Bajaj Finance, a prominent non-banking financial company (NBFC) in India, has recently experienced market fluctuations, prompting questions about the stability of the broader NBFC sector. While the company has demonstrated strong year-to-date performance, recent declines and mixed technical indicators have raised concerns among investors and analysts.

Recent Stock Performance and Market Trends

As of July 29, 2025, Bajaj Finance's stock price stood at ₹887.00, reflecting an increase of 0.75%. This upward trend comes after three consecutive days of decline. Despite short-term challenges, the stock has shown a year-to-date increase of 29.87%, significantly outperforming the benchmark Sensex, which has risen by only 4.09% in the same period. However, the stock remains below its 5-day, 20-day, 50-day, and 100-day moving averages.

On July 25, 2025, Bajaj Finance's stock fell over 6% despite reporting a 22% year-on-year growth in net profit for the April-June quarter. This decline made Bajaj Finance the top loser in both the Nifty 50 and Nifty Financial Services indices. The fall was attributed to concerns over rising credit costs and asset quality pressures, particularly in the MSME and two-wheeler loan segments.

Underlying Concerns and Challenges

Several factors contribute to the concerns surrounding Bajaj Finance and the broader NBFC sector:

• Asset Quality: Deterioration in asset quality, especially in unsecured retail loans, has been a significant concern. Rising NPAs impact profitability and investor confidence. Gross non-performing assets (NPA) rose to 1.03% from 0.86% a year ago, and net NPA increased to 0.50% from 0.38%.
• Regulatory Scrutiny: Increased regulatory oversight by the Reserve Bank of India (RBI) has intensified, with some NBFCs facing temporary bans on business activities. Compliance with complex regulations imposes administrative and operational burdens.
• Funding and Liquidity: NBFCs face challenges in accessing funds compared to banks, as they cannot accept low-cost public deposits. They rely heavily on market borrowings, making them vulnerable to interest rate fluctuations and market conditions. Effective liquidity management is crucial for meeting financial obligations.
• Competition: The financial sector is increasingly competitive, with banks and FinTech companies offering innovative products at competitive rates.
• MSME Sector Stress: Stress in sectors served by NBFCs, including microfinance and MSMEs, is growing. Even traditionally stable segments like loans to doctors are showing strain.

NBFC Sector: Resilience and Challenges

Despite these challenges, the NBFC sector plays a crucial role in India's financial ecosystem by serving individuals and businesses underserved by traditional banks. NBFCs provide flexible financing solutions, fostering economic growth and inclusivity. Some sub-sectors, like Power Finance and Affordable Housing Finance (AHFC), are expected to be more resilient, with lower risks of asset quality deterioration and more stable loan growth.

To overcome these challenges, NBFCs are adopting various strategies:

• Investing in compliance management systems and hiring experienced compliance officers.
• Diversifying funding sources, including loans from banks, debentures, and partnerships with FinTech companies.
• Adopting advanced technologies, personalizing financial products, and enhancing customer service.
• Implementing robust credit assessment processes and using risk management tools to minimize NPAs.

Expert Perspectives and Future Outlook

Analysts have expressed mixed opinions on Bajaj Finance's near-term prospects. Some analysts at Goldman Sachs do not expect Bajaj Finance's growth to recover quickly, citing continued stress in some unsecured loan portfolios and limited scope for net interest margin expansion. UBS analysts also raised concerns, stating that the company's guidance on near-term credit costs and assets under management for FY26 was "weaker than expected".

Motilal Oswal suggests a cautious approach for investors, given the current turbulence in the NBFC sector. The heightened regulatory scrutiny, weakening asset quality, and moderation in loan growth are expected to keep the sector under pressure in the near term.

The festive season is being eyed with hope that increased consumption will alleviate the stress on loan repayments and asset quality for NBFCs.