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Top NBFC Stocks for Long-Term Financial Investments in the Share Market of India

Top NBFC Stocks for Long-Term Financial Investments in the Share Market of India
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NBFCs play a crucial role in the financial ecosystem, offering a wide range of financial services and products to individuals and businesses. From consumer loans to commercial lending and investment products, NBFCs and NBFC Stocks have carved a niche for themselves in the financial sector.

In this blog, we will provide you with valuable insights and guidance on what are NBFCs and how you can invest in NBFC stocks. In short, we will be equipping you with the knowledge necessary to make informed investment decisions.

What are NBFC Stocks?

NBFC stocks refer to the stocks or shares of Non-Banking Financial Companies (NBFCs) that are listed and traded on the stock exchanges. These stocks represent ownership in NBFCs, which are financial institutions that provide various financial services similar to banks but do not hold a banking license. 

Investing in NBFC stocks allows individuals to participate in the growth and profitability of these NBFC companies in India and potentially earn returns through capital appreciation and dividends. 

Top NBFC Stocks List

Here’s the list of the best NBFC stocks, these are the top NBFCs in India:

Best NBFC StocksMarket Cap (in Cr)Share Price1Y Returns
Indian Railway Finance Corp Ltd₹1,90,930₹145.3175.63
Edelweiss Financial Services Ltd₹6,278₹73.35103.13
Motilal Oswal Financial Services Ltd₹26,659₹1,825.278.00
Tata Investment Corporation Ltd₹34,829₹7,228.0565.41
Ugro Capital Ltd₹2,190₹248.2565.11
Cholamandalam Investment and Finance Company Ltd₹1,00,565₹1,194.7561.49
Pnb Gilts Ltd₹2,058₹115.960.78
Shriram Finance Ltd₹92,668₹2,556.4556.38
Consolidated Finvest & Holdings Ltd₹787₹249.947.64
Sindhu Trade Links Ltd₹4,556₹29.2541.08
Disclaimer: Please note that the above list is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing.

Note: The data in the NBFC company list is from 23rd January 2024.  However, for real-time updates on stock prices and market trends, visit the smallcase stocks collection today!

Why Invest in NBFC Stocks?

Here are some key features of NBFC Stocks that make it an attractive investment:

  • Financial Services Focus: NBFC stocks represent NBFC companies listed on BSE & NSE primarily engaged in providing financial services such as lending, investment, leasing, and asset management. These listed NBFC companies in India cater to the diverse financial needs of individuals and businesses.
  • Non-Banking Institutions: Unlike traditional banks, NBFCs are non-banking institutions that do not hold a banking license but offer similar financial services. As a result, investing in NBFC stocks provides exposure to the financial sector without relying solely on traditional banks.
  • Diverse Product Portfolio: The top NBFC in India offer a wide range of financial products and services, including retail and corporate loans, housing finance, vehicle finance, asset management, insurance, and more. This diverse product portfolio can contribute to revenue generation and growth opportunities for the company.
  • High Growth Potential: Many NBFCs have witnessed significant growth in recent years due to increased demand for financial services, a rising middle-class population, and government initiatives promoting financial inclusion. This growth potential can attract investors looking for listed NBFC companies in India with strong growth prospects.
  • Dividend Income: Some NBFCs distribute a portion of their profits as dividends to shareholders. Investing in these dividend stocks can provide potential dividend income, which can be appealing to income-seeking investors.

Investors should always be mindful about their investment goals and risk appetite before purchasing any stocks, thorough research of the market conditions and stock performance would always help them gain the financial freedom.

Overview of the Top NBFC Companies in India

Now let’s look at a brief overview of the top NBFC companies in the NBFC industry in India, from our curated NBFC share list. These are great examples of NBFC stocks in India. 

Bajaj Finance

Bajaj Finance, the larges listed NBFC in India by capitalization, provides a diverse range of financial products and services, catering to consumer loans, commercial loans, and investment products. With a solid position in the Indian economy, Bajaj Finance stands to benefit from the growing demand for financial services. It is one of the top listed listed NBFC companies in India.

Chola Investment and Finance

Chola Investment and Finance, a leading listed NBFC in India, offers an extensive portfolio of financial products and services, including vehicle loans, home loans, and SME loans. Known for its impressive profitability and growth, Chola Investment and Finance has established itself as a trusted player in the market. It is one of the best NBFC listed companies.

