Why Bajaj Finance Share Is Rising Today: UBS Upgrade Explained

Bajaj Finance shares gained around 2.5% on September 23, 2026, after UBS upgraded the stock from Sell to Neutral and raised its target price from ₹910 to ₹1,100.

The bigger story is why UBS changed its view. The brokerage sees improving asset quality, supportive liquidity and scope for personal loan growth to accelerate again. Bajaj Finance's Q1 FY27 numbers also showed better credit costs, strong loan growth and improving return ratios.

However, UBS still considers the stock's valuation demanding, which is why the upgrade stops at Neutral rather than turning outright bullish.

Why Is Bajaj Finance Share Rising Today?

The immediate trigger is UBS upgrading Bajaj Finance from Sell to Neutral and increasing its target price to ₹1,100 from ₹910.

That is a sizeable change. The target price has been raised by almost 21%, indicating that UBS now expects a stronger earnings environment than it did earlier.

UBS believes India could be entering another strong unsecured credit cycle, particularly in personal loans. According to the brokerage, four conditions are supporting this view: healthy asset quality among lenders, relatively stable unsecured household leverage, abundant liquidity in the financial system and lenders becoming more willing to take credit risk again.

That matters particularly for Bajaj Finance because higher-yielding consumer and personal loans are an important part of its lending franchise.

There is also support from Jefferies, which has maintained its positive stance on Bajaj Finance with a target price of ₹1,280. However, UBS's change is arguably more interesting because it represents a reversal from its earlier bearish view rather than simply maintaining an existing position.

What Exactly Has Changed in UBS's View?

The biggest change appears to be around credit quality and earnings growth.

Unsecured lending can be highly profitable because interest rates on personal and consumer loans are generally higher than on secured loans such as mortgages. But the risk is also higher because these loans are not backed by collateral.

When defaults increase, lenders have to recognise larger provisions and credit costs. Even if loan growth remains strong, those losses can eat into profits.

The opposite happens when asset quality improves. If fewer borrowers default, the lender needs to set aside less money against bad loans. At the same time, if it can increase higher-yielding lending, income can grow faster.

UBS believes Bajaj Finance has moved past much of the stress that previously existed in parts of its unsecured portfolio. The brokerage expects the combination of stronger asset quality and a recovery in higher-yielding lending to support another earnings acceleration. It reportedly expects Bajaj Finance's EPS to grow by more than 30% in FY27 before moderating to the high teens in FY28.

And Bajaj Finance's latest reported numbers provide some evidence for that argument.

Bajaj Finance Q1 FY27: The Numbers Behind the Upgrade

Bajaj Finance reported a strong Q1 FY27 across growth, profitability and asset quality.

The headline growth is strong, but the asset-quality numbers are arguably more important in the context of today's rally.

Gross NPA improved to 0.96% from 1.03% a year earlier, while net NPA declined to 0.39% from 0.50%. Loan losses and provisions stood at ₹1,993 crore, but that included a ₹296 crore prudent management and macroeconomic provision. Excluding this additional buffer, loan losses and provisions were ₹1,697 crore, down 14% year-on-year.

Loan losses relative to average assets under finance also improved from 1.87% to 1.54%. Excluding the additional provision, the ratio would have been 1.31%.

This is important because Bajaj Finance does not merely need to grow its loan book. It needs to grow without seeing bad loans rise at the same pace. So far, the numbers are moving in the right direction.

Why Personal Loans Could Matter More Than AUM Growth

Bajaj Finance's AUM increased 24% year-on-year to nearly ₹5.47 lakh crore in Q1 FY27. But investors should not look only at how quickly AUM grows.

The composition of that growth matters.

A secured home loan and an unsecured personal loan may both increase AUM by ₹1 lakh, but they do not necessarily contribute the same amount of income or risk. Personal loans typically generate higher yields, which means a recovery in this segment can improve earnings faster than an equivalent amount of lower-yielding lending.

This appears to be central to UBS's argument.

If personal loan growth accelerates while asset quality remains healthy, Bajaj Finance can potentially benefit on both sides. Its loan book grows, while a greater contribution from higher-yielding products can support income and profitability.

The risk, of course, is that rapid unsecured credit growth eventually creates another asset-quality problem. That is why today's upgrade should not simply be interpreted as "more personal loans are good". The real positive scenario is higher growth without a corresponding rise in defaults.

