Shares of Bajaj Finance Ltd, which have already corrected by nearly 9% since the announcement of its Q1FY26 results, could face further downside pressure, according to global brokerage Bernstein. In its latest note, the brokerage advises investors to “sell the dip”, flagging deeper profitability concerns and structural challenges that may limit future earnings growth.
Bernstein has retained its ‘Underperform’ rating on the stock with a target price of ₹640, implying a potential ~30% downside from current levels.
Multiple headwinds to earnings
While the initial correction in the stock was attributed to elevated credit costs in the June quarter, Bernstein believes the risks run deeper than just a temporary spike in provisions. The brokerage has highlighted the following structural issues:
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Credit costs remain a near-term overhang: The Q1 results saw a jump in provisioning, weighing on profitability.
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No room to expand loan spreads: With competition intensifying and cost of borrowing rising, Bernstein argues that net interest margins (NIMs) have likely peaked.
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Opex optimisation has peaked: The cost-to-income ratio is already lean, leaving little room for further operational leverage.
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Growth risks remain: With tightening macro conditions and potential regulatory scrutiny, Bernstein believes loan growth may moderate, further capping EPS upside.
Outlook
Bajaj Finance has been a high-growth, high-valuation stock in the NBFC space for years. However, Bernstein warns that “profitability pressures are building”, and the company may now be entering a structurally weaker phase, with slowing earnings momentum.
With the stock trading at rich valuations despite recent correction, the brokerage concludes that investors should not treat the dip as a buying opportunity, and that further downside cannot be ruled out.
Disclaimer: The views expressed in this article are those of the brokerage firm and not of this publication. Investors are advised to consult their financial advisors before making investment decisions.