Bajaj Holdings and Investments

Bajaj Holdings and Investments, a well-managed holding company, holds a controlling stake in Bajaj Finance and has strategic investments in other financial services listed NBFC companies in India. It is a listed NBFC in India. With a strong financial position, Bajaj Holdings and Investments contribute to the stability and growth of its subsidiary. It emerges as a top NBFC company in India.

Shriram Finance Ltd

Shriram Finance generated an impressive operating revenue of Rs. 32,945.66 Cr. in the last 12 months, boasting an outstanding annual growth rate of 58%. The pre-tax margin stands at a commendable 27%, reflecting strong financial performance. Additionally, the return on equity (ROE) is a solid 13%, making it one of the top stocks in the NBFC penny stocks list.

Muthoot Finance Ltd

Muthoot Finance generated Rs. 13,362.32 Cr. in operating revenue over the last 12 months. Although there’s a -2% annual revenue de-growth that requires attention, the pre-tax margin stands at an impressive 41%, reflecting strong financial performance. Additionally, the return on equity (ROE) is a commendable 16%, making it one of the best NBFC companies India. 

Indian Railway Finance Corp Ltd

Indian Railway Finance Corporation generated an impressive operating revenue of Rs. 25,899.53 Cr. over the past 12 months, showcasing an outstanding annual growth rate of 18%. With a commendable pre-tax margin of 27% and a solid return on equity (ROE) standing at 13%, the corporation’s financial performance remains robust, making it another top contender on the NBFC stocks list NSE. 

L&T Finance Holdings Ltd

L&T Finance Holdings generated Rs. 13,085.61 Cr. in operating revenue over the past 12 months. While an 8% annual revenue growth is positive, there’s room for improvement in the -4% pre-tax margin. The ROE stands at 7%, which is fair but also warrants enhancement.

Sundaram Finance Ltd

Sundaram Finance earned Rs. 6,183.23 Cr. in operating revenue over the past year. Achieving an 8% annual revenue growth and a 13% Return on Equity (ROE) reflects positive performance.

Poonawalla Fincorp Ltd

Poonawalla Fincorp generated Rs. 2,706.63 Cr. in operating revenue over the last 12 months. Although there’s a -2% annual revenue de-growth, the pre-tax margin stands at an impressive 39%, signaling strong financial performance. The ROE is currently 9%, indicating room for improvement. It is yet one of the top shares in the NBFC bank list.

How to Evaluate NBFC Stocks? 

When it comes to evaluating NBFC (Non-Banking Financial Company) stocks, there are several methods you can employ to make informed investment decisions. Here are three key approaches:

Fundamental Analysis for NBFC Stocks

The fundamental analysis involves delving into the financial health, performance, and future prospects of an NBFC. This entails analyzing factors such as revenue growth, profitability, asset quality, capital adequacy, and compliance with regulatory standards. By scrutinizing financial statements, ratios, and key performance indicators, you can assess the overall strength and stability of the company.

Technical Analysis

The technical analysis revolves around studying stock price patterns, volume trends, and market behaviour to guide investment decisions. By utilizing charts, trend lines, moving averages, and other technical indicators, you can identify patterns, support and resistance levels, and potential entry or exit points. Technical analysis provides insights into short-term price movements and market sentiment.

Evaluation of Management and Corporate Governance

The management team and corporate governance practices have a significant impact on the success of an NBFC. Assess the qualifications, experience, and reputation of the company’s leadership. Moreover, look for transparent communication, ethical practices, and a strong commitment to shareholder interests. Evaluating management quality helps gauge the company’s ability to navigate challenges and make sound strategic decisions.

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Factors Influencing NBFC Stocks

Several factors can influence the performance and NBFC share price NSE. Understanding these factors is crucial for investors looking to make informed investment decisions. Some key factors that can influence NBFC stocks include:

Macroeconomic Factors 

The overall economic environment, such as GDP growth, inflation rates, interest rates, and government policies, can impact the performance of NBFC stocks. Economic conditions play a significant role in determining credit demand, borrowing costs, and regulatory frameworks, which can affect the profitability and growth potential of NBFCs.

Regulatory Environment

NBFCs are subject to specific regulations and guidelines set by regulatory bodies such as the Reserve Bank of India (RBI) in India. Changes in regulations, capital adequacy requirements, lending norms, or compliance standards can have a significant impact on the operations and profitability of NBFCs. Investors should closely monitor regulatory developments and assess their potential impact on NBFC stocks.

