Why Bajaj Finance’s Share Is Falling Despite Strong Q2 Results ?

Bajaj Finance, one of India’s most trusted lending institutions, announced its Q2 FY26 results this week. The company delivered strong growth across most metrics with assets under management (AUM) up 24% and profit after tax growing 23% year-on-year. Despite this, the stock has fallen over 7% as investors reacted cautiously to what lies beneath the numbers. Let’s understand why the market is reacting this way.

Credit Costs Still High Despite Strong Growth

While Bajaj Finance’s overall performance remained solid, credit costs, the money kept aside for potential loan losses, stayed higher than expected. Loan losses and provisions rose 19% year-on-year to ₹2,269 crore. The company admitted that consumer leverage remains an area of concern, meaning some customers are carrying too many loans. 

In response, Bajaj Finance has already reduced its exposure to unsecured MSME loans by 25% and expects MSME loan growth to be only 10–12% this year. This is a prudent move to protect asset quality, but it also signals a more cautious growth approach ahead.

Slight Deterioration in Asset Quality

For a company like Bajaj Finance, which is known for excellent risk management, even a small rise in bad loans attracts attention. Gross NPA increased from 1.06% to 1.24%, while Net NPA rose from 0.46% to 0.60%. These levels are still very low by industry standards, but they do show early signs of stress, especially in 2-wheeler and MSME segments. 

The company also reported a net increase of ₹1,168 crore in Stage 3 (higher-risk) assets, which indicates that some borrowers are taking longer to repay.

Cost of Funds Improved But Credit Costs Offset the Benefit

There’s some good news too. Bajaj Finance’s cost of funds, the average rate it pays to borrow money, reduced to 7.52%, down 27 basis points from the previous quarter. This improvement came from better transmission of RBI’s rate cuts and lower borrowing costs. 

However, the advantage of cheaper funds was offset by elevated credit costs. In short, what Bajaj Finance saved on borrowing was largely used up to cover potential loan risks.

Margins Stable, Efficiency Gains Yet to Show Full Impact

The company’s operational efficiency improved slightly, with the operating expense ratio falling from 33.2% to 32.6%. This is because of ongoing AI and automation initiatives under its FINAI program. The management expects these digital investments to start showing clear productivity gains in the next 12 to 18 months. Until then, profitability growth will mostly come from higher loan volumes, not margin expansion.

A Slightly Cautious Tone From Management

The management’s tone this quarter was measured. They highlighted elevated credit cost in the MSME and 2–3 wheeler portfolios and confirmed that lending standards are being tightened. This doesn’t mean the business is slowing down, it means Bajaj Finance is being careful in a market where many borrowers already have multiple loans. This kind of caution is good for long-term stability but tends to make short-term investors nervous.

Key Takeaways for Investors

• Growth remains strong: AUM grew 24% and profit after tax rose 23%.
• Credit cost stayed high: Loan losses increased 19%, mainly from MSME and vehicle financing.
• Asset quality slipped slightly: Net NPA moved up from 0.46% to 0.60%.
• Funding cost improved: Cost of funds fell by 27 bps, but benefit offset by provisioning.
• Tech gains to come later: AI and automation will boost efficiency over the next 12 to 18 months.

Final Thoughts

Bajaj Finance’s Q2 FY26 numbers reflect a strong yet measured performance. The company continues to expand its customer base, maintain disciplined risk management, and invest in technology for future efficiency gains. The recent 7% fall in the stock appears to be a market response to slower growth momentum and a more cautious lending stance rather than any structural weakness in the business. Overall, the results show that Bajaj Finance is prioritising stability and quality growth in a changing credit environment.

Disclaimer

Investments in the securities market are subject to market risks, read all the related documents carefully before investing. The securities are quoted as an example and not as a recommendation.This is nowhere to be considered as an advice, recommendation or solicitation of offer to buy or sell or subscribe for securities. INDStocks SIP / Mini Save is a SIP feature that enables Customer(s) to save a fixed amount on a daily basis to invest in Indian Stock. INDstocks Private Limited (formerly known as INDmoney Private Limited) 616, Level 6, Suncity Success Tower, Sector 65, Gurugram, 122005, SEBI Stock Broking Registration No: INZ000305337, Trading and Clearing Member of NSE (90267, M70042) and BSE, BSE StarMF (6779), SEBI Depository Participant Reg. No. IN-DP-690-2022, Depository Participant ID: CDSL 12095500, Research Analyst Registration No. INH000018948 BSE RA Enlistment No. 6428. Refer https://indstocks.com/pricing?type=indian-stocks; https://www.indstocks.com/page/indian-stocks-sip-terms-and-condition for further details.