Non-banking finance companies (NBFCs) are expected to report a 20-30% increase in net profit in the second quarter ended September 2023, owing to strong loan disbursements, even though margins may be squeezed due to an increase in cost of funds. Emkay Global Financial Services anticipates that retail credit will continue to grow as a result of strong consumer demand and expansion into the rural market.

"We expect Q2 to be another good quarter for NBFCs, with disbursement and AUM growth remaining buoyant (adjusting for seasonality and the delayed festive season) in focused segments, and the collection trend and asset quality staying largely stable sequentially. A few players may see slight compression in net interest margin (NIM) on account of a marginal rise in funding cost and some asset mix change-led contraction in asset yields," Emkay said in a report.

Analysts anticipate that consumer-facing sectors such as microfinance, consumer durables, and vehicle loans will lead NBFC growth, with affordable housing and gold-loan companies trailing their peers due to factors such as increased competition and a drop in gold price.

"While growth for affordable housing companies will continue to be healthy, larger companies may see some moderation as the trend is for growth to slow once loan books exceed 15,000 crore." "The drop in gold prices during the quarter will be reflected in slower growth for gold-loan companies," said Equirus Securities analyst Shreepal Doshi.