Asset Quality and Credit Risk

The quality of assets and the management of credit risk are critical factors in assessing the performance of NBFC stocks. Investors should evaluate the loan portfolio of NBFCs, including the concentration of risk, asset quality, provisions for bad loans, and overall credit risk management practices. Factors such as default rates, non-performing assets (NPAs), and loan recovery rates can significantly impact the financial health of NBFCs. Consequently, NBFC finance share prices.

Industry and Competitive Landscape

The competitive dynamics within the financial services industry, including the presence of other NBFCs, banks, and fintech companies, can influence the performance and NBFC share prices. Investors should assess the market positioning, market share, product differentiation, and competitive advantages of NBFCs within their respective sectors to understand their growth prospects and competitive risks.

Market Sentiment and Investor Confidence

Market sentiment, investor perception, and overall confidence in the financial markets can impact the demand and pricing of NBFC shares. Factors such as general market conditions, investor risk appetite, geopolitical events, market capitalisation and global economic trends can influence investor sentiment towards NBFC shares. To make better investment decisions, regularly check NBFC share prices on BSE and NSE.

Features of NBFC Stocks

Navigating the realm of Non-Banking Financial Companies (NBFCs) requires a keen understanding of their key features. Here are essential aspects to consider when delving into NBFC stocks:

  • Deposit Tenure and Types: NBFCs are authorized to accept or renew public deposits for durations ranging from 12 to 60 months. However, they cannot accept deposits repayable on demand.
  • Interest Rate Regulations: NBFCs are bound by the regulations set by the Reserve Bank of India (RBI) regarding interest rates. Currently capped at 12.5% per annum, these rates may be paid or compounded at rests not shorter than monthly rests.
  • Restrictions on Incentives: Unlike some traditional banking institutions, NBFCs are prohibited from offering gifts, incentives, or additional benefits to depositors.
  • Credit Rating Requirements: With the exception of specific Asset Finance Companies (AFCs), NBFCs are mandated to maintain a minimum investment grade credit rating.
  • Deposit Insurance: It’s crucial to note that deposits with NBFCs are not insured, and the repayment of deposits by these companies is not guaranteed by the RBI.
  • Mandatory Disclosures: NBFCs must provide comprehensive information about the company in the Application Form when soliciting deposits. This includes vital details about their financial health and operations.

Risks of Investing in NBFC Stocks

Investing in NBFC (Non-Banking Financial Company) stocks comes with its fair share of risks that you should be aware of. Let’s take a look at some of these risks:

Regulatory Changes

One of the risks is the potential impact of regulatory changes. Governments can introduce new regulations or policies that may affect the operations and profitability of NBFCs. It’s important to stay updated on any regulatory developments and understand how they might impact the specific NBFC stocks you’re considering.

Credit Risk

NBFCs primarily deal with lending, which means they are exposed to credit risk. If borrowers default on their loans or the quality of the loan portfolio deteriorates, it can have negative consequences for the NBFC’s financial health. When evaluating NBFC stocks, it’s crucial to assess the creditworthiness of borrowers and keep an eye on the overall loan portfolio quality.

Liquidity Risk

NBFCs rely on various funding sources, such as borrowing and commercial paper, to finance their operations. However, they can face liquidity challenges if they encounter difficulties in accessing funds. Monitoring the liquidity profile and funding sources of NBFCs is important to ensure they can meet their financial obligations.

Interest Rate Sensitivity

Interest rates play a significant role in the profitability of NBFCs. Changes in interest rates can impact borrowing costs, loan demand, and the overall margins for NBFCs. Keep in mind that fluctuations in interest rates can result in volatility in the stock prices of NBFCs. Therefore, it’s essential to assess the interest rate sensitivity of the NBFCs you’re considering for investment.

Economic and Market Factors

NBFCs are influenced by broader economic and market conditions. Factors such as economic slowdowns, market volatility, and industry-specific risks can affect the performance and NBFC share price. It’s crucial to evaluate the macroeconomic environment and the industry outlook when analyzing NBFC shares.

Corporate Governance and Management Risks

The quality of corporate governance and management practices in NBFCs can significantly impact their stability and long-term prospects. Assessing the track record, experience, and integrity of the management team is important. Additionally, look into the effectiveness of corporate governance mechanisms to gain confidence in the management of the NBFCs you’re considering.

