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Bajaj Finance continued its streak of consistency in the March quarter (Q4FY26), with the non-banking financial company again delivering an over 20% growth in assets under management (AUM). This time, its AUM surpassed the ₹5-trillion milestone while it also maintained its sector-leading profitability metrics.

Net profit rose 22% year-on-year (y-o-y) to ₹5,550 crore, supported by 20% growth in net interest income and a sharp moderation in credit costs. Provisioning declined meaningfully as stress formation eased across key segments. On cue, the stock gained almost 1.5% on Thursday, outperforming the broader Nifty 50 index, which fell 0.5%.

Besides AUM growth, what enthused investors is the expected change in the quality of growth.

The drag from MSME stress and the captive 2- and 3-wheeler portfolios, which together weighed on asset quality and growth in FY26, appears largely behind the lender now.

The captive auto portfolio, despite forming less than 1% of AUM, had a disproportionate impact on credit costs and is expected to largely run down by September. MSME growth is expected to return to double-digits by Q2/Q3FY27 after deliberate portfolio pruning amid sector-wide stress.

That flips the headwinds into tailwinds, while also reflecting positively on asset quality. Stressed assets in Stage-2 and Stage-3 declined sequentially. Credit costs fell sharply from 2.9% in Q3FY26 to about 1.6% in Q4FY26 and are expected to moderate further to 1.45-1.60% in FY27.

The management reiterated FY27 AUM growth guidance of 22-24% – roughly twice the expected system growth rate, supported by the recovery in MSME lending and continued traction in secured segments. Gold loans remain the fastest-growing segment and their share of AUM is expected to rise from 3.5% currently to 5% by FY27, aided by accelerated branch expansion.

Net interest margin (NIM) moderated 9 bps sequentially to 9.5%, and operating expenses (opex) increased.

“Opex rose due to labour code impact, AI investments and accelerated gold loan branch rollout, pushing cost-to-income ratio up by 47bps QoQ,” as per JM Financial Institutional Securities.

In FY27, the management expects only a mild moderation in NIM, with the cost-to-income ratio likely to improve 25-40 bps, supported partly by scale benefits and AI-led efficiencies. The company processed about 600,000 loan applications using AI during the Diwali season in 2025 compared with 100,000 a year earlier. Processing capacity could reach 1 million loans during Diwali this year.

Profit growth, therefore, is expected to exceed balance-sheet growth in FY27 — a rare combination for a lender already operating at a big scale. Most brokerages now expect Bajaj Finance to deliver 26-28% EPS CAGR between FY26 and FY28, supported by operating leverage and stable asset quality trends.

To be sure, the management has noted that FY27 guidance hinges on recovery in macro and geopolitical stability. Thus, how AUM growth and credit costs pan out are key variables to watch out for.

Valuation is another concern, with the stock trading at about 4.4x FY27 book based on Bloomberg consensus estimates. Macquarie has flagged it as expensive, “given difficulty of sustaining a 4.6% RoA at this scale.”

Yet Bajaj Finance highlights that its share of India’s total credit market remains relatively small despite its balance-sheet size, suggesting a long runway for compounding. With MSME stress receding, captive auto runoff ending, secured lending expanding, and AI improving operating leverage, FY27 could mark the start of a cleaner growth cycle.

While geopolitical risks and valuations can limit near-term upside, structurally, the compounding story remains intact.

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