NBFC Stocks: Nomura Sees 26% Upside in 3 Lenders

Nomura Initiates Coverage on Key NBFCs

International brokerage firm Nomura has initiated coverage on three prominent non-banking financial companies (NBFCs), assigning a 'Buy' rating to Tata Capital, L&T Finance, and Piramal Finance. The report highlights a significant shift in the sector, where companies are not merely expanding their product lines and geographical reach but are also investing heavily in Artificial Intelligence (AI) to reshape lending processes. This technological adoption is expected to be a key driver of growth and could allow NBFCs to challenge traditional banks over the next decade and a half. Nomura's analysis suggests that these strategic moves could unlock substantial value for investors, with potential upsides of up to 26% for the covered stocks.

A Bullish Outlook for the NBFC Sector

Nomura's positive stance is rooted in the belief that NBFCs are poised to grow faster than banks over the next 15 years. The brokerage forecasts that the NBFC share in the total system credit could increase to approximately 33% by the financial year 2041. This growth is partly fueled by the significant credit gap in the MSME sector, where traditional banks currently have a limited share of around 7-8%. NBFCs, with their agile structures and increasing use of technology, are well-positioned to cater to this underserved market. The development of sophisticated AI engines for underwriting, monitoring, and customer service is seen as a potential game-changer, enabling more efficient and accurate lending decisions.

Top Picks and Price Targets

Nomura's report provides specific price targets for the three NBFCs, outlining the potential returns for investors. Tata Capital leads the pack with the highest projected upside.

In addition to these, Nomura also initiated coverage on HDB Financial Services with a 'Neutral' rating and a target price of ₹760, citing concerns over its slower loan growth momentum.

Company Deep Dive: Tata Capital

Tata Capital, the financial services arm of the Tata Group, is identified as having the most significant growth potential. With assets under management (AUM) of approximately ₹2.6 lakh crore as of December 2025, the company has a well-diversified loan portfolio, with 60% in retail lending and 40% in SME and corporate loans. Housing finance constitutes a major part of its retail segment. Nomura projects a robust loan growth at a Compound Annual Growth Rate (CAGR) of about 23% between FY26 and FY28. The brokerage expects the company's return on assets (ROA) to improve to 2.3% by FY28, up from 1.7% in FY25, driven by lower credit costs in motor and business loans and expansion into higher-yielding products.

Company Deep Dive: Piramal Finance

Piramal Finance has been rapidly transforming its business model to focus on retail lending, which now accounts for 82% of its total loan portfolio. With an AUM of around ₹96,700 crore, it is classified as an upper-layer NBFC. Nomura is optimistic about its growth trajectory, forecasting an impressive AUM CAGR of 26% between FY26 and FY28. The brokerage believes that the challenges the company faced in the past are largely resolved and that there is significant scope to enhance branch productivity. A stable credit cost environment is considered a key factor for Piramal Finance to achieve a return on equity (ROE) of around 12% by FY28.

Company Deep Dive: L&T Finance

L&T Finance has been a strong performer, having nearly achieved the goals set out in its "Lakshya 2026" plan, including increasing its retail loan mix to 98% by December 2025. The company has made commendable progress in building AI engines for underwriting and monitoring, which are already showing positive results in asset quality. Nomura's 'Buy' rating is supported by the company's strategic focus on retail expansion into segments like gold loans and SME financing, which could help improve its net interest margins. The brokerage has set a price target of ₹325, implying a potential upside of around 20%.

The AI Transformation in Lending

The increasing investment in AI across the NBFC sector is a central theme in Nomura's report. This technological shift is expected to drive structural changes in how loans are processed, approved, and managed. While this innovation offers a competitive edge, Nomura also notes the current regulatory gap in this area. The brokerage anticipates that the Reserve Bank of India (RBI) will likely establish a formal framework to govern the use of AI in the financial sector, which will be a key development to watch.

Market Impact and Analysis

The initiation of coverage by a major brokerage like Nomura brings renewed focus to the NBFC sector's potential. The emphasis on AI-driven lending signals a move towards more data-centric and efficient business models. For investors, this highlights the importance of evaluating not just a company's loan book but also its technological capabilities. The projected growth rates for Tata Capital, Piramal Finance, and L&T Finance suggest strong confidence in their ability to execute their strategies and capture market share. However, increased competition and potential regulatory changes around AI are factors that will shape the industry's future.