The brokerage said the housing finance sector witnessed a broad-based recovery in the fourth quarter of FY26, supported by better collections, lower credit costs and healthy disbursement growth.
“For HFCs, 4QFY26 was marked by (1) sharp asset quality recovery, (2) healthy disbursement and AUM growth, (3) range-bound spreads/NIMs, (4) rapid branch expansion, (5) lower credit costs, and (6) strong profitability,” the report said.
According to the report, the sector had faced pressure during the first half of FY26 due to US tariff-related disruptions in sectors such as gems and jewellery, leather, shrimp and textiles, along with issues such as Karnataka’s E-khata implementation, relationship manager attrition and weakness in rural MSME and microfinance segments.
However, lenders tightened underwriting standards early and began seeing improvement in the second half of the year.
“AQ [Asset Quality] recovers sharply; Apr-May trends hold,” the report noted, adding that “green shoots” were visible in the third quarter before a “sharp 4QFY26 recovery.”
Equirus said channel checks suggest repayment behaviour has remained healthy despite concerns around the broader economic environment.”Channel checks indicate healthy collections and delinquency trends, with momentum stronger than 1QFY26 despite higher rejection rates in the salaried segment,” the report said.
The brokerage expects some increase in delinquencies due to difficult macro conditions but believes the impact on profitability will remain limited.
“Despite a challenging macro, tighter underwriting and improving RM attrition should keep profitability resilient,” it said.
The report also highlighted a strong rebound in loan disbursements during the quarter. Across 10 listed housing finance companies, disbursements grew 19.5 per cent year-on-year and 23 per cent quarter-on-quarter in 4QFY26.
“Disbursements rebounded in 4QFY26 (+19.5% yoy/+23% qoq),” the report said.
Affordable housing financiers continued to outperform larger peers. Equirus noted that affordable housing financiers grew around 21 per cent year-on-year, compared with 9.2 per cent and 11.6 per cent growth for large and mid-ticket housing finance companies, respectively.
The report added that non-housing loan segments such as loan against property (LAP) and MSME lending played a key role in driving growth during the second half of FY26.
Looking ahead, Equirus believes the sector is better positioned to handle challenges than the market currently assumes.
“Following the recent de-rating, we believe HFCs offer an attractive entry opportunity,” the report said.
“As geo-specific issues ease, underwriting remains tight and RM attrition trends improve, the sector appears well placed to navigate a challenging backdrop,” it added.
The brokerage said more housing finance companies are now moving towards annual assets-under-management growth of over 20 per cent and return on equity of around 15 per cent, signalling improving fundamentals heading into FY27.