Bajaj Finance, other NBFC stocks outperform bank stocks after RBI bazooka. Should you still buy?

With Bajaj Finance shares rallying nearly 10% in two days, NBFC stocks have become the Street's favourite after the RBI front-loaded easing with a 50 bps repo rate cut and liquidity injection via a 100 bps CRR cut, a move that many are calling a monetary bazooka. While both banks and NBFCs stand to benefit from the RBI's front-loaded easing, the benefit is disproportionately higher for NBFCs, owing to their fixed-rate loan books and bulk borrowings.

"We prefer NBFCs and advise investors to sell banks into any sentiment-driven rally," said Seshadri Sen of Emkay Global, citing that the margin impact from front-ended rate cuts is still underappreciated by the market.

During Monday's trade, Bajaj Finance jumped over 4%, building on its 5% rally on Friday. The momentum spread across the space — Muthoot Finance, Cholamandalam Investment, PFC, and REC gained between 3 and 4%. The broader Nifty Bank index also touched a fresh high above 57,000, led by Kotak Bank and AU Small Finance Bank, both up around 3%.

According to Emkay Global, the RBI move is a clear positive for NBFCs, particularly those with high exposure to bank borrowings and a larger fixed-rate loan book (like gold and vehicle financiers). These NBFCs stand to gain meaningfully from lower cost of funds and improved NIMs (net interest margins) in H2FY26 and ahead.

“The overall actions and message from RBI are supportive of NBFCs and signal that the regulator is satisfied with the system’s stability and supports their growth. Encouragingly, the RBI has noted that stress in unsecured personal loans and credit cards has eased, which helps clear regulatory overhangs for these segments. With the cost of funding coming down and stress easing in a few segments, the NBFCs are set for risk-calibrated profitable growth, in our view,” Emkay said.

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Winners and watchlists

NBFCs like Shriram Finance, Aditya Birla Capital, LIC Housing Finance, Aadhar Housing, and Five Star Business Finance are among JM Financial’s top picks.

“For NBFC/mid banks having a higher share of fixed rate loans (like SHFL/MMFS etc.), positive impact on NIMs is contingent upon yield trajectory despite benefits on the cost of funding side. Due to loan mix shifting towards secured loan segments and pricing pressure in secured loans driven by elevated competition, is leading to pressure on yield,” JM Financial said.

For banks, the brokerage recommends Axis, ICICI Bank, SBI, and DCB, while flagging caution on broader sector valuations. As per their estimates, 100 bps repo rate cut could reduce NIMs by 20–40 bps, though the CRR cut could cushion 20–30% of that impact.

"NBFCs benefit more in a significant easing cycle than banks," said market expert Sandip Sabharwal, adding that their dependence on bulk borrowing makes rate transmission more immediate.

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What about valuations?

The rally in NBFC stocks hasn’t come out of the blue. Many of them have already outperformed the broader market over the past six months, prompting analysts to issue a word of caution.

“While falling interest rates are positive for NBFCs, concerns over muted asset growth and credit quality continue to weigh on sentiment. Much of the regulatory support and stable outlook are already priced into the NBFC stocks, which have outperformed the broader market over the past six months,” Emkay noted. They prefer Aditya Birla Capital for its NIM expansion potential, REC for strong RoE and yield, and Shriram Housing Finance for its risk-adjusted valuation.

IIFL, while acknowledging benefits from front-loaded rate cuts, expects less than 1% earnings upgrade for fixed-rate NBFCs. It prefers Cholamandalam, Five Star, and PNB Housing Finance as medium-term bets, citing better pricing power and balanced loan books.

The brokerage also pointed to regulatory tailwinds — higher LTV on small-ticket gold loans, relaxation on provisioning, and valuation tweaks — all of which benefit NBFCs more than banks.

The RBI’s aggressive easing cycle may have created a near-term windfall for NBFCs, but investors now need to be highly selective. Fixed-rate lenders, bulk borrowers, and those with clean books and pricing power are best placed to ride this tailwind.