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Deven Choksey Highlights Top NBFC Picks: Bajaj Finance, Bajaj Housing Finance & Shriram Finance

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  Published in Business and Finance on Wednesday, December 31st 2025 at 18:37 GMT by Business Today

Navigating the NBFC Landscape: Deven Choksey’s Top Picks & Consolidation Outlook for 2026

The Non-Banking Financial Company (NBFC) sector in India is poised for a period of both opportunity and consolidation, according to veteran investor and analyst Deven Choksey. In a recent interview with Business Today, Choksey shared his insights on the sector's potential, highlighting specific NBFCs he believes are well-positioned for growth while also cautioning about a likely phase of consolidation in the mid and small-cap segments by 2026. This article breaks down Choksey’s key observations and recommendations, offering investors a perspective on navigating this dynamic market.

Bajaj Finance & Housing Finance Lead the Pack:

Choksy's top picks for NBFC investment are unequivocally Bajaj Finance Ltd. and Bajaj Housing Finance. He emphasizes their strong management teams, robust asset quality, and demonstrated ability to navigate economic cycles. Bajaj Finance, a leading consumer finance company, has consistently delivered impressive growth through its diverse product portfolio including personal loans, two-wheeler financing, and lending to small businesses. Its established brand recognition and extensive distribution network contribute significantly to its resilience.

Bajaj Housing Finance, the younger sibling in the group, is similarly favored. Focusing on home loans, particularly for affordable housing, it benefits from the ongoing urbanization trend and government initiatives supporting the real estate sector. Choksey believes both companies are well-equipped to capitalize on these tailwinds. He notes that their ability to maintain healthy margins even during periods of rising interest rates speaks volumes about their operational efficiency and risk management capabilities.

Shriram Finance: A Rural Focus with Potential:

Beyond the Bajaj group, Shriram Finance Ltd. also features prominently in Choksey’s recommendations. Shriram Finance distinguishes itself through its deep penetration into rural markets and focus on lending to small businesses and agricultural activities. This specialization provides a degree of insulation from some of the urban-centric economic pressures. While acknowledging that rural economies can be sensitive to monsoon patterns and commodity price fluctuations, Choksey believes Shriram’s established relationships with borrowers and understanding of local dynamics provide a competitive advantage. The company's focus on microfinance and vehicle finance in rural areas is seen as a key differentiator.

The Consolidation Phase: A Looming Reality:

While optimistic about the growth prospects of these specific NBFCs, Choksey anticipates a period of consolidation within the broader mid and small-cap NBFC space by 2026. This isn't necessarily negative; rather, it’s a natural progression as the sector matures. He suggests that smaller, less efficient NBFCs will likely face increasing pressure to either improve their performance or be acquired by larger players.

Several factors are contributing to this anticipated consolidation:

• Rising Interest Rates & Funding Costs: The current interest rate environment and increased cost of funds are squeezing margins for many NBFCs. Smaller companies with less access to cheaper funding sources will struggle more significantly.
• Increased Regulatory Scrutiny: The Reserve Bank of India (RBI) has been tightening regulations on NBFCs, focusing on capital adequacy, asset quality, and governance. Smaller players often lack the resources to comply fully with these evolving requirements. The RBI's recent guidelines regarding risk weights for personal loans also impact profitability.
• Competition: The NBFC sector is becoming increasingly competitive, with new entrants constantly vying for market share. This puts pressure on pricing and margins across the board.
• Economic Uncertainty: While India’s economic outlook remains positive overall, global uncertainties and potential domestic slowdowns can impact asset quality and loan growth, disproportionately affecting smaller, less diversified NBFCs.

Choksey's view aligns with a broader trend observed in Indian markets – a shift towards larger, more established companies that are better positioned to weather economic storms and regulatory changes. He suggests investors should focus on companies with strong fundamentals, proven track records, and capable management teams, as these will be the survivors and potential beneficiaries of the consolidation phase.

Beyond Stock Picks: A Broader Perspective:

Choksey’s analysis extends beyond specific stock recommendations. He highlights the importance of understanding the underlying trends shaping the NBFC sector. The continued growth of the Indian economy, increasing financial inclusion, and government support for affordable housing are all positive drivers. However, investors must also be mindful of potential risks such as rising interest rates, regulatory changes, and economic slowdowns.

He emphasizes that while mid and small-cap NBFCs can offer higher growth potential, they also carry greater risk. Therefore, a balanced portfolio approach, with a focus on quality over quantity, is crucial for long-term success. Investors should conduct thorough due diligence and consider their own risk tolerance before making any investment decisions.

Conclusion:

Deven Choksey’s insights provide valuable guidance for investors navigating the Indian NBFC sector. While he remains bullish on Bajaj Finance, Bajaj Housing Finance, and Shriram Finance, he cautions about a potential consolidation phase in the mid and small-cap segments by 2026. By focusing on companies with strong fundamentals and understanding the broader economic and regulatory landscape, investors can position themselves to capitalize on the opportunities while mitigating the risks inherent in this dynamic market. The key takeaway is that quality and resilience will be paramount as the NBFC sector matures and undergoes a period of necessary restructuring.

Disclaimer: This article summarizes information from the Business Today article mentioned above and does not constitute financial advice. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.