Bajaj Finance Plunges 7% as Growth Cuts & Rising Stress Signal Caution Ahead

The Story That’s Shaking Investor Confidence Today

Bajaj Finance, one of India’s most celebrated lending powerhouses, delivered a sharp reality check to the stock market on Tuesday. Despite reporting strong Q2 earnings, the company’s shares crashed nearly 7.6% to ₹1,002.30, wiping out investor confidence faster than you can say “guidance cut.” The culprit? Management’s decision to dial back growth expectations and signal elevated credit stress ahead.

Let’s break down what just happened and why it matters for your portfolio.

The Numbers That Looked Good (On Paper)

When Bajaj Finance announced its Q2 results this morning, the headline figures seemed solid. The company posted a consolidated net profit of ₹4,875 crore, up 22% year-on-year, while net interest income surged 22% to ₹10,785 crore. Total income grew a healthy 20% to ₹13,170 crore, and pre-provision operating profit jumped 21% to ₹8,874 crore. For a company of this size, these are genuinely impressive numbers.

Yet within minutes of the announcement, the stock started bleeding. Why? Because the fine print revealed a much more concerning story beneath the surface.

Here’s where things got ugly for shareholders. Bajaj Finance management revised its full-year FY26 assets under management (AUM) growth guidance sharply downward to 22-23%, from the earlier forecast of 24-25%. In financial markets, guidance cuts are treated like the kiss of death—especially when the company has already set sky-high expectations.

The reason? Rising credit stress, particularly in two segments that together account for approximately 45% of the company’s consolidated portfolio: the MSME (Micro, Small, and Medium Enterprises) lending business and two- and three-wheeler vehicle financing.

Management made a stunning admission: the company has already cut its unsecured MSME loan volumes by 25% in a deliberate move to protect asset quality. This means Bajaj Finance is intentionally slowing down its fastest-growing, highest-margin business to avoid a credit crisis. The MSME segment’s growth guidance was trimmed to a modest 10-12% for FY26, down from an earlier expectation of around 18%.

Rising NPAs Confirm the Stress

What made the market truly panic were the deteriorating asset quality metrics. Bajaj Finance’s gross NPA ratio climbed to 1.24% as of September 30, 2025, from just 1.06% a year earlier. The net NPA ratio also inched up to 0.60% from 0.46% in the same period. This dual rise signals that the company isn’t just facing isolated pockets of stress—the problem is broadening.

Even more alarming, loan losses and provisions jumped 19% to ₹2,269 crore, taking annualized credit costs to 2.05% of average assets. Management signaled that credit costs will stay at the higher end of its 1.85-1.95% guidance range through the rest of the year, leaving little room for profitability improvement.

Why This Matters for Retail Investors

For years, Bajaj Finance has been the poster child of the “India growth story.” It’s been one of the cleanest, most profitable NBFCs, delivering exceptional returns to investors. But today’s reversal signals something important: even the best-run companies aren’t immune to macro stress.

The company’s management is essentially telling you: “We see trouble brewing. Consumers are over-leveraged. MSME borrowers are struggling. We’re hitting pause on aggressive growth and protecting our balance sheet instead.” This is prudent management, but it’s the opposite of what the market had been pricing into the stock.

The bigger concern is whether this is Bajaj Finance-specific or a canary in the coal mine for India’s NBFC sector. If even a powerhouse like Bajaj is tightening credit, what does that say about smaller, less-disciplined lenders? That question is weighing heavily on investor sentiment.

Market Reaction & What Analysts Say

While the broader Sensex closed up 336 points (0.4%) and the Nifty rose 120 points (0.47%) on Tuesday, this was driven by strength in IT and telecom stocks. Bajaj Finance’s collapse was the day’s most significant story—a single stock sinking nearly 8% in one trading session is a rarity for a blue-chip name.

Interestingly, analyst reactions are split. Morgan Stanley and Jefferies view this correction as a buying opportunity for long-term investors, citing Bajaj Finance’s still-strong fundamentals and the likelihood that credit conditions will normalize by FY27. However, Motilal Oswal and JM Financial have turned more cautious, highlighting risks of subdued near-term performance and limited upside until asset quality stabilizes.

The stock’s valuation—trading at nearly 5x FY27 estimated book value and 26x FY27 earnings—now offers less of a safety cushion. Any further disappointment could trigger another sell-off.

What to Watch Next

As a retail investor interested in India’s NBFC space, keep these dates and developments on your radar:

• Q3 Results (Jan 2026): Watch whether credit costs stabilize or deteriorate further. This will be the key test of whether management’s caution is working.

• FY27 Guidance: If management doesn’t signal improvement in credit conditions by late Q3, FY27 growth guidance could disappoint again.

• Credit Trends in the Sector: Monitor whether other NBFCs report similar NPA deterioration. If this is sector-wide, it validates Bajaj’s caution. If Bajaj is an outlier, it signals execution issues.

• Two-Wheeler Segment: Watch for news on whether two-wheeler volume trends improve. A continued slowdown here would suggest deeper consumer stress beyond just MSME lending.

• Support Level: The stock has support around ₹980-1000. A break below this could invite panic selling.

• Silver Lining: Bajaj’s gold loan business is booming, expected to grow to ₹160 billion by year-end from ₹120 billion now. This less-risky segment could become a growth engine.

The Takeaway

Today’s Bajaj Finance crash is a reminder that growth-at-all-costs doesn’t work forever. A company willing to sacrifice short-term growth for long-term health is actually showing discipline—but the market hates hearing that. The question now is whether this slowdown is temporary or a sign that India’s credit cycle is peaking.

For existing Bajaj Finance investors, this could be a buying opportunity if you believe in the long term. For new investors, waiting for clarity on Q3 trends might be wise before adding to a large position. The NBFC space is no longer a “set and forget” story—it’s evolved into a more complex, macro-sensitive space that demands active portfolio management.

Disclaimer

This article is only for information purposes and is not investment advice. Before investing, do your own research.