UBS has upgraded its rating to “neutral” from “sell” and raised its price target to ₹1,100 from its previous ₹910. This indicates an upside of 9% from its previous close. With this, UBS no longer features among the few “bears” of Bajaj Finance, and also one which had among the lowest targets on the street for the non-bank lender.
UBS cited Bajaj Finance’s cyclical Earnings Per Share (EPS) upgrades led by yield-accretive growth and strong asset quality. However, it remained “neutral” after the upgrade as its valuations remain “demanding.”
India is entering a strong credit growth cycle within the unsecured lending space, UBS said. This will be supported by healthy asset quality across banks and NBFCs, flat unsecured household leverage over the past three years, abundant system liquidity and a more risk-on stance from lenders. As a result, in such a scenario, UBS is of the view that NBFCs are better positioned than banks.
It also upgraded its rating on L&T Finance to “buy” from “neutral” and raised its target price to ₹380 from ₹350. The brokerage said it expects faster personal loan growth and return on assets improvement toward 3%.
The brokerage has maintained its “buy” ratings on Cholamandalm Investment Finance Company, Shriram Finance and Poonawalla Fincorp.
Among Banks, it said it sees ICICI Bank, HDFC Bank and Axis Bank benefiting from a pick-up in personal loans.
With gold prices stabilising and thus, likely gold loan growth moderation, a key substitute for personal loans over the past few years could lose some momentum, UBS said. This may benefit private banks and large NBFCs with strong personal loan franchises.
UBS said it is “neutral” on HDB Financial, SBI Cards and Mahindra & Mahindra Financial Services, as their loan growth continues to remain weak.
The brokerage said that unsecured leverage has been flat for three years. It defines unsecured lending as personal loans, microfinance, unsecured business loans and credit cards. After a three-year credit cycle, asset quality across these segments is at its best level in several quarters, except for residual stress in low-ticket business loans for NBFCs, UBS said.
The brokerage added that unsecured leverage in India rose from 6% of GDP in FY19 to 10% in FY24 but has since stabilized. Meanwhile, gold loans expanded from 1% of GDP to 5% by FY26, although growth is likely to moderate as gold prices flatten.
UBS said that in addition to improving asset quality across segments, CRIF’s August 2026 data points towards personal loan growth accelerating to 30% from NBFCs and 9% for banks, a two-year high.
The risk of a rate hike is largely priced in, according to UBS, who added that FCNR inflows worth ₹12 lakh crore to ₹13 lakh crore will create excess liquidity as the system credit demand is unlikely to absorb the entire pool in the near-term, as domestic savings flow remains stable.
This may support NBFC funding through bank lines and NCD markets, keeping funding conditions favourable, UBS said. It has built in a 15 to 20 basis points rise in FY27 funding cost, leaving a limited rate hike downside risk.
Shares of Bajaj Finance are trading 2.5% higher on Wednesday at ₹1,034.4. The stock is still up 7% so far this year.
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