Mixed Signals at Bajaj Finance Strong Q2, but Growth Forecast Pulls Market Back

When Bajaj Finance Limited reported its second-quarter results, the numbers on the surface looked solid: profit climbed, customer additions were high, and the asset base grew meaningfully. Yet, despite these positives, the stock fell sharply — a nearly 6% drop on the day — thanks to a cautious note issued alongside the results.

Here’s a breakdown of what’s going on and what investors should keep an eye on.

Strong performance, but with some caveats

In Q2, Bajaj Finance posted a year-on-year profit increase of around 22%, and net interest income also grew approximately 22%. Their Assets Under Management (AUM) expanded by about 24% to around ₹4.62 lakh crore. Additionally, the customer base rose to roughly 110.6 million, with about 4.1 million new customers during the quarter.
However, alongside the good news, there were clear warning flags:

• Gross non-performing assets (NPAs) increased to 1.24% from 1.03% in the previous quarter.
• The company trimmed its full-year FY26 AUM growth guidance to 22-23%.
• The slowdown in certain segments — notably SME and housing finance — was cited as the reason for the trimmed guidance.

Why did the stock drop despite good numbers?

This is where the classic “expectations versus reality” tension comes in. On one hand, the quarter looked healthy: good growth, stable margins, rising customer base. On the other hand, the trimmed growth outlook and rising credit-stress metrics spooked some market participants. The stock market often penalises what happens tomorrow more than what happened yesterday.

Key reasons for the fall:

• The lowered guidance signals that management expects slower expansion ahead, which can impact investor sentiment and valuation.
• The uptick in NPAs suggests some stress creeping in, which could erode profitability if unchecked.
• Some brokerages see this as a moment of caution — even if the business remains fundamentally strong, the margin of safety is now slimmer.

Brokerages remain broadly positive — with different flavors

Interestingly, despite the correction, analysts were largely upbeat about the medium-term prospects of Bajaj Finance:

• Morgan Stanley maintained an Overweight rating with a target of ~₹1,195, seeing the near-term weakness as a buying opportunity thanks to cost efficiencies and expected credit-cost declines.
• HSBC upgraded its target to ~₹1,200, highlighting that Q2 EPS was in line and pointing to a forecasted EPS CAGR of ~28% over FY26-28.
• Jefferies also came in with a Buy view and target around ~₹1,270, pointing out the strong AUM growth in Q2 (24%) and robust festive-season demand.
• However, some caution comes from Bernstein, which flagged potential stress and scale-related strains, assigning an Underperform with target ~₹640.

In sum: the analysts are saying — “Yes, the business is good. But we’re tempering our expectations because growth is slightly muted and credit risk is ticking up.”

What this means for investors

For existing investors, this quarter serves as a reminder that strong headline numbers are only part of the story. The trimmed growth outlook and early signs of credit stress mean vigilance is needed. For prospective investors, this might be an entry point — provided you are comfortable with the risk. Here are a few things to watch:

• Credit metrics: Will the NPAs continue rising, or will management control them? If credit costs surge, margin pressure could worsen.
• Segmental strength: The SME and housing segments were flagged as slower. If these pick up again, the company can regain its previous growth momentum.
• Guidance updates: If future guidance reflects either deeper cuts or healthier prospects, the stock will react accordingly.
• Valuation mindset: With growth being revised, the premium the market assigns might shrink unless execution remains top-notch.

Final thoughts

Bajaj Finance’s Q2 report paints a picture of a business that remains solid but is not immune to headwinds. The market’s reaction – a 6% plus drop – underscores how even a strong quarter can be overshadowed by a cautious outlook. That said, the broadly positive stance from analysts suggests that the long-term fundamentals are still liked. For investors, the key question is: do you believe the company will manage through the near-term moderate growth phase and emerge stronger? If yes, this may well be a tactical opportunity. If not, the warning signs should not be ignored.