Nifty’s fastest mover Bajaj Finance is facing a growth bottleneck as its growing loan book raises red flags. What awaits us?

Bajaj Finance, the fastest gainer in the past year, shocked investors on Tuesday, falling 7% after it cut the company’s growth expectations in light of stress in the SME and captive 2W/3W segments. The stock has received mixed reviews from top brokers, leaving investors in a tight spot and wondering whether the momentum will hold in the medium term. Bajaj Finance’s one-year return of 49% not only beats the benchmarks Nifty (7%) and the BSE Sensex (6%), but is also significantly higher than the 14% return of the Nifty Financial Services index during the same period.

Also read: Bajaj Finance, Nifty’s fastest mover, faces growth bottleneck as growing loan book raises red flags. What awaits us?

The culprit

Bajaj Finance’s gross NPA and net NPA as of September 30, 2025 have increased to 1.24% and 0.60%, respectively, from 1.06% and 0.46% as of September 30, 2024.

Bajaj Finance, India’s largest NBFC by market capitalization, has been witnessing stress in its loan portfolio with the SME and 2/3 wheeler businesses leading the portfolio. With corrective measures, the company has cut 25% of its unsecured MSME volumes in the MSME sector and expects growth to stabilize at 10-12% in FY26.

This is likely to slow the company’s growth trajectory over the next two quarters. Management expects the worst to be over by Q4FY26/Q1FY27 and after that the company could recalibrate growth in the segment. For the company, new loans booked during H1FY26 rose 24% to 25.66 million from 20.66 million in H1FY25. Assets under management (AUM) rose 24% to Rs 4.62 lakh crore as on September 30, 2025, from Rs 3.74 lakh crore as on September 30, 2024. In a Q2 review, broker Axis Securities said the drag is in line with the company’s principle of pulling back on growth as the priority now is asset quality. “…driven by slower growth expectations in the mortgage sector (Bajaj Housing Finance) and the MSME segment (together accounting for 42% of the portfolio), management has lowered its growth expectations to 22-23% for FY26,” Axis said.The company uses credit costs at the top end of the 1.85-1.95% range for FY26.

In accounting jargon, credit cost refers to the total costs incurred by a lender due to credit risk and includes provisions for NPAs, write-offs and restructured and stressed accounts.

Motilal Oswal Financial Services (MOFSL) has forecast Bajaj Finance’s credit cost to remain between 1.95% and 1.8% for FY26 and FY27. The brokerage maintains a ‘neutral’ stance on the stock and has set a target price of Rs 1,160. MOFSL described the company’s second-quarter earnings as a mixed bag, highlighting that rich valuations and the absence of revaluation triggers could limit upside potential in the near term.

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New growth engines

Axis notes that newer segments such as gold, new car financing, LAP (loan against real estate) and tractor loans will partially offset the impact of the slowdown in these two segments. “We expect BAF’s growth momentum to return to the normalized growth rate of 24-25% CAGR over the medium term as the SME book resumes its growth trajectory,” the broker said, while maintaining a ‘buy’ view on the stock at a price target of Rs 1,200, increased from an earlier target of Rs 1,160.

Technical view

Deciphering the charts, Anuj Gupta, director of Ya Wealth Global Research, said Bajaj’s financial sector is hovering in a red zone and trading at a five-week low. It forms a lower top and lower bottom formation, indicating weakness, he said.

Placing a strong support at the Rs 990 level and resistance at the Rs 1,030 level, Gupta said a decisive close above Rs 1,030 could lead the rally towards the next resistance level of Rs 1,080 to Rs 1,100. If the stock is trading below resistance, a ‘sell on rise’ strategy could lead.

(Disclaimer: The recommendations, suggestions, views and opinions expressed by the experts are their own. These do not represent the views of The Economic Times.)