Should You Hold? Bajaj Finance Shares Sink 6% Amid Asset Quality Worries
On July 25, 2025, Bajaj Finance shares plunged approximately 6%, erasing nearly ₹38,000 crore in market value, after its June-quarter earnings triggered fresh concerns over rising credit costs and asset quality in the MSME segment.
Despite reporting strong growth, the company failed to assuage investor fears, leading to significant stock market volatility.
Q1FY26 Earnings: Strong Growth, Rising Provisions
Bajaj Finance delivered a solid 22% year-on-year increase in consolidated net profit, reaching ₹4,765 crore for the quarter ended June 30, 2025, up from ₹3,912 crore a year earlier. Net interest income also rose 22% YoY, to ₹10,227 crore from ₹8,365 crore in Q1FY25.
However, the company posted a sharp rise in provisions for bad loans. Elevated credit costs, particularly tied to stress in its MSME and auto lending verticals, dampened investor sentiment.
Operational Metrics: Growth Versus Risk
The company saw an impressive 25% YoY jump in Assets Under Management (AUM), rising to ₹4.41 lakh crore in Q1FY26, up from ₹3.54 lakh crore a year earlier. It booked 13.49 million new loans, a 23% YoY increase, compared to 10.97 million in Q1FY25. Its deposit book grew 15% YoY, reaching ₹72,100 crore.
Still, elevated credit provisioning, credit cost reportedly around 2%, raised alarm, reflecting increased stress in key verticals like MSME and auto loans.
Why Did the Stock Decline Despite Profit Growth?
Investor reaction was sharp: Bajaj Finance was among the biggest drags on the Nifty 50 index. The stock fell around 5-6%, varying slightly across sources, driven by fears over MSME asset quality and rising credit costs, despite exceeding profit expectations.
Several brokerages highlighted the elevated provisioning and cautious guidance, revising valuation and target price estimates lower. Concerns around leadership succession also added to market caution.
Assessing the Outlook: Hold, Sell, or Buy?
Hold – For Long-Term Investors
Bajaj Finance continues to show robust scale and growth. Its AUM growth, loan acquisitions, and strong customer metrics reflect operational strength. Its leadership in retail and secured lending, backed by data-driven credit assessment tools, keeps long-term prospects solid.
Even with current stress, analysts expect provisioning to stabilize in FY26, with credit costs projected to moderate toward 1.85-1.9% by the second half. If management executes well, long-term investors could benefit.
Sell – If You’re Cautious or Short-Term Oriented
If exposure to elevated credit risk and volatility concerns you, this may be a moment to review your position. The stock’s rich valuations leave little room for disappointment. Rising provisions in key segments warrant scrutiny.
Buy – Only After Further Correction or Clarity
New entrants may benefit from waiting. A downside move toward or below ₹900 per share could present a better long-term entry point, assuming asset quality concerns ease and provisioning follows expected moderation.
Linkages to Stock Market Trends and AI Strategy
Though not a pure AI stock, Bajaj Finance has extensively adopted AI and fintech tools: credit scoring, fraud detection, and customer analytics form part of its lending stack. This gives it a competitive edge in digital-first lending, a key interest area in stock research focused on innovative finance models.
What Analysts Are Saying
Brokerages have taken mixed views: some maintain a Hold rating, citing high valuations and near-term risk, while others still see Buy on dips, highlighting the company’s execution strength and underlying franchise.
For example, PL Capital reaffirmed a Hold, noting credit costs remain elevated at ~2%, though management is working on succession planning and driving growth across new verticals like auto and gold finance. Jefferies and others view current headwinds as temporary, expecting margins to improve later in FY26.
Conclusion: Is This a Setback or Just Noise?
The sharp fall in Bajaj Finance shares reflects caution rather than crisis. The company’s fundamentals, scalable operations, digital innovation, and strong growth remain strong. But elevated credit costs and leadership uncertainty create short-term turbulence.
We believe long-term investors can hold or selectively average on dips. Those with low risk tolerance or shorter horizons may prefer caution. New investors should wait for clearer signs in the next quarterly report or broader sentiment improvement before buying.
Bajaj Finance remains a key player in India’s NBFC space, but current pricing demands strong execution and disciplined risk management.
FAQs
Because the Q1FY26 earnings revealed elevated credit costs and rising stress in its MSME and auto lending portfolios, which spooked investors despite decent profit growth.
Yes, it’s robust loan growth, AUM expansion, and digital lending strategy support long-term potential, if it manages credit costs effectively.
It’s prudent to wait for further clarity or a price dip toward ₹900 or below. If credit stress improves and guidance turns upbeat, long-term entry may yield upside.
Disclaimer:
This content is made for learning only. It is not meant to give financial advice. Always check the facts yourself. Financial decisions need detailed research.