Kotak Institutional Equities expects affordable housing finance firms to see a growth rebound in FY27, citing improved disbursement trends in the second half of FY26. While the brokerage maintains a positive stance on companies like Aadhar, Aptus, and Home First, it flags execution risks for Aavas Financiers following recent leadership changes. Investors should monitor interest rate trends and competitive pressures.
What Happened
Kotak Institutional Equities has released a sector outlook projecting a growth recovery for affordable housing finance companies by fiscal year 2027. The brokerage observed that the affordable housing sector faced a difficult period over the last year, characterized by slower business expansion and intense competition. However, industry performance showed signs of improvement in the second half of FY26. With the challenges of low-ticket loan run-offs largely behind them, the brokerage expects growth momentum to accelerate, supported by stable asset quality and improving disbursement figures.
Sector Outlook and Trends
According to the brokerage report, the affordable housing finance segment is shifting toward a stronger growth trajectory. Disbursement growth for the sector picked up in the second half of FY26, signaling a potential turnaround. The brokerage noted that the initial drag on growth, caused by companies narrowing their focus on specific loan segments and adjusting business processes, is now diminishing. Looking ahead to FY27, Kotak expects healthier asset under management (AUM) growth, driven by a more stable competitive environment and sustained housing demand in Tier-2 and Tier-3 cities.
Brokerage View on Key Stocks
The brokerage maintains a positive outlook on several major players in the segment. It has reiterated 'Buy' ratings for Aadhar Housing Finance, Aptus Value Housing Finance, Home First Finance, and India Shelter Finance Corporation. Analysts highlighted Aadhar Housing Finance for its stability, projecting strong AUM growth and healthy return on equity. Aptus Value Housing Finance is noted for its profitability, while Home First Finance is expected to benefit from a shift toward higher-value loan segments. For these companies, the brokerage views the improving industry conditions as a tailwind that could support future performance.
The Context on Aavas Financiers
Unlike its peers, Aavas Financiers has been rated 'Add' by the brokerage, with caution regarding potential execution risks. The brokerage specifically highlighted concerns around recent leadership transitions at the company as a factor that may impact short-term execution stability. Aavas Financiers recently underwent a significant management overhaul, including the appointment of a new CEO, following regulatory scrutiny from the National Housing Bank (NHB) regarding loan classification practices. These changes, coupled with a period of relatively muted growth compared to its peers over the last two years, have led analysts to adopt a more cautious stance on the company's immediate growth trajectory.
Risks to Consider
While the sector outlook is optimistic for FY27, investors should keep in mind that the affordable housing finance business is sensitive to macro-economic conditions. The brokerage noted that potential risks include interest rate volatility, inflation, and monsoon trends, which can impact the repayment capacity of borrowers in the informal income segment. Additionally, while competitive intensity is stabilizing, the entry of larger banks and other non-banking financial companies (NBFCs) into the affordable segment remains a structural risk. Ongoing regulatory compliance and the ability to maintain asset quality amidst a changing interest rate environment will be crucial for sustained growth.
What Investors Should Track
Investors monitoring this space should look for upcoming quarterly updates from these lenders. Key metrics to watch include the pace of disbursement growth, trends in collection efficiency, and any commentary on net interest margins. For Aavas Financiers, the market will specifically monitor how the new leadership team integrates into the business strategy and how it addresses earlier regulatory and operational challenges.