Declines in non-banking financial company (NBFC) stocks this year have moved beyond a routine correction, with rising market uncertainty and global developments increasing investor concern. Pressure on the sector has intensified following the Iran–United States conflict that began on February 28, 2026, according to a brokerage report.
The report stated that investor sentiment has turned cautious amid multiple risk factors, raising questions over whether the ongoing decline represents elevated risk or a potential opportunity.
Global tensions have had a direct impact on the financial sector, with disruptions to fuel and gas supply increasing inflationary risks. Elevated inflation could delay interest rate cuts or keep rates higher for longer. This environment poses challenges for NBFCs, whose growth is significantly dependent on access to low-cost funding and sustained loan demand.
Risks linked to El Nino also remain significant. A weaker monsoon could directly affect the rural economy. A substantial portion of the NBFC sector is exposed to rural and semi-urban markets, and any decline in farm income or rural demand could affect both loan recoveries and fresh credit demand.
Despite these risks, on-ground indicators remain stable. The report noted no significant decline in credit demand so far, while loan collections continue to hold steady. Segments such as commercial vehicles, personal loans and microfinance have not shown material weakness, indicating underlying stability in the sector even as external risks increase.
Experts indicated that the sector’s stress test is yet to materialize. If the conflict persists and inflation rises further, the impact could gradually transmit to the broader economy. Higher petrol and gas prices may increase agricultural costs, and in the event of a weak monsoon, rural incomes could decline. This could affect the repayment capacity of small businesses and farmers, increasing risks for NBFCs and exerting pressure on asset quality.
The report also stated that in the event of a sharper deterioration, intervention from the government and the Reserve Bank of India (RBI) is possible. Measures similar to those implemented during the COVID-19 period, including relief packages, loan moratoriums or regulatory relaxations, could provide support to the sector and mitigate risks. It added that NBFCs are currently in a ber position compared to earlier periods, with improved balance sheets and greater resilience to absorb shocks.
Amid prevailing concerns, the decline in valuations has made NBFC stocks comparatively more attractive. According to experts, sector estimates for 2026 remain intact, while uncertainty persists for 2027.
Aditya Birla Capital, Shriram Housing Finance and L&T Finance have been identified among NBFCs with relatively ber balance sheets and growth visibility. These companies continue to remain on investor radar despite ongoing market volatility.
