Dalal Street enjoyed a solid bounce on Monday, recovering from dips earlier in the previous week. The Sensex jumped significantly, with the Nifty following suit. Analysts credited the rally to sustained buying from foreign institutional investors and positive momentum from certain heavyweights like Reliance Industries.

Markets were hoping for this positive tone to continue as a host of companies lined up to announce their fourth-quarter results, potentially offering direction for the coming days. However, the picture emerging from the non-banking financial sector tells a slightly more complicated story.

Mixed Signals from NBFCs

Several prominent NBFCs have been in the spotlight post-earnings, and the market reaction has been a bit of a head-scratcher. Take Shriram Finance, for instance. The company reported a 10 per cent year-on-year rise in standalone net profit for Q4FY25. Despite the profit jump, the stock slipped as much as 9 per cent intraday, extending a multi-day slide. A key factor highlighted was a dip in Net Interest Margin (NIM) quarter-on-quarter, partly attributed to excess liquidity on the balance sheet. While the company undertook significant technical write-offs to improve asset quality metrics (Gross Stage 3 assets), the immediate market mood seemed cautious.

L&T Finance presented a similar puzzle. The firm posted a 15 per cent rise in consolidated net profit for Q4 FY2024-25. Yet, its shares fell over 8 per cent intraday, marking its worst session since early April, before recovering slightly. The company also announced a strategic move to enter the gold loan market by acquiring Paul Merchants Finance’s gold loan business, aiming to accelerate growth in its secured portfolio.

In contrast, the preview for Bajaj Finance, scheduled to announce results shortly, paints a more bullish picture. Analysts expect strong loan growth driving healthy double-digit increases in Net Interest Income and net profit. Asset quality is also anticipated to remain stable, supporting the positive outlook. Bajaj Finance’s stock performance leading up to results has been strong, significantly outpacing the Nifty 50 in the recent quarter.

Why the Market Jitters?

The divergent market reactions highlight that while headline profit numbers are important, investors are digging deeper. For Shriram Finance and L&T Finance, the dips suggest concerns might revolve around factors like pressure on margins (NIMs), the scale and impact of technical write-offs, potential integration challenges or valuation scrutiny for acquisitions (in L&T Finance’s case), or simply profit booking after earlier gains. The optimism from some brokerages, who still see value and future growth, contrasts with the immediate market response, indicating a short-term focus on current metrics and potential near-term headwinds like excess liquidity impacting NIMs.

The outlook for the NBFC sector remains tied to credit growth, asset quality stability, and the ability to manage funding costs and margins effectively. While strategic moves like L&T Finance’s gold loan entry position companies for future growth, the market seems to be taking a cautious stance, scrutinising the immediate impact on profitability and balance sheets.

What can investors expect next? The varied performance post-earnings indicates selective evaluation. While Bajaj Finance’s anticipated strong results might reinforce confidence in market leaders, the reactions to Shriram Finance and L&T Finance suggest that the market might be factoring in near-term pressures or taking a moment to digest strategic shifts. Expect continued scrutiny of NIMs, asset quality, and management commentary on forward guidance.

Image Courtesy: X (Chennai Newz)