Affordable housing finance companies (HFCs) are poised for a growth recovery starting in fiscal year 2027, though macroeconomic risks could temper the rebound in the second half of the year, according to a report by Kotak Institutional Securities.
Growth Momentum Set to Pick Up
The brokerage noted that the affordable housing segment has experienced subdued growth over the past two years due to a slowdown in low-ticket lending, changes in disbursement recognition norms, and heightened competition. However, Kotak expects momentum to improve in FY2027 as these issues normalize. "We expect growth momentum to pick up in FY2027E, as low-ticket business rundown, process changes are reflected in the base and competitive intensity stabilizes, following encouraging industry trends in 2HFY26," the report stated.
Improving Industry Trends
Industry data already shows signs of recovery. Disbursement growth for select listed and unlisted affordable HFCs rose to 13% in FY2026 from 10% in FY2025, while loan growth reached 16%. Notably, disbursement growth accelerated to 19% in the second half of FY2026, up from 12% in the first half. "Most managements provided positive growth commentary, following the 4Q results, encouraged by better momentum in 2HFY26," Kotak said.
Low-Ticket Segment Challenges Easing
The slowdown caused by the rundown of low-ticket and non-home loan segments is now largely behind the sector, according to the report. "With improving collections in some stress segments such as MSME loans and the positive rub-off of GST cuts, business momentum inched up in 2HFY26," it said. Additionally, some lenders now record loans only when cheques are cleared instead of when they are issued, which lowers reported disbursements but reflects more accurate lending activity.
Positive Outlook for First Half of FY27
With a strong business environment continuing, Kotak expects healthy disbursement growth in the first half of FY2027. Companies are optimistic, with analysts forecasting robust loan growth for the full year. However, the brokerage cautioned that "macro factors like trends in monsoon, high inflation and rates will likely determine the course of the business in 2HFY27E."
AUM Growth Forecast
Kotak projects 17-26% AUM growth for affordable HFCs under its coverage, supported by 17-20% growth in disbursements for FY2027. "We build in 17-26% AUM growth for affordable HFCs under coverage on the back of 17-20% growth in disbursements for FY2027E," the report added.
