Revival in vehicle sales key to sustained growth for NBFCs, Insurance sector: Emkay report

NEW DELHI: A sustained revival in vehicle sales is critical for long-term growth in the Non-Banking Financial Companies (NBFC) and insurance sectors, according to a report by Emkay Research.

While there is a broad consensus that stress in microfinance institutions (MFIs) and unsecured personal loans (PLs) is largely behind, so a pick-up in vehicle sales is now essential for continued recovery.

It stated, “MFI revival and unsecured PL stress being largely behind is now a consensus view; however, revival in vehicle sales is key for a sustained growth revival”.

The report pointed out that while regulatory changes have contributed to some volatility in capital market-linked stocks in the near term, they may also present attractive entry points for investors.

Despite this, the NBFC, insurance, and capital market sectors are still viewed as structural growth stories.

The recent outperformance of stocks in these segments during the past few quarters, however, appears to have already priced in expectations of revival in the second half of the fiscal year (H2), thereby capping any major upside in the near term.

The insurance sector, which includes both life and general insurers, had already entered the current financial year with tempered expectations.

This was due to several factors including regulatory changes from the previous year, a buoyant equity market which boosted the performance of unit-linked insurance plans (ULIPs) in Q1FY25, and the absence of a Motor Third-Party (TP) Tariff hike in FY26.

Given these headwinds, a weaker growth performance in Q1 did not come as a surprise.

For NBFC lenders, regulatory actions were anticipated to bring improvements in the second half of the fiscal year.

Credit costs were also expected to show a year-on-year (YoY) improvement, considering that the first quarter of the previous year was adversely impacted by an extreme heatwave and electoral activities.

However, the report noted that the trends observed so far, coupled with management commentaries, indicate that credit costs remain sticky and are similar to levels seen last year.

This has emerged as a disappointment for stakeholders expecting better performance in the current fiscal year. (ANI)