Tips for Investing in NBFC Stocks

Here are some effective tips for investing in NBFC stocks:

  • Do Your Homework: Before diving into NBFC stocks, make sure to do your research. Learn about the different types of the top 100 NBFC Companies in India and how they operate. Take a deep dive into their financial performance, including revenue growth, market capitalisation, profitability, and debt levels.
  • Don’t Put All Your Eggs in One Basket: Diversification is key to managing risk in your investment portfolio. While NBFC stocks can be attractive, it’s important to diversify your investments across various sectors and asset classes.
  • Stay Informed: Keep an eye on market trends and news related to NBFC Companies. Stay updated on economic factors, interest rate changes, regulatory updates, and industry-specific developments that may impact NBFC stocks. Regularly check the NBFC share price on NSE and BSE. Being well-informed allows you to make smart investment choices and take necessary actions when needed.
  • Consider the Regulatory Landscape: Understand the regulatory environment that governs NBFCs. Stay aware of the guidelines and restrictions they operate under. Keep an eye on any regulatory changes that may affect their operations or profitability. Also, look into the compliance history of the NBFCs you’re interested in to ensure they have a good reputation.
  • Think Long-Term: It’s important to approach NBFC stock investments with a long-term perspective. Look beyond short-term market fluctuations and focus on the potential growth and sustainability of the NBFCs you’re considering. Patience and a long-term view can often lead to better investment outcomes.

Advantages of Investing in NBFC Stocks

Investing in NBFC (Non-Banking Financial Company) stocks or the best NBFC in India can be a smart move for several reasons. Let’s dive into the advantages:

  • High Potential Returns: One of the exciting aspects of NBFC shares is their potential for impressive returns. These companies operate in sectors like lending, insurance, and asset management, which can lead to significant growth and profitability. Therefore, if you choose well-managed NBFCs with strong risk management practices, you could enjoy attractive returns on your investment.
  • Diversify Your Portfolio: Adding NBFC stocks to your investment portfolio is a great way to diversify. NBFCs operate in different sectors, offering exposure to various segments of the economy. Hence, by spreading your investments across sectors and asset classes, you can reduce risk and potentially boost your overall portfolio performance.
  • Ride the Financial Sector Growth: NBFCs are part of the financial sector. Which plays a crucial role in driving economic growth. As the economy expands, the demand for financial services such as loans, insurance, and wealth management tends to rise. So, by investing in NBFCs, you can ride the wave of this growth. And benefit from the increasing financial needs of individuals and businesses.
  • Flexibility and Innovation: NBFCs are known for their flexibility and ability to innovate. Unlike traditional banks, they can quickly adapt to changing market conditions and tailor their financial products to meet specific customer needs. This flexibility allows them to seize opportunities and serve niche segments that may not be well-served by banks.

To Wrap It Up…

Investing in NBFC stocks offers unique opportunities and challenges for investors. The growth potential of the NBFC sector in India, coupled with the diverse range of financial products and services offered, makes it an attractive investment option.

However, it is important to approach NBFC stock investments with caution and careful consideration. Conducting thorough research, building a diversified portfolio, and staying informed about market trends and news are essential steps to make informed investment decisions.

FAQs

1. What are the best NBFC Stocks to buy in India?

India top NBFC companies are listed below. The best NBFC Stocks to buy in India are:
1. Bajaj Finance
2. Chola Investment and Finance
3. Bajaj Holdings and Investments

Note: This list is for educational purpose only and not recommendatory.

2. How can I invest in NBFC stocks?

Learn about the different types of NBFC Companies cap finance and how they operate. Take a deep dive into their financial performance, including revenue growth, market capitalisation, profitability, and debt levels.

3. Is it a good time to invest in NBFC stocks?

In the years ahead, NBFCs in India possessing robust business models, ample capital, proficient underwriting capabilities, and a digital strategy focus will sustain better performance and growth.

4. Who Should Invest in NBFC Sector Stocks?

When buying a listed NBFC in India online, ensure you do not need prior RBI approval for your chosen transaction. In specific situations, the acquirer must seek RBI approval before initiating the process, while in others, no such prior approval is necessary.

5. Can NBFC stocks be profitable for investors?

These companies operate in sectors like lending, insurance, and asset management, which can lead to significant growth and profitability. Therefore, if you choose well-managed NBFCs with strong risk management practices, you could enjoy attractive returns on your investment.