expansion in valuation multiples.
That distinction is important.
Even if price-to-book or price-to-earnings multiples remain stable, strong earnings growth can still support stock-price performance.
Why Jefferies is turning selective on NBFCs
Jefferies' broader argument is that fundamentals across the NBFC sector have improved even though valuations have not expanded at the same pace.
According to the brokerage, several large NBFCs are trading below their price-to-book multiples seen at the start of the year despite strong earnings and improving asset-quality trends.
One of the key positives is the quality of newer loan vintages.
Better-quality loans originated over the past two years, particularly in segments where unsecured lending stress had previously emerged, are helping contain credit costs.
This could create room for positive earnings revisions if the improvement continues.
Jefferies also expects seasonal tailwinds to support loan growth and asset quality in the second half, although it noted that companies will also face a tougher base.
“Better-quality vintages originated in the past two years esp in unsecured… are helping contain credit costs, creating scope for positive earnings revisions,” Jefferies said.
Earnings, not valuation rerating, could drive the next move
Jefferies' analysis suggests that much of the year-to-date performance in major NBFC stocks has already come from growth in book value and earnings expectations rather than a major expansion in valuation multiples.
The brokerage highlighted this trend in companies such as Shriram Finance, Bajaj Finance and Cholamandalam Investment.
“Stock prices at major NBFCs like SHFL, BAF, Chola was mostly driven by higher BVPS even as multiples compressed for most,” Jefferies said.
This is the core of Jefferies' current NBFC thesis.
The easy gains from valuation rerating may be limited.
But companies that continue delivering strong loan growth, improving asset quality and lower-than-expected credit costs could still generate positive returns through earnings growth and estimate upgrades.
Jefferies’ seven key NBFC picks
Aavas Financiers is rated Buy, with a target price of Rs 1,800 and around 35% potential upside based on Jefferies' reference price.
Can Fin Homes is rated Buy, with a target price of Rs 1,075 and around 33% potential upside.
Poonawalla Fincorp has a Buy rating and a target price of Rs 560, implying approximately 18% upside.
Cholamandalam Investment and Finance is rated Buy, with a target price of Rs 2,100 and around 14% upside.
Shriram Finance has a Buy rating and a target price of Rs 1,210, implying approximately 8% upside.
Bajaj Finance remains one of Jefferies' top picks because of its healthy growth outlook, lower rural exposure and potential for positive credit-cost surprises.
Aditya Birla Capital is also a top pick, supported by a similar combination of healthy growth, relatively lower rural exposure and potential upside from better-than-expected credit costs.
The Jefferies report also carries Buy ratings on several other financial-sector names, including AU Small Finance Bank, Aptus Value Housing Finance, HDB Financial Services, Home First Finance and Manappuram Finance.
What investors should watch
The next few quarters could be important for the NBFC sector.
Investors will be watching:
- Loan-growth momentum across consumer and housing finance.
- Asset-quality trends and the performance of newer loan vintages.
- Whether credit costs remain contained.
- Changes in lending rates and their impact on spreads.
- Growth in book value and earnings estimates.
- The ability of companies to maintain return on equity while expanding their loan books.
For Jefferies, improving fundamentals rather than valuation expansion appear to be the key theme.
Companies that deliver stronger-than-expected earnings or see positive estimate revisions could outperform even if sector-wide valuation multiples remain relatively stable.
Conclusion
Jefferies is not making a broad, indiscriminate call on the NBFC sector.
Instead, the brokerage is becoming selective.
Aavas Financiers and Can Fin Homes offer the highest target-price upside among the seven highlighted names, at around 35% and 33%, respectively, based on Jefferies' reference prices.
Poonawalla Fincorp stands out for its aggressive projected earnings growth, while Cholamandalam Investment remains a preferred growth play supported by broad-based momentum and potentially lower credit costs.
Shriram Finance offers the lowest target-price upside among the highlighted stocks, but Jefferies sees potential for positive surprises in spreads if the company delivers on its growth targets.
Meanwhile, Bajaj Finance and Aditya Birla Capital remain Jefferies' strongest preferences.
The brokerage's message is clear: the next phase of NBFC returns may not come from stocks simply becoming more expensive.
It could come from something more fundamental — stronger earnings, better asset quality, contained credit costs and upward revisions to growth expectations.
Disclaimer : This article is for informational and educational purposes only and does not constitute investment advice, a recommendation or an offer to buy or sell any securities. The ratings, target prices, estimates and views mentioned are based on Jefferies’ research report dated August 25, 2026, and reflect the brokerage’s opinions and assumptions at the time of publication.
Stock market investments are subject to market risks, and target prices or projected returns are not guaranteed. Investors should conduct their own research, consider their financial objectives and risk tolerance, and consult a SEBI-registered investment adviser before making investment decisions.
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