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On Friday, JPMorgan analysts downgraded Cholamandalam Investment and Finance (CIFC:IN) from Overweight to Neutral, setting a price target of INR1,600.00. The revision follows a significant year-to-date (YTD) rally in Cholamandalam’s stock price, which has seen an increase of 36% compared to the NSE Bank Index’s 9% and the NIFTY’s 5% rise.
Analysts at JPMorgan attribute the downgrade to the stock’s current valuation, which has reached a 26x forward Price to Earnings (P/E) ratio for the fiscal year 2026 (FY26). This valuation reflects market anticipation of positive margin impacts from a favorable rate cycle and a reduction in credit costs, which could support earnings growth exceeding 25% in FY26.
Despite the positive outlook for earnings, JPMorgan cautions that the benefits from potential rate cuts may be partially negated by an adverse mix of financial products, adjustments in the floating rate book, and increased competition in the sector. The firm projects asset under management (AUM) growth to decelerate in FY26 and FY27, with estimates of 22% and 20%, respectively. However, profit after tax (PAT) growth is expected to remain robust at a compound annual growth rate (CAGR) of 24% from FY25 to FY27, driven by lower full-year credit costs.
The analysts further note that while a moderation in credit costs is anticipated, it is likely to occur later in the second half or fourth quarter of FY26. With the first half of the year typically being seasonally weak, and given the backdrop of slowing systemic growth coupled with high market expectations, JPMorgan suggests that Cholamandalam’s stock may underperform in the near term.
In their commentary, JPMorgan maintains a fundamentally constructive view on Cholamandalam Investment and Finance but advises investors to seek a more favorable entry point to invest in the company’s broader franchise build-out.
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