Top 4 Stock Picks by Kotak as Affordable Housing Finance Enters Recovery Mode

Synopsis: After months of slower growth and muted sentiment, the affordable housing finance sector may be turning a corner. A major brokerage has flagged four names worth watching as conditions begin to stabilise heading into FY27.

The past year has been a test of patience for investors sitting on affordable housing finance stocks. Growth has been slower than expected, the macro environment has thrown a few curveballs, and mid-cap sentiment has not exactly been friendly. But that narrative may be shifting, and Kotak is among the first to flag it.

Why the Sector Slowed – And Why That May Change

Kotak has maintained an ‘Attractive’ sector view on affordable housing finance companies, even as the space underperformed over the past six to twelve months. The brokerage pointed to three headwinds that weighed on the segment: slower business growth, a challenging macro backdrop, and weak investor appetite for mid-cap names.

But Kotak sees the tide turning in FY27. The drag from low-ticket loan rundowns is expected to ease as those books normalise. Process changes made by lenders over the past few quarters will begin showing up in base comparisons, making growth numbers look more flattering. Most importantly, competitive intensity – which had been rising across the affordable segment – appears to be stabilising, partly supported by encouraging trends in the second half of FY26.

Asset quality, notably, has held up better than feared. That is a meaningful reassurance for a segment that caters to borrowers at the lower end of the income ladder, where stress can surface quickly in a tough environment.

Aptus Value Housing Finance: Profitability That Stands Apart

Kotak maintained ‘Buy’ on Aptus Value Housing Finance with a fair value of Rs 400, implying an upside of approximately 44% – the steepest among the four names covered.

Aptus stands out as the most profitable lender in Kotak’s coverage universe with a return on equity of around 20%, a level few peers have sustained. The company’s own loan growth guidance for FY27 is pegged at 20%, which is lower than the 25% it delivered in FY25 and 21% in FY26. For investors, that gap between guidance and historical execution leaves room on the upside if industry conditions continue to improve.

Home First Finance: Disbursal Recovery in the Works

Home First Finance received a ‘Buy’ with a fair value of Rs 1,530, pointing to upside of about 34%. Kotak expects AUM growth of 25% in FY27, matching the pace of FY26 after a stronger 31% in FY25. The more interesting datapoint is disbursements – Kotak expects growth there to recover to 20% in FY27 after a softer 13% in FY26. The company has also been gradually moving toward higher-ticket lending, with loans above Rs 25 lakh accounting for 30% of incremental loan growth in FY25.

Aadhar Housing Finance: Consistency Has Its Own Premium

Kotak retained a ‘Buy’ on Aadhar Housing Finance with a fair value of Rs 630, pointing to an upside of around 22% from current levels. Aadhar is described as the most stable play in the affordable housing finance universe – not the flashiest growth story, but one that shows up reliably.

The brokerage expects AUM growth of around 20% in FY27, consistent with the 20% recorded in FY26 and 21% in FY25. Medium-term return on equity is pegged at around 17%. As lower-ticket business normalises and competitive pressure eases, Aadhar’s steady operating model stands to benefit disproportionately.

India Shelter Finance: Room to Run on a Smaller Base

India Shelter Finance got a ‘Buy’ with a fair value of Rs 975 and an implied upside of around 26%. Kotak expects 26% AUM growth in FY27 following 29% in FY26. The key advantage here is structural – India Shelter’s relatively smaller balance sheet means it can grow faster without straining its capital or operations. The company adopted a more cautious disbursement stance through FY26, which means the runway ahead is wider when conditions turn more favourable.

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