Credit Costs Could Be the Most Important Number to Track

This is where Bajaj Finance's recent numbers become particularly interesting. Loan losses and provisions were almost flat year-on-year in Q1 FY27 even though AUM grew 24%. Excluding the additional ₹296 crore provision, underlying loan losses actually declined.

Think about what that means.

Bajaj Finance had a significantly larger loan book than it did a year earlier, but underlying credit losses were lower. If this trend continues while lending growth remains strong, a greater share of operating income can ultimately reach profit.

That helps explain why profit before tax increased 28%, faster than AUM growth of 24%, while annualised ROA improved to 4.7% and ROE increased to 20.4%.

This is a much more meaningful reason for investors to reassess the stock than a change in brokerage target price alone.

There Is Another Tailwind: Funding Conditions

For an NBFC, the cost of borrowing money matters almost as much as the interest charged to customers.

Bajaj Finance borrows money and then lends it onward at higher rates. The difference, after accounting for other factors, contributes to its lending profitability.

In Q1 FY27, Bajaj Finance reported a cost of funds of 7.40%, marginally lower sequentially. The company also had a liquidity buffer of ₹17,847 crore at the end of June.

UBS's broader NBFC thesis is partly based on supportive system liquidity and favourable funding conditions. If borrowing costs remain manageable while higher-yielding lending grows, the environment becomes more favourable for lenders such as Bajaj Finance.

But investors need to watch the spread between lending yields and funding costs rather than either number independently. Faster loan growth is less valuable if competition forces lending yields down at the same time.

Why Has UBS Upgraded Bajaj Finance Only to Neutral?

This may be the most important part of the brokerage note. UBS has become more optimistic about Bajaj Finance's earnings, but it has not removed its concern around valuation.

The brokerage reportedly sees Bajaj Finance trading at around 23 times one-year-forward earnings and believes much of the improvement is already reflected in the stock price. That is why its view has moved from Sell to Neutral rather than to a more positive rating.

This creates an interesting situation. The business can improve without the stock necessarily becoming cheap.

That distinction matters because Bajaj Finance has historically commanded a premium valuation due to its strong growth, asset quality, distribution reach and return ratios. When investors already expect high growth, simply delivering good numbers may not always be enough. The company may need to keep beating those expectations to justify the premium.

So today's rally is partly about the market increasing confidence in the earnings outlook. The longer-term stock performance will depend on whether actual earnings continue to support that confidence.

What Could Change the Bajaj Finance Story From Here?

There are several things investors should track.

• Personal loan growth: UBS's thesis depends heavily on a revival in unsecured lending. Faster growth without deterioration in repayment behaviour would strengthen the earnings case.
• Credit costs: Q1 showed encouraging improvement. If loan losses continue falling relative to the size of the loan book, profit growth could remain stronger than AUM growth.
• Net interest margins: Strong loan growth does not automatically mean stronger profitability. Investors should watch whether yields on loans remain sufficient to offset funding costs and competitive pressure.
• Asset quality: Net NPA improved to 0.39% in Q1 FY27. A reversal here would challenge the view that Bajaj Finance has moved beyond its recent unsecured-credit concerns.
• Valuation versus earnings growth: This is the key tension highlighted by UBS. Faster earnings growth supports the stock, but a premium valuation means expectations are already high.

Author's Take

The UBS upgrade matters less because the target price moved from ₹910 to ₹1,100 and more because of what forced the brokerage to change its view.

Bajaj Finance is still growing AUM above 20%, but that is not new for the company. What has become more interesting is that asset quality, credit costs and return ratios are improving at the same time. Q1 FY27 saw AUM grow 24%, PAT rise 28%, net NPA fall to 0.39% and ROA improve to 4.7%. That is a healthier combination than growth driven simply by giving out more loans.

The next leg of the story depends on whether Bajaj Finance can now accelerate higher-yielding unsecured lending without recreating the credit problems that normally accompany aggressive growth.

That is also why UBS's Neutral rating is worth paying attention to. The brokerage is effectively saying that the earnings story has improved enough to abandon the bearish case, but the stock's valuation still demands strong execution.

For investors, that is the real takeaway from today's rally. The question around Bajaj Finance is shifting from whether credit quality will hurt growth to whether improving growth and credit quality can remain strong enough to justify its premium valuation.