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The NBFC and insurance segments are expected to perform better in the second half of FY26, supported by a friendlier regulatory environment and continued growth push from both regulators and the government, according to a report by Emkay Research.
The report noted that easing regulations in both the NBFC and insurance sectors, along with growth-focused measures by authorities, are setting the stage for a stronger performance in the second half of the fiscal year. It stated, "Easing of the regulatory environment in both--the NBFC and Insurance spaces, and growth impetus by the regulators and the government, set the platform for stronger performance in H2FY26." However, the performance in the first quarter (and possibly the second quarter) has not been very encouraging. For NBFCs, key indicators such as AUM growth, asset quality, and credit cost have shown limited improvement. Similarly, insurance companies have not reported strong growth in recent quarters. A positive development highlighted in the report is that the stress in the unsecured personal loan segment and the challenges in the microfinance institution (MFI) space are now largely behind, with consensus forming around this view. However, for a broader and more sustained revival in credit growth, recovery in vehicle sales will play an important role. The report alsp cautioned that recent and upcoming regulatory changes could lead to near-term volatility in capital market-linked stocks. However, such volatility may also present attractive entry opportunities for investors. Despite some short-term uncertainties, investors continue to see NBFCs, insurance companies, and capital market players as structural investment stories. The recent outperformance of their shares appears to reflect expectations of the H2FY26 revival, which may cap any near-term upside. The report further added that a frontloaded 100 basis points repo rate cut by the RBI in CY25, the reversal of increased risk weights on bank loans to NBFCs, and more lenient provisioning norms for project finance are all expected to support stronger growth and profitability for NBFCs, mainly driven by net interest margin (NIM) expansion. This improvement may come with a slight delay. In addition, better temporal and spatial distribution of the monsoon so far is aiding rural recovery. Coupled with multiple government initiatives aimed at boosting growth, this is likely to support increased credit demand across sectors. (ANI)
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