Bajaj Finance : UBS Upgrade and Unsecured Credit Cycle

Executive Summary Shares of Bajaj Finance Ltd. advanced 2.5% (trading at ₹1,034) following a rating upgrade by UBS from "Sell" to "Neutral." The brokerage concurrently raised its target price from ₹910 to ₹1,100, representing a 9% upside from its previous close. This strategic pivot removes UBS from the street's most bearish consensus on the stock, citing strong cyclical Earnings Per Share (EPS) revisions driven by yield-accretive growth and robust asset quality. The rating remains "Neutral," however, due to the stock's historically demanding valuation multiples. Macro Outlook: Unsecured Credit Cycle Accelerating UBS anticipates that India is entering a vigorous credit growth cycle within the unsecured lending space (comprising personal loans, microfinance, and credit cards). This outlook is underpinned by: Healthy Asset Quality: Asset quality across banks and NBFCs is at its best level in several quarters following a three-year credit cycle. Stable Leverage: Unsecured household leverage has stabilized at ~10% of GDP over the past three years. Shifting Loan Dynamics: As gold prices stabilize, the moderation in gold loan growth is expected to drive substitution demand toward personal loans, structurally benefiting large NBFCs. Accelerating Growth: Recent CRIF data (August 2026) indicates personal loan growth has accelerated to a two-year high of 30% for NBFCs and 9% for banks. Liquidity & Funding Tailwinds Systemic liquidity remains abundant, largely supported by projected FCNR inflows of ₹12-13 lakh crore. Since systemic credit demand is unlikely to fully absorb this liquidity amid stable domestic savings, funding conditions for NBFCs through bank lines and NCD markets are expected to remain highly favorable. UBS has modeled a conservative 15-20 bps rise in FY27 funding costs, noting that rate hike risks are already adequately priced in.